1. Proposal for GREE
~Be a Big Data Science Company~
Team K

2. Agenda
1
Background
2
Issue
3
Option
4
Recommendation
5
Execution Plan
2

3. Preconditions for our proposal
Issues
1. Whether GREE’s international strategy rely on
developing great in-house games or on maximizing
adaption of GREE`s platform by external developers
Corporate
Strategy
2. Ability to compete in international markets with a product
required significant localization
International
Strategy
3. Contend with the uncertainty in the domestic market cast
by industrial wide agreement prohibiting kompu gacha
Domestic
Strategy
Without GREE’s clear mid-term direction,
these issues will not be fundamentally solved.
Propose mid-term vision
3

4. Background
GREE
Issue
Option
Recomm
endation
Execution
Plan
[Company Overview]
One of the biggest on-line game provider with 45 Mil users in Japan
(Mil JPY)
180,000
Net Sales
Established GREE International
Released Zombie Jombie (US)
160,000
Ads
(6%)
140,000
120,000
100,000
Released Fishing★Star
Listed on
1st Tokyo stock exchange
Listed on Mothers
80,000
Paid users
service
(94%)
60,000
40,000
20,000
0
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
Paid users service
- Game
- Platform
- Licensing
- Venture capital
4

5. Background
GREE
Issue
Recomm
endation
Option
GREE
Financial issues compared to DeNA (Main rival)
(Mil JPY) (Mil JPY)
(# of employees)
108
4,500
120
91
4,000
100
40,000
35,090
30,000
20,000
3,500
64
3,000
2,500
1,730
2,000
2,364
592
12,406
80
10,000
60
0
40
1,500
1,000
DeNA
Free Cash Flow
Sales per employee
5,000
vs
Execution
Plan
20
FY2010
FY2011
FY2012
(10,000)
(20,000)
(20,379)
500
0
0
FY2010
FY2011
(30,000)
FY2012
• Number of permanent employee has
been increased rapidly (400% vs 2010).
• Free cash flow was negative in FY2012
due to M&A and venture capital fund.
• Sales per permanent employee has
been decreased (-40% vs 2010).
5

6. 5 Forces
Background
Issue
Option
Recomm
endation
Execution
Plan
Game business is highly competitive market
Threat of
New Entrants
Technologically no entry
barriers, but acquiring users
is difficult
Supplier Power
- Strong -
Internal Rivalry
- Strong -
Buyer Power
- Weak -
Attracting game / appli
developers is difficult
Fierce competition
(DeNA, iOS, Android, Zynga)
High switching cost
(Accounts, Connection)
People spend time on
Facebook, LINE, & etc…
Threat of Substitute
- Strong -
6

7. Environment
Background
Issue
Komp gacha crisis
Industrywide agreement
prohibiting Komp gacha
Recomm
endation
Option
Execution
Plan
Skip GREE platform
Game developers want to skip
GREE platform to minimize the cost.
Game developer
+15-30%
+30%
GREE
+30%
Android, iOS
User
7

8. Current status
Background
Issue
Option
Recomm
endation
Execution
Plan
GREE`s current status is worse than June 10th, 2013
June 10, 2013
Performance
No data of financial result
for the full year of 2012
Oversea
Branch
9 counties
Number of
Employee
1,762
Unconsolidated basis
November 17, 2013
Revenue 152.2 B JPY ( -4% vs 2011)
OP
48.6 B JPY( -41% vs 2011)
Net income 22.5 B JPY (-53% vs 2011)
4 counties
Close UK, USE, Brazil, and
Netherlands
1,557
Leave 205 by November, 2013
Stock
Option
Exercise Stock option of 77
holders from December, 2013
3rd Party
New joint platform is planned by
15 large game developers
8

9. Case Issue
Background
Issue
Option
Short-term
Recomm
endation
Execution
Plan
Mid-term
1
Management
Corporate
Organization
Financial
・ High dependence on
game business
Not mentioned
No Mid-term
Issues
mentioned
Not mentioned
International
Game Business
・ Unclear ability for
localization
2
Domestic
Game Business
・ Unhealthy business model
(Kompu gacha)
3
・ Competition with global
platform player(Google, Apple)
1
Platform Business
9

10. Issue
Background
Issue
Option
Short-term
Recomm
endation
Execution
Plan
Mid-term
1
Management
・ High dependence on game business
・Lack of clear mid-term vision and
strategy
Organization
・ Retrenchment of employees while
preventing the loss of competent
developers
・ Lower sales per employee
・ Secure adequate human resources
for new businesses
Financial
・ High expenses on TV CM
(22 billion JPY)
・ Excess investments on acquisition
・ Efficient advertisement spending
・ Selection and concentration for
investments
International
Game Business
2
・ Unclear ability for localization
・ Global platform basis development
・ No guarantee to develop hit game
・ Unstable business
Domestic
Game Business
・ Unhealthy business model
(Kompu gacha)
・ Loss from feature phone games
・ Establish healthy business model
・ Development of profitable smart
phone based games
Corporate
Platform Business
3
・ Competition with global platform player(Google, Apple)
1
10

11. Background
Vision
Issue
Option
Recomm
endation
Execution
Plan
【Mission】
Making the world a better place through the power of the Internet.
Top 10
500-1000 mil
users
Aim to be Top 10 Internet service company
by CEO Tanaka in 2012
(Mil JPY)
Net Sales
180,000
160,000
140,000
120,000
123mil
users
100,000
Game
(94%)
80,000
60,000
40,000
20,000
0
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
2017
11

12. Strategy Option
Background
Short-term Strategy
[Emergency plan]
Improve financial
performance
1. Focus on game
business to increase
revenue
2. Reduce personal &
advertisement expenses
Issue
Option
Recomm
endation
Execution
Plan
Mid-term Strategy
1. Focus on Game business to
be No.1 Game developer
2. Grow advertisement business
as second business domain
3. Shift to the platform business
to be a big data aggregator
and solution provider
12

13. Short-term
Background
Issue
Option
Recomm
endation
Execution
Plan
Business Selection and Concentration
Business
Market
>90%
>90%
Game Business
Domestic
Market
Platform Business
Licensing
International
Market
Venture capital
13

14. Short-term
Background
Issue
Option
Recomm
endation
Execution
Plan
Actions for Komp gacha issue
The countermeasure for “Komp gacha” issue has been already taken since
July 2013, and will be continuously monitored by the compliance committee
Prevent over usage especially by young users
 Set the maximum amount of the charge for young people
 Clearly state the warning
Prevent over usage
GREE’s
Policy
 Send notices of charge amount to users
 Enlighten users to prevent over usage
Check the contents
 Make sure the warning is properly indicated in the games
 Ask game developers to follow GREE’s policy
14

15. Short-term
Background
Issue
Option
Recomm
endation
Execution
Plan
Focus on releasing selected games in domestic market
New games will surely hit once released even after “Komp gacha” crisis
2013 Coin consumption trend
Web Game
Native Game
15

16. Short-term
Background
Issue
Recomm
endation
Option
Execution
Plan
Speedy cost reduction is a mandatory option
Fixed Cost
Reduction
• Optimize TV CM expenses
• Reduce personnel expense
(Mil JPY)
120,000
21,553
11,284
15,000
Others
Bad Debt Loss
Allowance for Bad Debt
Leasing Expense
Outsourcing Expense
Agent Service Fee
Commission Expense
Personnel Expense
Advertisement Expense
FY2012
FY2013
Save 7 Bil JPY!!!
100,000
80,000
60,000
40,000
11,884
20,000
0
FY2011
16

17. Strategy Option
Background
Short-term Strategy
[Emergency plan]
Improve financial
performance
1. Focus on game
business to increase
revenue
2. Reduce personal &
advertisement expenses
Issue
Option
Recomm
endation
Execution
Plan
Mid-term Strategy
1. Focus on Game business to
be No.1 Game developer
2. Grow advertisement business
as second business domain
3. Shift to the platform business
to be a big data aggregator
and solution provider
17

18. Opt Analysis
Background
Issue
Option
Recomm
endation
Execution
Plan
Qualitative analysis
Value
Organization
Unique, attractive,
and user-friendly
application
Rarity
Imitability
Rareness of a
resource
Difficult to imitate
for competitors
Supportive
organization to
achieve strategy
Option 1
Game
Strong
Strong
Moderate
Moderate
Option 2
Ad.
Weak
Weak
Weak
Weak
Option 3
Big data
Strong
Strong
Strong
Moderate
Development of the platform business and being big data solution provider
have high competitive advantages based on VRIO analysis
18

19. Domestic
Market
Background
Issue
Recomm
endation
Option
Execution
Plan
Quantitative analysis: Market
Online Game
100M JPY
100M JPY
6,000
Internet
Advertisement
10,000
9,000
2,500
7,000
3,000
6,000
5,150
2,000
3,000
7.1%
8,000
33.1%
3,870
63.2%
2,000
5,000
4,000
100M JPY
3,500
5,000
4,000
Big Data
8,680
9,300
3,000
3,100
1,500
1,000
1,900
2,000
1,000
500
1,000
0
2012
2015
 High growth market
Reference:
Yano (Jan,2013)
0
0
2012
2015
 huge market size
 Low growth rate
Reference:
Dentsu(Feb,2013)
2012
2015
 Highest growth rate
Reference:
Yano(Apr,2012)
19

20. Opt Analysis
Background
Issue
Option
Recomm
endation
Execution
Plan
Quantitative analysis: Sales & Profit Plan
(Mil JPY)
350,000
Sales Plan
(Mil JPY)
Profit Plan
100,000
90,000
300,000
80,000
250,000
200,000
70,000
60,000
50,000
150,000
100,000
40,000
30,000
20,000
50,000
10,000
0
0
20

21. Opt Analysis
Background
Issue
Option
Recomm
endation
Execution
Plan
Quantitative analysis: Financial forecast
(Mil JPY)
Game Business
10,000
8,000
6,000
4,000
2,882
1,0772,261
2,000
(577)
0
(2,000)
(Mil JPY)
(4,000)
(6,000) (4,000)
(8,000)
(10,000)
(12,000)
Cash In
Cash Out
IRR = 10.3%
Initial Investment 4 Bil. JPY
(Enhancement of IT system)
Sales Growth 7.4%
(Market Growth Rate)
Advertise Business
(Mil JPY)
(Mil JPY)
Big data Business
10,000
8,364
7,063
8,000
8,000
6,000
6,000
4,669
4,000
4,000
1,012
1,492
2,000
2,000
199 601 874
0
0
(2,000)
(2,000)
(4,000)
(4,000) (2,000)
(6,000)
(6,000)
(8,000)
(8,000)
(10,000)
(10,000)
(12,000) (12,000)
(12,000)
10,000
Cash In
Cash Out
Cash In
Cash Out
IRR = 10.5%
IRR = 22.1%
Initial Investment 2 Bil. JPY
(Enhancement of IT system)
Sales Growth 1.7%
(Market Growth Rate)
Initial Investment 12 Bil. JPY
(additional investment for IT system)
Sales Growth 13.0%
(Market Growth Rate)
21

22. Strategy Option
Background
Short-term Strategy
[Emergency plan]
Improve financial
performance
1. Focus on game
business to increase
revenue
2. Reduce personal &
advertisement expenses
Issue
Option
Recomm
endation
Execution
Plan
Mid-term Strategy
1. Focus on Game business to
be No.1 Game developer
2. Shift to the advertisement
business
3. Shift to the platform business
to be a big data aggregator
and solution provider
22

23. GREE
Background
Issue
Option
Recomm
endation
Execution
Plan
Where can we go with GREE platform?
?1 way
Option
Much support for
Developers
GREE
Platform
Inc.
Steam
GREE
Game
developer
?
DeNA
Blue Ocean
Option 2 way
Zynga
Less support for
Developers
Platformer
Operating
System
Providers
facebook
23

24. Recommendation
Background
Issue
Option
Recomm
endation
Execution
Plan
1st step: make our platform more diverse and attractive
2nd step: integrate big data from platform for new business
Game
platformer
1st step
Application
platformer
2nd step
Big data
science
company
Game
developer
24

25. Background
Recommendation
Issue
Option
Recomm
endation
Execution
Plan
What big data can achieve
Money flow
Supply data to
developers etc.
Big data
GREE platform as
an Eco-system
Developers &
Manufacturers etc.
Log on the platform
Purchase
Customers
R&D and
marketing
25

26. Recommendation
Background
Issue
Option
Recomm
endation
Execution
Plan
Key differentiation 1: strong relationship between GREE
and developers to reinforce the attractiveness to any users
Startups
capital
Entrepreneur
mentoring
Free platform
for
developers
Develop
the best
environment
for developers
26

27. Recommendation
Background
Issue
Recomm
endation
Option
Execution
Plan
Key differentiation 2: GREE platform is the only way to
monitor customer experience
Point data on
“Purchase” or “Search”
?
Behavior data on
platform
Good
Purchase
Share
They do not know
how customers
use and are
satisfied…
Use
USER EXPERIENCE data
Satisfied
Interested
27

28. Execution plan
Background
Short-term Strategy
2013 – 2014Q2
Strategy
Actions
Focus on improving
Financial situation
Speedy cost
reduction
Focus on releasing
games
Issue
Option
Recomm
endation
Execution
Plan
Mid-term Strategy
2014Q3 - 2016
Provide Free
platform
Start big data
science company
The investment for The investment for analysis
IT system
engine & data analysts
Gather developers and continue focusing
on application development
Look for clients and
supply big data services
Solutions for short-term and mid-term issue
Create mid-term
Differentiate from
vision
competitors’ platform
28

29. We can become a big data science company
to reach TOP10 Internet service provider.
Thank you.
Team K
29