What Supercell's $1.5B deal means for mobile, global gaming, and Finland
Supercell CEO Ilkka Paananen.
Finnish mobile gaming company Supercell, maker of “Clash of Clans” and “Hay Day,” has just announced that it has sold 51 percent of itself to Japan’s SoftBank and GungHo, a fellow game maestro, for $1.5 billion. The deal values Supercell, a 130-person company (last time we checked) that is headquartered on a single floor of a Helsinki skyscraper formerly occupied by Nokia, at more than $3 billion.
Here are the basics, before we get into some analysis:
Softbank and GungHo, maker of “Puzzles & Dragons,” have set up a company in Finland that will own the 51 percent stake.
Co-founder Ilkka Paananen will remain CEO, and the company will continue to operate independently.
Every Supercell employee is getting a share of the cash.
The deal probably pushes back any prospect of an IPO by a matter of years. As Paananen said in a blog post announcing the deal: “This new partnership will accelerate Supercell towards our goal of being the first truly global games company, and gives us enough time to get there.”
The investment comes seven months after Supercell had raised $130 million, valuing it at $770 million.
Now to the fun stuff. What does it all mean?
They’re all crazy
Well, for a start it means that Softbank, which is contribuing 80 percent of the $1.5 billion, is nuts! Supercell has only two games on the market: “Clash of Clans” and “Hay Day.” Until a few days ago, those games were available only for the iPad and iPhone. (“Clash of Clans” launched on Android on October 11.)
Games, as Zynga is proving, is a hits-driven business, especially in the mobile-social category. Now that the advent of the mobile era has accelerated the proliferation of the free-to-play model and, thanks to the enormous global scale, improved its economics, it’s possibly to get fabulously wealthy off just one game. Sweden’s King.com, for example, is set to go public based on the strength of the “Candy Crush” saga.
But what if “Clash of Clans” were surpassed by the next hot game of the moment? What if people grew tired of it? Both situations will happen at some point. Ask Zynga about “Draw Something” or “Words With Friends.” It’s just a matter of when. And in that case, Supercell has to be ready with another world-beating game to replace it.
That imperative also highlights a weakness: Beyond revenues from in-game purchases, Supercell doesn’t have many ways of making money. It’s not like, say, fellow Helsinki company Rovio, which has built “Angry Birds” into an entertainment brand, with movies, theme parks, and merchandise all part of the business.
Still, “Clash of Clans” and “Hay Day” are two important games, at least financially speaking. “Clash of Clans” in particular has been a mainstay in the Top 10 charts for both iPad and iPhone since its launch in August 2012. Back in April, these two free-to-play games were bringing Supercell $2.4 million a day. When I profiled the company last November, it was investor Accel Partners’ fastest-growing company ever – and that portfolio includes Facebook, Spotify, and Baidu. We can safely assume, going by today’s deal, that Supercell’s revenues have only accelerated in the time since.
Supercell wants to be “truly” global
Now that “Clash of Clans” is out on Android, Supercell has a giant new market to address – one that, especially, could be lucrative in games-crazy Asia, where Android dominates and the free-to-play gaming model was pioneered. The partnership with SoftBank and GungHo immediately unlocks a large chunk of Japan, home of Paananen’s idol Nintendo and one of the world’s largest gaming markets.
In his blog post, Paananen said one of the company’s greatest aspiration is to become the first truly global games company, which is strong not just in Europe and North America, but also in Japan, South Korea, and China. “We want to build a company that people all over the globe will look back in 30 years and talk about all the great games that we developed and the impact they had on people’s lives,” he wrote. “The same way I personally feel about Nintendo, for example.”
China, where Western Internet companies have always struggled to make an impact, will be a separate challenge entirely, but Supercell has already proven that its games can dominate Europe and North America. In June it also partnered with GungHo, another mainstay at the top of the mobile gaming charts, to promote “Clash of Clans” in Japan.
Mobile has changed everything
You probably don’t need telling again, but, seriously, the mobile era of the Internet is not the same as the first era of the Internet, which ended at the same time as the death of Web 2.0 – when Facebook acquired Instagram. Just as a globalized, always-with-you, affordable, and personal Internet is re-shaping communications, making us a more data-driven planet, reconfiguring financial transactions, and changing the way we do business, the mobile era is also creating a new world order in gaming.
Paananen said it succinctly in his blog post:
The combination of tablets, mobile and the free-to-play business model has created a new market for games, one that will be accessible to billions of consumers, more people than ever before in the history of games. This truly is a new era of gaming and has opened up exciting opportunities for new kinds of companies.
SoftBank and Supercell are playing the long game
No shit: SoftBank founder Masayoshi Son has a 300-year vision for his business, which Paananen described in his blog post as “very real and extremely inspirational.”
In a separate blog post commenting on the deal, Index Ventures’ Neil Rimer, an investor in Supercell, noted that in 2010 Son outlined a 30-year vision intended to fit in with the way he sees the world evolving over the next three centuries. SoftBank took a year to develop the vision, Rimer said, seeking feedback from within the company and from the public.
Son’s vision for SoftBank is that it won’t bet on a single technology, because even the most promising ones will eventually become obsolete. Instead, it’s forging partnerships with companies that offer products and services to address people’s needs and bring them longer, happier lives. Rimer wrote:
These products would capitalize on the enormous advances in cloud computing over the next 30 years by which time SoftBank predicts single microprocessors will have billions of times more processing power than the human brain, and networks will be measured in petabits per second.
Paananen and Supercell are fully on board with Son’s vision and want to build a company that lasts forever. “It further strengthened my belief that we are just getting started,” Paananen wrote. “As a company, we are three years old so we’re only 1 percent done if we plan for the next 300 years.”
It’s a win for Finland
Nokia, former King of Finland, is now an outpost of Microsoft. The handset maker was at one point responsible for 4 percent of Finland’s GDP. Now it has a litany of empty, shiny buildings scattered around Helsinki.
The company’s crumbling has hit Finland hard, but it has also created new opportunities for startups. The likes of Rovio and Supercell are helping to rebuild Finland’s tech confidence, as well as its economy. Their successes may also help fuel the development of more mobile companies, such as a new and developing cluster of fitness and wellness apps, led by the likes of Moves and Fjuul.
It’s also a win for the Finnish way of doing business, which looks a lot different to the American way of doing things. Supercell’s staff work five days a week from 9am to 5pm. They also have five weeks mandatory holiday each year. These are the norms for Finland and its Scandinavian brand of socialized capitalism, which stresses egalitarianism and work-life balance. That culture, as I suggested in June, is one of the key things that distinguishes Supercell from Zynga. It also helped seal the deal with GungHo, which is contributing 20 percent of the $1.5 billion investment.
“Through them we’ve come to learn that the Japanese and Finnish cultures are pretty similar on many levels,” Paananen wrote. “Not only when it comes to taking your shoes off before you enter someone’s home, but also and more importantly, when it comes to partying, if you know what I mean.”
In keeping with those Finnish ideals, Supercell is spreading its newfound wealth among its employees. A big part of Supercell’s culture is the mantra “we are all in this together.” In line with that thinking, everyone in the company will receive a portion of the proceeds from the investment.
“None of us work here just for of money,” Pannanen said, “but when the company succeeds, everyone should get their fair share of it and this transaction is no exception.”
So now Supercell has the money, partnerships, and hype to become a global gaming company. It is in the process of restoring Finnish national pride. For a while, at least, it doesn’t have to worry about laboring under the stress of being a public company.
Next it has to show that it is more than a two-hit wonder.