In Japan, the lead player in social games is DeNA, with its Mobage mobile network. One of the remarkable facts about the company is that it gets around $12 average revenue per user (ARPU), as compared to much, much smaller numbers in the West.

"I think that people who don't know much about the Japanese market just dismiss those users as crazy, but that's not the case. You really need to research thoroughly at what time monetization becomes the most fun for your users," says Kenji Kobayashi, DeNA's director, and the global executive producer for its social games business.

Gamasutra met with Kobayashi at the company's Tokyo headquarters last month to converse with him about his role overseeing game development for the company, which also includes San Francisco-based subsidiary Ngmoco.

We've heard good things about Kobayashi. Given the swagger in this interview -- and his professed mixed interest in both the fun and business of social games, it's not surprising that he leaves an impression.

A recovering Final Fantasy XI addict with a masters in Aesthetics and Art from the University of Tokyo -- Japan's most prestigious -- he doesn't quite fit the profile of your typical social games executive.

What is your role in the company?

Kenji Kobayashi: Currently, I link together the first and third parties globally -- that management role, on the game development side.

Why does DeNA make first party games?

KK: Well, part of it is that it can become a profitable venture, but more importantly, there's the fact that if we didn't make games on a first-party basis, we wouldn't have a good idea of what third parties would want from us.

For example, we have ngCore, our own game engine, and we make games on that platform partly to test out the functionality of the engine, and work on functions or sections we see as inefficient. I think that process of having the first party work on it first is really important. We then give feedback to the third parties, and have them use it.

Apart from the engine, there is also a lot of knowledge and experience we've learned from deploying this platform, and that's something we also provide to third parties as a form of feedback. It's a large part of the consulting work we do for them, to help them try to share in the proceeds as much as possible.

Is that available to all developers?

KK: Yes. It's not that we give an equivalent amount to each developer, since that wouldn't work from a cost perspective, but it's something that we provide in exchange for working with us.

Between small independent small developers and larger ones, which is more important?

KK: Both are important. It's a fact that the third parties that had the most success on feature phones weren't necessarily the large players.

The first real success stories were really very small, and while they didn't become enormous successes immediately from the start, they became that way through the consulting efforts we later provided, because they had good insight.

On the other hand, you have companies like Koei Tecmo who worked with us from the beginning, and managed to take franchises like Nobunaga's Ambition and turn them into very quick successes. So you can get good results from both sides of the picture.

How important are analytics and data?

KK: It plays the most important role in our competitive abilities. As for how... Well, social games are inherently doing pretty simple things gameplay-wise. You don't see the intense, intricate 3D graphics of Call of Duty or something similar. It's really simple, and in some respects it's more like performing a task.

So what part of that is fun for the gamer? That lies in the very delicate play balance that the games maintain.

One example that often gets brought up is Dragon Quest, a game that's intensely popular in Japan even though it hasn't duplicated that in the U.S. It's a game that everybody knows, and the play balance there is really great. If you changed even a single parameter, though, it'd turn into just this terrible thing, this kusoge. How do you say that in English?

Kusoge? "Shitty game."

KK: Dragon Quest is an RPG, and you run into enemies as you run around the world. If you changed the encounter rate... On the average, you run into an enemy once every seven or eight steps. Try to imagine it if it was once every three steps. It wouldn't be any good as a game -- you couldn't finish it, the tempo would be off, it'd take too much time. The whole balance would collapse, over a single parameter.

Social games share a lot of aspects with that; the balance of the in-game parameters dictates whether it's a comfortable game, or an exciting game, or how fun fighting the enemy is. If you mess this up, it becomes a very uncomfortable game.

Do you try to erase the user's stress with design?

KK: It's not that we erase it; we control and release it. When you think about what games are at the core, they are about delivering stress to the user. It wouldn't be fun if it's something that anyone could finish -- you put up obstacles for the user, and they feel a sense of achievement when they overcome them, which is fun.

That applies to any games -- the ability to do things that you couldn't before, or that other people can't. That feeling is very important, but, for example, if you have something like this -- if the capabilities of the user are here, and if the hurdle is here [not aligned] -- then you can't clear it. Get a bit stronger, though, and you can overcome it and get a sense of achievement. If it's like this [too far apart] though, then you would just give up.

On the other hand, if someone can do this -- if you were level 99 in Dragon Quest and killing slimes, that isn't interesting. The user is always changing, and this applies to the balance of social games. You have to retain a balance such that it's fun to overcome the hurdles that come your way.

That, and lots of users are playing at the same time -- in Kaito Royale [DeNA's Mafia Wars-style game] you can have users just starting alongside people at level 2000. It's extremely difficult to provide a play balance that can satisfy both extremes.

If you have this user and that user, then the solution seems to be to provide a difference balance; that seems to be the best idea. If you do that, though, then at what time do you switch out? You could change the difficulty with each level or each stage, but where do you make the final decision? So the important thing that needs to be spread across the entire game is that users are enjoying what they're doing.

And it's not just levels for the users -- each one has their own play style in how much or how often they play. So catering to a wide audience must be a challenge.

KK: It definitely is. I don't want to portray the social game audience in terms of those who engage in monetary transactions and those who don't, but for example, if you tune a game's balance for the paying the users, the non-paying ones will never stand a chance. I think we have the expertise you need to make a game that appeals to both paid and non-paid users, but if you don't have any experience with that, I don't think you could do it.

For example, with PVP games like Ninja Royale, a paying user will have an advantage over a non-paying user. How do you make it fair?

KK: That lies at the root of the whole game. Which random users which carry treasure show up on the listing that you receive really does lie at the core of it, so I can't give you real details about it.

It's a matchmaking problem.

KK: It is, and it's one we have to treat very carefully.

In free-to-play games, there are a lot of different philosophies about whether items should give direct advantages or indirect advantages, from developers in the West.

KK: We're certainly different from Zynga in that respect. Both Kaito and Ninja Royale are games where you're gathering treasure, but if users could get this treasure via paid items, then the game balance would fall apart. There wouldn't be any meaning to it; you'd be ruining the core of the game.

What we sell instead is the opportunity to make treasure gathering easier. For example, have you played mahjong? This may work with poker, too. If you're one card away from a royal flush, you only get one chance to draw that card. Well, what if you paid 100 yen [$1.31] and get three chances instead? (laughs) Which do you think is more interesting to the user: very difficult odds, or a chance at easier odds?

Ninja Royale

The chance is what makes it interesting.

KK: It is. That in itself is interesting. Paying out has to be interesting in itself, I think. We're selling chances, and it results in some interesting reactions from the users. For example, if you go out to buy toilet paper, there's nothing really fun about that. You pay money, and you get toilet paper. There's no volatility, so there's no feeling of excitement.

But let's say -- this isn't quite volatility -- when you go to the Apple Store and buy a MacBook, that's more exciting. Giving users the opportunity to spend money and get something really exciting as a result is really neat, I think. The act of spending money, in itself, becomes appealing and fun -- like "Okay, here goes!" So it's a similar sentiment when you're near that royal flush; you're excited. That's the important thing.

It's fun deciding what kind of MacBook you want.

KK: There is that, yes. There are several ways for it to be fun for people to spend money. There's volatility; the chance of something really fun or something not so fun, as well as that "Here goes!" feeling we talked about earlier. There's also the fun of buying a present for someone and imagining how he'll respond, if he'll wonder who it's from. You have to include those sorts of features.

Some of the examples are a bit close to gambling, though.

KK: Well, I don't think gambling is a bad thing, but the difference from gambling is that with gambling, you potentially have money coming back at you. Pachinko wouldn't be such a huge thing if money wasn't coming back to players.

It's not a bad thing, but don't you think it's a little dangerous?

KK: What do you mean?

You could lose a lot of money, or get too involved in it.

KK: The thing that I worry about the most is whether or not the user is getting excitement, or entertainment, that's commensurate with the money he's using. For example, having three chances at a royal flush for 100 yen; that's not a terrible way of balancing it. You approach it from the same philosophy as if you're buying a can of juice, except it has the potential to bring even more excitement.

If you tried to find a way to get a similar feeling of excitement for 100 yen with some other form of entertainment, that's going to be tough. Social games offer just a certain amount of stress and release to users.

Beating the final boss of Final Fantasy XIII would certainly produce a lot more excitement, but you have 60 hours of gameplay to get through for that, which also contributes to that big release. I think that users were looking for a lighter, more accessible form of entertainment, and providing that sort of entertainment, or sense of achievement, for the price of a can of juice is something I think is very neat.

According to your figures you get $12 average revenue per user. Compared to Zynga, that's very high. Why is that?

KK: It's a very different scene, and I think that Zynga has not really researched monetization. I think that people who don't know much about the Japanese market just dismiss those users as crazy, but that's not the case. You really need to research thoroughly at what time monetization becomes the most fun for your users.

With Zynga, monetization often comes in the form of energy refills, or area expansions, or item unlocks, or decorative stuff. If you ask whether there's any reason to buy all of that, there really isn't. So I think the biggest difference between us and Zynga is in the number of payments made by users.

I would bet that the ARPPU [average revenue per paying user] between the two companies isn't that different. I read in article that the ARPPU across all Facebook apps is something like $20 a month, which is up there with the best of Japan's game scene.

However, the ratio of paying users is only three percent-ish, I think. That's one of the big differences, and I think that's most people don't see enough reason to start purchasing things; that or the purchases just aren't that exciting. They don't expand on the fun. Their sales approach is "if you want to buy these, go ahead." The commodity is right in the retail store, in other words.

The same games on Mobage and Mixi, the Japanese web-based social network, have very different ARPUs, however.

KK: Well, the KPIs and other metrics are all recorded on the Mobage platform, but one reason is that Mixi is a virtual social network like Facebook. Kaito is a game where users battle against each other. There's a ton of activity, and as a result, you get all these notifications along the lines of "A is fighting B," "C is fighting D," and so forth. It completely fills up your wall if you let it.

On Mixi, you see people's real names, like "Akiyama or Kobayashi is fighting," and you start to wonder who the heck these people are. There are games, of course, where it's fun to play with real identities, but I think there are also a lot of fun games where you can't see that.

If you were playing Call of Duty or Battlefield or whatever and all the players' real face portraits were used on the soldiers, wouldn't that make you hesitate a bit? Also, a lot of users access social games three or five times a day, and that shows up on Mixi too -- "Kobayashi logged into Kaito Royale at 11:55," then the same notice at 3:05, then the same notice at 6:15. You look at that and wonder "Are you doing any work?" I think the same thing happens on Facebook, too, and I don't think everyone wants to have that be visible.

I heard about DeNA's "interest graph" earlier -- could you describe that?

KK: It's very close to that virtual social network idea. Basically, it's a community you make with people you share interests with, which I think is the most interesting thing -- especially in terms of games.

The same genres.

KK: Yes. It gets livelier when you're in a group you share interests with. In Japan, there are anonymous forums like 2ch, and when people with like interests come together, they get excited about pretty hardcore topics. Personally I don't find it all that interesting to talk about Final Fantasy XI with other people, but when you have people who like it come together, they start talking about all the great times they had on this or that server.

Is there a forum for user communication for DeNA games outside of the games themselves?

KK: There is, within Mobage itself. You can create social groups for games, and they get pretty lively when the games grow popular. For example, there's a popular iPhone social game in Japan called Kaibutsu Chronicle. All of the activity of this game is in the comments section of the iTunes review page. There aren't any reviews there; they use it as a forum. There isn't any other sort of forum for it, so they made one for themselves there instead.

Ninja Royale has launched in the U.S. How has user feedback been?

KK: Well, it's still in beta with a limited number of users, so there hasn't really been enough feedback to get a full picture yet. We're at the point where we'll see how the game iterates in the future. As a result, to be honest, we can't really say whether it's been good or bad yet.

Lately in the U.S. there's the impression that Japanese games outside of Nintendo aren't popular. What sort of interest do you think the Japan-developed DeNA games hold for U.S. users?

KK: One of the things behind what makes a game a hit is the backdrop -- war, dark fantasy. Another is the style of graphics -- pop, realistic, and so on. The externals, in other words. Then there's the game system -- FPS, RPG, and so on.

I think that in terms of game system, a lot about Japanese games can be applied to the whole world universally. Without a change in graphics, though, you have a lot of Japanese games not appealing to the West and vice versa. I think Ngmoco's sense will play a big role here, and I think a lot of the gameplay systems we've developed here can come into use.

Nintendo and Japanese companies can make globally-appealing games. Is that what you're shooting for, to make game systems that work universally?

KK: One thing I feel, and in particular that I felt at E3, is that the winning genres in the West tend to involve FPSes or action or sports games, and they involve war and zombies and whatnot, and the big winners in those fields -- the Call of Dutys and Battlefields and Gears of Wars -- are all massive, multi-million-dollar projects. You need that to win in those genres. If we made something in those genres with a smaller budget, we would have no chance of winning.

That's the situation over there, but it's very different with social games on smartphones. You can still challenge the market with new ideas, and new types of gameplay are always coming out. I think Japanese outfits have a lot of room to innovate and thrive in that market. There are, of course, parts of Japanese culture that hit it big in the West, too, so working with those provides opportunity as well.