Growth at Nexon has been phenomenal over the past three years, to the point where double-digit growth in North America pales in comparison to the success in Korea and other Asian markets. But its European operations are marginal at best, accounting for around 1 per cent of the global business. With that in mind, Nexon has set its sights on European markets, and recently made its first steps by opening a dedicated office in Luxembourg rather than operating it from Korea, acquiring Spanish developer Boom Bang and investing in Polish team One2Tribe.
In an exclusive interview with GamesIndustry.biz, Nexon CEO Daniel Kim details the company's plans for Europe and how it's prepared to grow through acquisitions, how he sees the wider social and mobile games market expanding and influencing the business, and why we'll soon find out if current valuations in the space are realistic.
We've really been focused on creating content that really creates a long term relationship with our users. It's really what we like to call the four Cs. Content, that wraps around competition, which typically provides fun and a sense of connection, and drives the sense of community. It's about developing bonds and relationships. We were tracking Maple Story, which has 100 million players, and during December, just in the US, there were 44 weddings per day on average. That's a lot of relationships, that's really driving our games to be successful over many number of months, weeks, days.
Our player engagement numbers are phenomenal, that's been the focus of our game services. We try to shoot for multiple digit millions of people playing, multiple digit months of engagement, multiple digit dollars in terms of average revenue per user and multiple digit percentage of paying users. We like to call ourselves the company of quadruple doubles. We're fortunate enough to have games that hit those marks and have fuelled growth over the past few years.
Having pioneered the micro-transaction model since 2000, it's not necessarily new challenges but it's different by market. Nexon used to service all games by subscription like other companies, but in 2000 we noticed that by making a game free-to-play and offering game enhancements in-game that people want to pay money for, it's a completely different model but it opens up the market to a broader, bigger audience who we couldn't reach before. Seeing this model adopted in the US over the last five years has been gratifying.
Some of the challenges have been... well, when we started there was no infrastructure for us to really make this model work. People don't pay up front for our games; they play our games for months and months and the majority of our players don't ever pay any money. But there's enough paying money to enhance their experience that it makes it a viable business for us.
In order for that to happen there has to be the infrastructure to convert cash into online currency and North America only had credit cards in the past for online transactions. Our audience being slight younger, our peak ages are 17-19 years olds, who are too old to ask their parents for their credit card but aren't old enough to get their own. What we did was create a whole new category of product - the pre-paid card. Retailers didn't know who we were, and were asking "why would people pay money for things that don't exist?"
That notion of paying for digital goods was completely foreign to them. The only other similar model was iTunes. That's essentially how we convinced our first retailers. But our cards weren't even in the game section, it was sitting in the music section or next to TVs when we first started. But many stores sold out in the first day and we were printing more cards.
It's been about three years and our cards are in any store you can bike or walk to. Any convenience store, 7-Eleven, drug store, supermarket, not only do you see our cards but now you see a whole rack of visual pre-paid cards. We created that market, that product category. There're 50,000 stores selling our cards. We're proud of that, of changing the behaviour of a whole nation of people that previously didn't exist before.
"Especially on the social side, it's a newly emerging market and people haven't quite figured it out. There's a little bit of hype going on... As far as valuations are concerned, time will tell."
In the last couple of years Facebook and social games have really helped us with that in terms of educating users that it's okay to play a game for free and we'll figure out a way to make money somehow. With virtual goods there's a whole generation of people who grew up playing Club Penguin, so we're excited for the next couple of years when these digital natives grow up, graduate out of their simple virtual worlds and are yearning for deeper social interaction, deeper gameplay experiences that our games provide.
We're really bullish on North America and Europe right now. Globally our business is growing at a phenomenal rate, and it's embarrassing to show up at the company meeting and as the head of North American give our multiple double-digit growth numbers, and everybody else is at 50-60 per cent. We've only scratched the surface on this market. Right now, North America revenue makes up about 10 per cent of global revenues. The majority of the revenues is really coming from China, Japan and Korea.
The size of the North American market? It's a $14 billion industry, of which only $2.1 billion is focused on online but that is growing every year at a breakneck speed. If we look at those numbers we're hoping we can grow to become as big as some of these other regions, with 30-40 per cent of global revenues for Nexon coming from North America. That's the hope.
Europe is a relatively new territory, we've been operating until recently out of Korea. But we've just opened an office in Luxembourg and Germany to really focus on what we've done in North America, to bring the operation in full-force, the experience and knowledge of that market to launch games as a service.
There's definitely more competition with established service providers that operate these types of games but there's huge potential there. Overall, group-wise, Europe became just big enough for us to invest in a little bit more aggressive expansion. Europe is just over 1 per cent of our global revenues. But again, global revenues are growing so fast that it will be hard for both Europe and the US to keep the pace up and running.