DeNA
Corporate History & Strategy

In March 1999, Tomoko Namba left McKinsey and established DeNA Co., Ltd. It was the height of the internet bubble, and an environment conducive to attracting capital and talent existed in fields such as e-commerce and auctions. Mobile phone adoption was also beginning, and barriers to entry were seen as lower compared to existing industries.

DeNA chose the auction service 'Bidders' as its initial business, but Yahoo Japan was already operating 'Yahoo! Auctions' in this space and beginning to form strong network effects. Additionally, Rakuten Ichiba was growing as an e-commerce mall, making the market environment tough for the late-entering DeNA. Nevertheless, in the environment at the time, e-commerce and auctions appeared to be the most rational growth areas.

DeNA raised ¥1.3 billion in March 2000 and ¥910 million in 2001. Although the valuation declined due to the dot-com bubble burst, securing sufficient cash during the founding period preserved room for business continuity. Meanwhile, operational issues surfaced, including the discovery that system development, which had been outsourced, was not functioning and that no progress had been made.

In response, Namba decided to bring system development in-house and directed internal engineers to rebuild the system in a short period. As a result, 'Bidders' was launched in November 1999, but the gap with Yahoo! Auctions could not be closed, and DeNA was at a disadvantage in user acquisition competition. Still, DeNA chose not to withdraw and decided to continue the business while burning through cash.

The Bidders business ultimately failed to capture market share, and DeNA's performance deteriorated. By 2003, the company had drawn down ¥1.4 billion in capital reserves and ¥900 million in stated capital, totaling ¥2.3 billion, to cover accumulated losses. While the business results were far from successful, the capital raised during the founding period remained, allowing the company to explore its next options while maintaining approximately ¥500 million in cash.

Additionally, DeNA maintained a debt-free management structure, avoiding a fatal financial crisis despite the sudden changes in the external environment caused by the dot-com bubble burst. This period, while a business failure, can be described as a phase where the company 'bought time' that would later enable its pivot to mobile.

In March 2004, DeNA launched 'Moba-oku,' a mobile (feature phone) auction service. Until then, DeNA's main business had been the PC-based auction service 'Bidders,' but Yahoo Japan's 'Yahoo! Auctions' had formed overwhelming network effects in this space, making it difficult for the late-entering DeNA to capture share. As Bidders' growth plateaued, DeNA needed a new growth axis as a venture company.

From 2004 onward, feature phone adoption was rapidly advancing in Japan, and internet usage from mobile devices was expanding. The mobile space had different user flows and billing structures from PC-based services, and was a market where major incumbents had not yet entered in earnest. For DeNA, the mobile space was one of the few options where it could acquire the competitive advantage it had failed to build in PC auctions.

DeNA designed Moba-oku as a service fully dedicated to feature phone access, built on the premise of a user experience different from PC. This decision was not a mobile port of Bidders but rather the introduction of a new service optimized for the operability and usage frequency specific to mobile. By FY2005/3Q (December 2005), mobile revenue had surpassed Bidders, and DeNA's core business clearly shifted from PC auctions to mobile content.

Through this business pivot, DeNA transformed into a mobile content service company. The decision to avoid head-on competition with Yahoo! Auctions and concentrate resources on the mobile space with growth potential became the starting point for the growth that would later lead to Mobage and Kaito Royale. The revenue growth that could not have been achieved with Bidders alone was realized through the expansion of the mobile domain.

In January 2005, DeNA announced a business partnership with KDDI. The core of the partnership was to establish a subsidiary, Moba-oku Inc., to operate 'Moba-oku' as a content service for KDDI, with KDDI investing ¥300 million through a third-party allotment. At the time, in the mobile content market, mobile carriers held the right to list content on official menus, and building relationships with carriers was critically important for content providers in terms of both customer acquisition and revenue.

DeNA was building its business foundation in the mobile space through the launch of Moba-oku, but as a content provider it needed to establish a structure for stably supplying services on the carrier's platform. KDDI was expanding services for au and was seeking content providers in the auction space. The partnership materialized as the interests of both parties aligned.

For the KDDI partnership, DeNA chose to supply auction services to au users as an OEM through its subsidiary Moba-oku. In 2006, the service name for au was changed to 'au Auction,' while services for NTT Docomo and SoftBank continued under the 'Moba-oku' brand. While the subsidiary structure involved partial profit transfer to KDDI, DeNA prioritized securing a stable business relationship with the carrier.

This was a strategy of securing the distribution channel of a mobile carrier even at the cost of partially sacrificing its own profit margins. In the mobile content market, the customer acquisition power from carrier official menus was overwhelming, and DeNA established a structure to expand its mobile business scale with the KDDI relationship as its axis.

In the late 2000s, although user numbers for SNS and community services were expanding in Japan's internet industry, it was difficult to secure stable revenue through advertising models alone. DeNA was generating a certain level of revenue through its auction business and portal operations, but faced a structure where user growth and revenue growth did not necessarily correlate. In the domestic market, incumbents had established dominance in search-linked and display advertising, leaving limited room for new entrants to scale using the same methods.

Meanwhile, as mobile phones became more advanced and flat-rate data plans became widespread, time spent on mobile content was rapidly increasing. Unlike traditional web services, the mobile space was beginning to show characteristics of high usage frequency and individual-level billing viability. Within DeNA as well, there was a growing recognition that without building a model independent of advertising revenue, achieving both business scale expansion and profitability would be difficult, and the search for new revenue sources had emerged as a pressing management issue.

Based on changes in user behavior in the mobile space, DeNA decided to develop and provide social games premised on item-based in-app purchases. The emblematic initiative was 'Kaito Royale,' released in 2009. This title was designed not around the completeness or controls of traditional console games, but around short-session repetitive use and relationships with other users. A structure was intentionally built in which competition and cooperation among users stimulated content consumption.

Furthermore, the billing elements were positioned to directly influence game progression—participation was possible without paying, but payments were required to gain time savings or advantages. DeNA deployed this system on its own platform, establishing a structure to collect revenue without depending on external payment systems. The shift from the advertising model was not a temporary experiment but was positioned as a decision to move the core of the business, and human resources and development structures were also reallocated toward social games.

After the launch of Kaito Royale, DeNA's revenue composition changed dramatically in a short period. Where advertising revenue and transaction fees had previously been central, in-game item purchases emerged as the primary revenue source, pushing up quarterly revenue levels. Even though per-user spending was limited, the structure of expanding total revenue through high usage frequency and growing user numbers was formed.

As a result, DeNA established a business model centered on mobile social games and gained a foundation for introducing subsequent titles and advancing partnerships with external parties. At the same time, a structure emerged where much of the revenue was concentrated in a specific genre, and the new issue of business portfolio imbalance became apparent. The release of Kaito Royale was positioned not merely as a single title's success but as the catalyst that transformed DeNA's revenue structure itself.

From 2009 onward, DeNA was achieving rapid growth through its mobile social gaming business spearheaded by Kaito Royale, but its revenue base was heavily dependent on the Japanese domestic market. While feature phone games in Japan had high profitability, the market environment, regulations, and platform structures differed significantly from overseas, making it difficult to directly export this success model abroad.

At the same time, smartphones were rapidly proliferating primarily in the US, and an app ecosystem centered on the App Store was forming. The center of gravity in the gaming market was beginning to shift from feature phones to smartphones, and there was growing urgency within DeNA that resting on domestic success would mean losing medium- to long-term growth opportunities. However, the company lacked the time and experience needed to enter overseas markets independently and adapt to local development cultures and platform specifications.

Against this backdrop, in October 2010, DeNA decided to acquire the US mobile game developer ngmoco for approximately $400 million. ngmoco had a track record in iPhone game development and possessed development capabilities and platform understanding in the US market. DeNA sought to simultaneously achieve immediate entry into overseas markets and acquisition of expertise in the smartphone domain by incorporating this company.

This acquisition was DeNA's first full-scale global M&A, in that it positioned a local company as the core rather than laterally expanding the high-profit model established domestically. The choice was made to incorporate an external development organization and talent as a whole, prioritizing rapid business launch over gradual in-house expansion.

Through the ngmoco acquisition, DeNA secured a base and development capabilities in overseas gaming markets centered on North America, and acquired knowledge in smartphone game development. However, gaps existed between the Japanese-originated operation-style social game model and the US-led product-oriented development culture, and integrating organizational operations and strategy was not easy.

As a result, the acquisition did not immediately deliver significant revenue contributions, and the overseas business continued through a phase of trial and error. Nevertheless, this experience became an important learning opportunity for DeNA to recognize the realistic difficulty of overseas expansion and to redesign its subsequent global strategy. The ngmoco acquisition came to be positioned as an advance investment during a period of business model transition rather than an extension of growth.

In the mid-2010s, DeNA was pursuing diversification into healthcare and media to reduce dependence on its gaming business. As part of this, it launched 'WelQ,' a curation media site handling medical and health information, and pursued rapid scale expansion driven by search traffic. In the internet advertising market, media that could capture search engine traffic held high profitability, creating strong incentives to prioritize quantitative expansion.

However, medical and health information is a field where accuracy and reliability of information are strongly demanded, carrying a different level of social responsibility compared to general entertainment media. Yet amid the prioritization of business expansion speed, the development of editorial structures and review processes had not kept pace.

In December 2016, as social criticism of the reliability of WelQ's article content and production processes escalated, DeNA suspended publication of WelQ and several other curation media sites, acknowledging the severity of the situation. Simultaneously, the company went beyond internal investigation by establishing a third-party committee of external experts, entrusting them with identifying the causes and examining preventive measures.

This decision clearly prioritized restoring social trust over short-term revenue or business continuity. It was a weighty choice for DeNA at the time—acknowledging the possibility that its management structure and decision-making processes had structural problems and incorporating external perspectives for verification.

Based on the third-party committee's findings, DeNA effectively withdrew from the curation media business, and WelQ was terminated without being relaunched. This forced the company to reconsider its strategy of using media as a growth pillar and undertake a restructuring of its business portfolio.

At the same time, through this response, DeNA came to re-recognize the balance between business expansion and social responsibility as a management issue, and gained an impetus to strengthen governance and risk management. While the WelQ controversy was an event that damaged corporate value in the short term, it ultimately became a turning point for reassessing the premises of management.

In fiscal 2018, DeNA expanded investment in new businesses to ¥8 billion and announced a policy of cultivating new revenue pillars comparable to the gaming business. At the time, DeNA's mobile gaming business comprised the core of its earnings, but the maturation of the social gaming market and high dependence on hit titles were beginning to show limits on sustainable growth from gaming alone. Having also withdrawn from the curation media business following the WelQ controversy, rebuilding the growth strategy had emerged as a management priority.

The three areas DeNA selected as focus areas were live streaming, automotive, and healthcare. In live streaming, investment in Pococha and SHOWROOM was ramped up; in automotive, the company accelerated commercialization investment in autonomous driving and taxi dispatch, areas it had entered since 2015. In healthcare, the company aimed to expand insurance product sales through a partnership with SOMPO Holdings.

Among the three areas, automotive was where DeNA made its largest investment. Following joint research with the Kanagawa Prefecture Taxi Association and autonomous driving experiments with Nissan Motor, the company released the taxi dispatch app 'MOV' in 2018. This was an attempt to repurpose the mobile app development capabilities cultivated in the gaming business into a transportation service.

However, none of the new businesses reached a revenue scale comparable to gaming. Live streaming was in a growth phase as a market, automotive faced regulatory and industry structural barriers, and healthcare required time to monetize. While the ¥8 billion investment budget clearly signaled the intent to diversify, the investment results did not boost DeNA's performance, and it became a precursor to the subsequent performance slump and management restructuring.

In the late 2010s, DeNA had lost its growth axis due to the maturation of its gaming business, uncertainty in overseas expansion, and business reorganization following the WelQ controversy. Mobile gaming, which once generated high profits, had become unstable due to changes in the competitive environment and high hit-dependence, while healthcare and new businesses had not achieved sufficient revenue contribution.

As a result, while revenue growth decelerated, the fixed cost structure—including organizational scale, personnel costs, and development investment—remained on an extension of the growth period. The gap between the profitability and cost allocation of each business widened, and it became clear that management needed to reassess the cost structure itself before strategy.

In April 2021, DeNA decided to replace its CEO against the backdrop of poor performance, embarking on a renewal of its management structure. This personnel change was positioned not as a turnaround of individual businesses but as a signal of intent to reassess the overall premises of management. Under the new regime, the first initiative undertaken was fixed cost reduction.

Specifically, through reviewing personnel allocation, streamlining indirect departments, and screening investment projects, a transition was advanced from a cost structure premised on growth to one commensurate with the current revenue level. This was not a measure aimed at short-term growth recovery but a decision-making step as a precondition for pursuing business selection and concentration.

With the CEO replacement and the initiation of fixed cost reduction, DeNA transitioned from behaving as a growth company to a management phase emphasizing profitability and sustainability. A structure not premised on business expansion was built, and the relationship between invested capital and results came to be scrutinized more rigorously for each business.

This personnel change is positioned as a turning point where DeNA departed from its eternal-venture management style and accepted the management discipline of a mature company. As a result, the CEO replacement became not merely a top-management change but a symbolic event that updated the company's growth premises.