an in-depth look at the Gree and its founder...
By closely watching Internet giants and hometown rivals, Yoshikazu Tanaka jump-started his social networking site Gree and amassed a $1.6 billion fortune by age 32.
Yoshikazu Tanaka is a student of others' success. The founder of social networking site Gree has designed his offices to evoke the minimalist "Apple and Nintendo white." Meeting rooms are named after the hallowed ground of American Internet giants. One is dubbed Sunnyvale after the location of Yahoo's headquarters; another is Mountain View, home to Google. "It's kind of Zen," explains the 32-year-old entrepreneur, dressed in an open-neck shirt, hip-hugging jeans and sneakers.
He also closely watches the moves of his Japanese rivals, particularly social networking sites Mixi and DENA. Every Monday morning at ten the young chief executive presides over a staff meeting at his headquarters in Tokyo's swank Roppongi Hills neighborhood, in which he psychs up his employees to "aim for number one" and overtake their competitors.
In one respect Tanaka has already bested them. Thanks to Gree's soaring stock, which doubled in 2009, Tanaka, who owns 51% of the company and has sold $170 million worth of shares since the December 2008 offering, is worth $1.6 billion, enough for him to rank No. 18 among Japan's 40 Richest. Mixi's founder, Kenji Kasahara, ranks No. 33, with a net worth of $720 million, while DENA's Tomoko Namba misses the cut with a fortune of less than $500 million.
Tanaka is one of only three billionaires in Asia under the age of 35 and the only one to have made his own money. (China's Yang Huiyan, 28, got her stake in real estate developer Country Garden from her father, who runs the firm. So, too, did Li Zhaohui, 28, also from the mainland, who inherited his steel firm from his late father.) In fact the only younger self-made billionaire in the world is Facebook's founder Mark Zuckerberg, 25.
Gree's stock has taken off thanks in part to the firm's meteoric growth (it was recently ranked Japan's fastest- growing tech company by Deloitte Touche Tohmatsu, with 2,636% revenue growth over three years). Gree now has 15 million users, up from 8 million a year ago. It overtook number two DENA in September and is now closing in on Mixi, which has 18 million users but is adding fewer customers a month. "We will pass it within six months," says a confident Tanaka. He says he expects to double subscribers to 30 million soon.
Gree has set itself apart by focusing on delivering fun, easy mobile games. New subscribers get a big-eyed manga-style avatar in underwear. They can then shop for everything from clothes like fancy hats to fashionable hairdos to accessories like fishing rods or food that can then be used in games such as virtual fishing, gardening and grooming of online pets. (DENA offers avatars, accessories and games, too, but doesn't yet combine all three.) The willingness of Gree's members to pay for their virtual trinkets, which cost a couple of dollars a pop, helped boost sales two and a half times to $75 million for the three months ending Sept. 30, 2009; 80% of its revenues came from these online accessories.
"The Japanese like playing games," says Tanaka, who as a kid was an avid computer game player. "[Gree] is light and easy," adds Akira Suzuki, an analyst at Tokai Tokyo Securities.
Tanaka first became interested in a digital society after reading American futurist Alvin Toffler. He was particularly inspired by Toffler's 1980 book, Powershift (which he read as a junior high school student) that explored the social repercussions of a shift to an information society. He browsed the Internet for the first time in 1996 while visiting the U.S. Three years later he graduated from Nihon University with a degree in politics and economics and did a short stint at an Internet subsidiary of Sony ( SNE - news - people ). He then spent a few years working on online auctions for fellow billionaire Hiroshi Mikitani, who runs Japan's online shopping mall, Rakuten.
"As a student he made Web sites and banner advertisements. At Rakuten he was creating blog systems. He started this social network as a hobby, and it became popular, so he decided to become independent," notes Hiroshi Yamashina, an analyst for Nikko Citi.
In 2004 Tanaka cut loose from Mikitani--the two keep in contact--to work on his social network. He named it Gree, after six degrees of separation, derived from the psychologist Stanley Milgram's concept that everyone is at most six steps or connections away from any other person on Earth. The company's logo is a hexagon. (The company has no ties to the mainland China air-conditioning manufacturer Gree that has appeared on FORBES ASIA's Fab 50 list.)
Tanaka started Gree at Netage, the same incubator in Tokyo where Kasahara started Mixi. Like Mixi, it initially set out to create a network of friends online. But Tanaka's upstart struggled against Kasahara's site, a factor that led him to mobile social gaming. One investor who bet early on him was Yoshihito Hori, a venture capitalist who has a stake in Netage and also runs one of Japan's leading business schools. Hori met Tanaka in 2005 and bought a 3.6% stake in the firm through his Apax Globis Japan Fund. He describes Tanaka as "an achiever able to respond to change quickly" who had a business model that "could make money." (The fund cashed out in September with a hundredfold return.)
Gree got a major boost when it formed an alliance with telecom firm KDDI in 2006; the telecom still owns 7% of Tanaka's company. This allowed people to access Gree's site from the home page of KDDI's mobile phones, which helped push up the number of Gree subscribers. Gree got access to more potential users in 2007 when NTT DoCoMo and Softbank let its customers access the site. (These telecoms now carry his rivals as well.)
The decision to go mobile has made all the difference. Nine out of ten Gree users access the service from their cell phones compared with only two out of three for Mixi. Many of them play the games on their phones to pass time on their long commutes on packed trains. In that sense Gree competes as much with tech outfits--Sony's PSP and Nintendo ( NTDOY.PK - news - people )'s DS--as with the other SN sites, but unlike the game players, Gree's subscribers can play games with other commuters on other trains in Japan.
That Japan leads the world in broadband mobile connectivity has clearly benefited Tanaka by allowing his customers to easily play his games on their phones. Of 114 million cell phone subscriptions in Japan, 102 million are 3G. That penetration rate is way ahead of the U.S., where only 70 million handsets are the latest generation.
The games, which Gree develops in-house, are also proving to be quite profitable. Gree's net income for the latest six months was $39 million, slightly more than DENA's profit and four times that of Mixi, which relies on advertising for nearly all of its sales. Operating margin at Tanaka's venture is 57%, compared with 36% at DENA and 30% at Mixi. That means Gree has more to spend on advertising, including a recent TV campaign.
No wonder that these two rivals are moving on to Gree's turf. As of October Mixi uploads mobile social games; DENA is one of its suppliers. DENA, with about 250 games already available, is readying to launch social games similar to Gree's. Tanaka says he is unfazed but nonetheless thinks a fishing game by DENA is going too far. In September he filed a lawsuit against DENA, accusing it of stealing his game. Still to be fought in court, he wants the judge to award him $4.2 million in damages, force DENA to pull its game and to apologize. DENA isn't backing down. "The facts will come out in court," said DENA spokesman Tetsuhiro Kaneko.
Meanwhile, Tanaka is starting to look for ways to export his games, conceding that he may need to find partners in targeted locales. When he does make the jump overseas, he won't just face the likes of Facebook or MySpace, he will also run into DENA, which bought American social gaming site IceBreaker, and Mixi, which opened a Chinese site in October 2008 dubbed Mixiu. "It will be difficult for Gree to succeed overseas as a platform," reckons Keiichi Yoneshima, an analyst at Barclays ( BCS - news - people ) in Tokyo.
In the meantime, Tanaka has to watch his back at home and remember that success, and wealth, can often be fleeting. After all, Kasahara, now 34, was a billionaire briefly when he was 30 but hasn't been since. Indeed, Tanaka's offices may have the Zen white interiors of Apple ( AAPL - news - people ) and Nintendo, but he is still a long way from creating a lasting global brand.
http://www.forbes.com/global/2010/0118/japan-rich-list-10-green-google-networking-early-riser.html
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