Gumi has always been partial to new technology. Founded in 2007, the Japanese game publisher had one of the big hits of the smartphone era with Brave Frontier in 2012. The company went public in 2014, and now it has 865 employees.
The company has moved into new markets through its affiliate companies. Yomuneco recently launched Swords of Gargantua, a swordfighting virtual reality game. It also created My Crypto Heroes, one of the top blockchain games in the world. And it has created the $30 million Gumi Cryptos fund to invest in blockchain games. These moves are consistent with the company’s belief that new technology paves the way for new forms of entertainment.
I caught up with Gumi CEO Hironao Kunimitsu at Oculus Connect 6 event in San Jose, California, and I also met with his executives Masaru Ohnogi, head of Gumi America, and Kiyoshi Shin, chief strategy officer of Yomuneco. We talked about this philosophy, about the state of the VR market, Japan’s virtual YouTubers (virtual entertainers who don’t exist in the real world) and blockchain technology.
Here’s an edited transcript of our interview.
Masaru Ohnogi: We’re into the sixth year of Oculus Connect. This year, when you watch the Oculus team and all the development teams, everyone looks very happy, right? Two years ago, not so much. Last year was OK, but two years ago, three years ago, everybody seemed like they were asleep. [Laughs] With the Quest price at $399, that’s the killer price point. It’s selling very well.
GamesBeat: I think by next year, maybe they can get it much close to $200 or $300. That would be wonderful.
Ohnogi: Yeah. It’s a question of how many Oculus Quest units they can sell.
GamesBeat: They’re not selling in the millions. Very low millions is possible. But I don’t think 10 million is anywhere near possible, not until it’s around $200.
Ohnogi: The high-end headsets were up to 5 million last year. Maybe by the end of this year we’ll be able to get up to 15 million altogether. I hope that next year we can get to 30 million to 35 million. That’s the size of the Nintendo Switch. If you can get to that kind of scale, we’ll have more million-selling titles.
GamesBeat: I wonder how well enterprise is doing. Maybe in the meantime a lot of people are buying these VR headsets for enterprise use.
Ohnogi: In the Japanese market, the B-to-B market is expanding. Many software makers have started using them.
GamesBeat: Tell us more about Gumi itself.
Hironao Kunimitsu: We established the company in 2007, and we went public in 2014. We currently have 865 employees. We’re still very heavily into mobile gaming. Our main focuses for the business are mobile games, AR/VR, and we started looking into blockchain in 2017.
Our company’s vision is around new technology opening up new kinds of entertainment. In 2007, when the smartphones were coming, many new opportunities came up. Many gaming companies tried to port existing console or PC or futurephone games to smartphones. That turned out to work. Games needed to be made specifically for smartphones. Smartphone video was similar. People tried to bring existing video content to smartphones, but again, it needed to be specific to the smartphone. VR and AR and blockchain are the same. We have to find out what works specifically for VR. That’s our strategy.
If a new entertainment company doesn’t already have strong IP, they have to challenge new technologies. In the beginning of a new market, new IP has a chance to win. That’s why we’re always challenging new technologies.
GamesBeat: Where are you investing?
Ohnogi: We’re also actively investing in many companies in the mobile business. We’re looking at mobile video, smartphone-first video, streaming services, social media services.
Kunimitsu: The strategy is always similar. When new technology comes along, new kinds of entertainment can come with it, whether it’s smartphone-first or AR-first or VR-first. We were able to IPO because of smartphone-first games. Next, we heavily invested in smartphone video. These companies only focused on smartphone-first video content.
Ohnogi: We initially started an integration program with startups in Tokyo, Seoul, and Helsinki. After six months of incubation, we invest in five to seven companies with each batch. We provide offices and facilities and mentors. After six months we organize a demo day and the companies deliver a pitch to the investors looking for funding. We also have fund partners here.
Gumi itself also directly invests in companies. One example is Yomuneco, which you may know. We have a number of mentors working with them.
Japan’s virtual YouTubers
Kunimitsu: In 2015, when we decided to jump into the VR market, there were almost no startups in Japan. That was why we decided to start our incubation program. Japan’s track record is quite good in games. We already have 21 companies involved, and every one of them has succeeded in securing funding. We’ve had eight companies reach Series A, and four reach Series B. In Japan, only 15 companies overall have reached Series A, so half of those have come from our incubation program. There are only five at Series B altogether, so four out of five came from our incubator.
These companies are our major investments. Are you familiar with the idea of virtual YouTubers? These came from our incubator. Internally we discussed what kinds of content would succeed by going VR-first. We’re totally confident that games are one of them, but we wanted to look for other kinds. One of them is virtual YouTubers.
Right now Kizuna Ai already has more than 4 million subscribers, but many other users see her on YouTube. When you’re watching on YouTube, it’s just like the cinema. When you use the VR glasses, she’s really there. You can talk and shake hands. If it’s something like a concert, everyone can sit in the front row, from anywhere in the world. We think this is going to be killer content for VR.
Some of these companies are also B-to-B. The B-to-B market for VR is really growing in Japan, like everywhere else. This company is in health care VR. This one is for video training.
GamesBeat: I went to the Virtual Beings summit in San Francisco. That was very good. It was about 200 people, but they had a lot of speakers going for just five minutes each. They had some really interesting projects that they’re doing now to create artificial people, artificial pets. I didn’t know there was so much activity there. They’ll do another one in Los Angeles in November. That’s a really exciting area. They brought up the virtual Japanese characters doing concerts.
Kunimitsu: Right, right. In Japan this year we’ve had so many virtual YouTuber concerts. Each ticket is around $80 to $200, but users still pay. The concept is booming.
Why VR will grow
GamesBeat: I’ll be very interesting to see how far that goes. Tell us more about VR.
Kunimitsu: We have some games that are doing very well. Beat Saber has already passed 1 million sales, around 1.4 million units. Super Hot has also reached 1 million. If you can break a million copies, even compared to mobile games, it’s a decent size. Against Gravity, the makers of Rec Room, they just finalized how much in funding, even though they don’t have any revenue?
I feel like the appetite for VR is finally coming back. The past two or three years have been a very cold winter. But some companies are breaking millions of sales and bringing in $20 million, $30 million in funding. In Japan Gumi is the only company that is still investing. A lot of other companies, like Gree, have left the VR scene. Stockholders have been asking me for the past three years when VR will finally get here. [laughs] I think it’ll be this year.
What makes us confident, Beat Saber sold more than 1 million. Many people were saying that early adopters had bought HMDs, but no one was really using them. That was the rumor. But now sales of games like Beat Saber and other top titles are coming back. We have more confidence that if we make a good game, the users will come to it.
We talk a lot with the Oculus people. The big difference they see with the Quest is the active user rate. It’s much higher than the other hardware, whether it’s HTC or Rift. It’s more convenient. We think that’s why the activity rate is so high.
We’re looking toward content that’s specific to VR. What is VR-first? What we’ve found is that immersiveness has two parts. One is physical and one is mental. The physical component is 6DOF (six degrees of freedom hand controller). It’s a big difference from something like a 3D TV. You can dive into VR and move around. It’s physically immersive. Only the 6DOF content is making a big difference.
When it comes to mental immersiveness, we see that in the appeal of things like virtual YouTubers. With virtual YouTubers, you can become somebody who’s not the real you. You’ve tried VR chat, right? In Japan VR chat is even more popular than it is here. Inside VR chat, users can bring their own avatars. On Japanese servers, most of the avatars are beautiful girls, even if 80 or 90 percent of the users are older men. [laughs]
In a virtual world, people want to become something different. When you have that kind of avatar, other people treat you like you were beautiful. You try to become like that character. When we’re born, in a sense, we take on this avatar. It’s the avatar we use with our family, at school, in society. Your friends or your family expect you to be a certain kind of person, and so you act the way they expect. But maybe you have different characteristics inside. Maybe you want to be a sexy beautiful lady, right? But in the real world, that’s too risky. In VR we can be anybody.
We have many characteristics, but in the real world, we have only one avatar. The community you’re a part of expects you to be a certain kind of character. But in VR we can choose any kind of avatar. We can choose from many different societies and communities. You can become somebody who is, in a way, the “real me.” That’s another uniqueness in VR that we’ve found.
We’ve seen in our experience with smartphone games that not every genre has been successful on smartphones. Smartphone-first games have had a lot of success with certain genres, though. Choosing the genre is very important. Two genres are becoming super-popular for VR-first content. One is MMORPGs, and the other is open world survival, Fortnite types of games. That leads us to Sword of Gargantua.
GamesBeat: Is your multiplayer VR up and running yet? Has it been popular?
Kunimitsu: Yes, it has. Our goal has been to make a fast, real MMORPG type of game. But full MMOs are too huge, so we’re focusing on two things. One is battles, and the other is community. For the battle system, we’ve chosen a very close-distance style. Many VR games have been about shooting, but for this kind of RPG we wanted to have swords, so we’re working in that direction.
As far as multiplayer, PvP is a little difficult, so we chose to focus on four-player co-op. That was our first target. We’re the only game on the Quest offering this kind of multiplayer sword fighting in VR spaces.
Another thing we’ve found about VR games is that the problem of scale is very different. The game systems can be much more complicated. This Gargantua you’re fighting is 10 meters high. Fighting against an enemy like that is almost impossible in 2D, if you think about how the battles are supposed to work. But if we make our enemies too small, that’s also not possible. The problem of scale is key to VR. It’s totally different from existing games. That’s something else unique about Gargantua.
We have a VR-first UI. We’ve added many different functions to deal with things like VR sickness. Also, organizing four players at very close distances can be difficult, but we’ve also solved that problem. We also have a lot of opportunities for expansions. Many companies in VR have launched a game and finished with the project. But like mobile games, we plan to keep updating and doing live ops.
Obstacles for VR
GamesBeat: How many people worked on Sword of Gargantua?
Ohnogi: Almost 30.
GamesBeat: The Medal of Honor people at Respawn told me they had about 180 people working on their game for two and a half years. How long did it take you to make Sword?
Kunimitsu: About two years. The first year was R&D. 180 is too big. [laughs] Most of the successful titles so far have been very small teams, right? Beat Saber was originally three people. Blade and Soul was two or three? Pavlov was also small. For VR-first, core gameplay is more important.
GamesBeat: If you go on to make more VR games now, do you think that’s about the right size of team, 30 people? Or do you think you’ll have to use more people?
Kunimitsu: No, I think that’s about the right size. Our biggest target is around 1 million sales. We want to reach at least 200,000 to 300,000. That’s reasonable. 1 million is kind of the dream at this point. But 200,000 to 300,000, 30 people is a reasonable team size for that.
GamesBeat: I’d love to see the Quest be able to broadcast to a TV, so everyone else can watch at the same time.
Kunimitsu: That’s another important factor, yeah. Later we’ll be revealing PvP as well.
Ohnogi: After we launched we started introducing squad competitions. Every week we do a small update, and we have new videos on Twitch and YouTube. This is one of our top players playing. He’s crazy. Way too quick. He knows where the enemies are coming from. We’re going to keep adding new weapons as well, because users have been very enthusiastic about collecting them.
Kunimitsu: We’re preparing not only new swords, but other kinds of weapons as well.
GamesBeat: Have you tried Vader Immortal? I felt like that was a bit too simple.
Ohnogi: Yes, we’ve tried other sword fighting games in VR and we’re very confident in what we have, especially as we update. The next big update will probably be around the end of November. We’re developing an adventure mode. The existing challenges are more arena-based, and we’ve seen that our users want something where they can progress through a story. We also want to improve the multiplayer lobby, so we’ll have a universal lobby where everyone can chat.
Kunimitsu: Right now a big problem for VR games is that the concurrent user numbers are too low. You’re very tense when you play a VR game, right? It’s not something you want to play all day. Once we put in the new lobby, you’re not necessarily fighting all the time. You can go inside Gargantua and just talk and hang out. Then you can get together a group and go fight when you want to. That should bring in more concurrent users.
We’re planning a lot of other new features. We’re going to add new enemies, and we want to add more character jobs. Currently everyone is a warrior, but since it’s an MMORPG, we need other character classes — archers, healers. At the Tokyo Game Show we’ll show a new playable demo with the PvP mode.
Making the Oasis from Ready Player One
GamesBeat: Do you call that by another name?
Kunimitsu: Yes, DOG stands for Duels of Gargantua. That’s the player versus player mode. This video is some of what we’ll be showing at the Tokyo Game Show, although you see it in third person here. You can see how the AI switches the camera. We’re hoping to develop this into a real esport. We want to have support for monitors so other users can watch.
Adventure mode here, this is a roguelike style of game. Here you can see the lobby, and the new player skins. Those kinds of features are on the way. Next year we have two big plans. One is avatars. Everyone wants to be able to change up and customize their own avatar. The other is new jobs like magic-users and tanks.
Right now what we’ve tried to make is an immersive, realistic battle system, and we think we’ve succeeded. But one thing we’ve discovered is that people who are strong in the real world can also be stronger in this kind of VR game. When we have more characters like archers or thieves or magic-users, more people will be able to enjoy it. That’s part of our plan for next year.
We’ve all seen Ready Player One. What we want to create with an MMORPG is that kind of world. We’re starting with Sword of Gargantua and Duels of Gargantua. But in the future we want to build more around VR chat, VR concerts, music, sports, shopping, all these things together. We can have a real virtual world. We started in 2017, and now we’re here. Between now and 2022 we want to create that Oasis kind of world. We’re going to add the ability to change your avatars. We’re building an open world mode. We want to have things like music events and survival gameplay.
These are the kinds of things that only first parties and second parties are doing. By 2022, we have two third parties, other companies, working together. We’re also invested in working around blockchain. One of the unique qualities of blockchain is that a piece of digital data can be a unique asset. We’re already started to connect to that, but in the future we want to be fully connected to blockchain functions. That brings us closer to this idea of the Oasis. By 2022, I really think it’s possible.
GamesBeat: You have a lot of interesting activity going on. I wonder who else is trying to do the Oasis too.
Kunimitsu: Maybe they’re not talking about it yet. [laughs] There’s Project Horizon.
GamesBeat: That looked a bit more like Minecraft, which is still a pretty good idea.
Kunimitsu: In the future, the big benefit for VR–as I say, in this world we’re stuck with one avatar and one society, one community. We have one set of characteristics. A lot of us aren’t super happy about that. But in a VR world we can choose from many different avatars, whatever we want. We can select our own community. We can express different characteristics. That makes us more free. That’s what I want to create.
In this world, how you look on the outside–many people will say it’s not that important, right? But really, it’s important. A beautiful woman is going to have an advantage. A handsome man has an advantage. We can’t change that. In our communities, whether it’s our schools or our companies or our families, where we end up in those communities comes from how we look. Not only that, but that’s a part of it. And that determines the characteristics we express. It’s a big part of why people aren’t happy, why they feel a loss of freedom.
In the VR world you can choose who you want to be. You can choose a community. You can choose your characteristics. If we can make people more happy and more free, that’s what we want to create. That’s something unique to VR.
The blockchain future
GamesBeat: What is your interest in blockchain?
This is currently the world number one blockchain game, My Crypto Heroes. It looks like a collectible card battle type of game. It’s available worldwide. You can see the installed base, DAU, subscribed users, and total sales. Currently that’s about $3 million.
What I’ve found about the uniqueness of blockchain games, there are two parts. One part is, because of the blockchain, data can’t be copied. That’s why you can have asset value. Each of the character on the blockchain can’t be copied. It can only be traded. If you imagine in a world like the Oasis, or a Minecraft type of game, if each asset is unique, maybe someone will be very good at making things like houses or furniture, and someone will want to buy that.
With blockchain, you can control supply. Usually price is determined by supply and demand. In the internet age, data is copyable, so the supply is almost infinite. Data itself is hard to sell. That’s why every company on the internet has become a service company. Gaming companies have gone this route, and companies like Spotify. But on the blockchain, every piece of data is unique, so you can control supply. Data itself can have value.
The other unique perk is that the data doesn’t belong to us. It belongs to the users. Users own it as an asset. The big difference between mobile games and blockchain games is that the users are very supportive and friendly. They help us with promotion. They’re making sites about the game themselves. That’s because they own an asset, a part of the game. Once the game becomes very popular, most likely the price of their assets will go up. That’s why they want to lend their support to the game.
It’s a little like joining a startup. You go to work for a startup in part because you get stock options. Everybody works really hard because once you make it to an IPO or acquisition, they all benefit. Blockchain games are giving users something like a stock option. When the game becomes very successful, those players all benefit. It’s a very strong mechanic, a totally new kind of incentive for engagement.
GamesBeat: What is the connection between VR and blockchain?
In the future, in the VR world, blockchain means that every digital asset–we can control supply, so you have asset value. It’s an important change for the internet. As I say, everything on the internet is copyable, which is why data can’t have value. If I sell you this iPhone to you, I don’t have an iPhone anymore, so that has value. But if I just send you something like a document online, that’s not worth anything.
It’s why, in 20 years of the internet, we’ve only seen two successful business models. One is advertising and the other is e-commerce. The digital world itself can’t have value unless it’s related to the real world, which is true of both advertising and e-commerce. But once we have blockchain connected to the internet, and connected to the VR world, every piece of digital data can have asset value.
If you look back on Second Life, a lot of people tried to make money buying and selling land in Second Life, but that land isn’t unique. It was totally centralized, too. If Linden Labs wanted to expand the world, they could do it. With blockchain, that’s not the case. The company can’t have that complete control. It’s decentralized. Your land or your house or your digital items can have real value. With blockchain, if somebody likes a game and wants to add things like enemies, monsters, or weapons, they can do that, and they can sell it to somebody who has money in the real world.
GamesBeat: I guess the question that arises is, if you put blockchain in your MMO, does that mean the users control the game instead of you?
Kunimitsu: That’s possible in the future, in a decentralized world. Of course, blockchain technology isn’t quite there yet. We’re too early for that kind of connection nowadays, to the internet and to VR worlds. But my guess is that in two to three years, we’ll see more scalability and more security. Then we can connect blockchain technology to the VR world. People will be able to have several avatars, several communities, several characters, and several economic systems. I think this is the future.