How 'Puzzle & Dragons' became the most lucrative mobile game ever

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Jason

Exactly one year ago Friday, Japanese publisher GungHo Online Entertainment launched Puzzle & Dragons, a free-to-play hybrid puzzle/role-playing game optimized for Apple's (NASDAQ:AAPL) iOS. The title expanded to Google's (NASDAQ:GOOG) Android in September, and two months after that, GungHo exported the property to U.S. shores. Puzzle & Dragons has since become a minor hit here: As of 4:00 pm CT Wednesday, analytics firm App Annie ranks the English-language version of the game no. 88 among the U.S. App Store's current Top Grossing applications, not exactly an embarrassing showing but still far behind top-ranked blockbusters like Clash of Clans, Candy Crush Saga and Marvel War of Heroes. But back home in Japan, Puzzle & Dragons is the biggest mobile game since… well, since maybe ever. In fact, it may be the new benchmark against which mobile gaming success is judged.

Puzzle & Dragons towers as Japan's top smartphone game, eclipsing 8 million registered users across iOS and Android earlier this month. (To put that number in some perspective, Flurry this week reported there are a total of 29 million iOS and Android devices active across the Japanese market as a whole.) According to information included in GungHo's fiscal 2012 financial report, issued this past weekend and translated by consultant Serkan Toto, the firm increased year-over-year sales 168.8 percent to $280 million U.S., while operating profits rocketed 690.1 percent to $99 million.

It gets better. In January 2013, GungHo's monthly sales hit $92 million, up 1,022.4 percent from year-ago totals. The publisher didn't break down Puzzle & Dragons' exact contributions to its bottom line, but Japanese sources cited by Toto estimate the game grossed an average of $65 million last month--more than $2 million per day. Even more amazing, roughly 99 percent of monthly Puzzle & Dragons revenues originate from inside the Japanese market. "Puzzle & Dragons is testament that the smartphone game market, at least in Japan, has reached a new level of maturity," Toto writes. "These are numbers never seen before in this industry."

How is Puzzle & Dragons doing this, especially given the relatively small size of the Japanese audience? Toto credits the game's social appeal, GungHo television advertisements promoting the title and "quite simply the fun and innovative gameplay." So I downloaded Puzzle & Dragons to see what the fuss is all about, and after playing it for a while, I still have absolutely no clue how it's become such a phenomenon. It's not exactly bad--in fact, it's kinda cute--but to me Puzzle & Dragons is indistinguishable from other match-three puzzle games. I don't get it, and I probably never will; for one thing, I'm at least 25 years outside of its target market. Time will tell whether Puzzle & Dragons catches on with my fellow Americans, although GungHo is doing just fine without our widespread support.

There is one major lesson American game developers can take away from Puzzle & Dragons' meteoric rise, however: Free-to-play is clearly the way to monetize. That $2 million in daily revenue is coming exclusively from in-app purchases (something called "magic stones," to be specific). This week Juniper Research issued a new report anticipating in-app purchase revenues on smartphone games will top $6 billion in 2016--at the same time, in-app transactions on tablet titles will explode to $3.03 billion, up from $301 million in 2012. Puzzle & Dragons' massive success doesn't just lend credibility to Juniper's lofty forecast: If a few more $2-million-a-day hits come along, the firm's in-app revenue projections may someday seem almost quaint compared to what developers are actually raking in.--Jason

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