Gala-Net, Inc.: Connect the World through Online Games

Jikhan Jung
Co-founder and CEO, Gala-Net, Inc.

Joined GALA Inc. after working in the Internet Broadcast Division of SBS (Seoul Broadcasting System) and as a game producer for Excite Japan Co., Ltd. Established U.S. subsidiary Gala-Net, Inc. in May of 2004 as CEO. Has developed a community-focused online gaming business through the company's portal site "gPotato" (www.gpotato.com). A graduate of Yonsei University (South Korea) and the Executive Program for Growing Companies at the Stanford University Graduate School of Business.

Tenant Incubator: Silicon Valley (BIC) (January 2004 to January 2005)

Q: Please tell us about how you first got introduced to GALA Inc. (parent company of Gala-Net, Inc.) and Mr. Kikugawa (CEO of GALA Inc.).

Jung: After graduating from Yonsei University in South Korea, I started working at SBSi, the Internet subsidiary of a South Korean television station. Before that time, television had been a kind of "one-way communication." Television programs spoke to the viewers, but the viewers couldn't speak back. Things had changed when the Internet came along; the audience-participation format was introduced. These programs combined television and the Internet, and "two-way communication" was then established. For instance, text screens began to be displayed on television monitors so that the viewers could e-mail in questions to guests appearing on a program. They would then receive an answer from the guest in real time. If it was an extremely popular guest, the questions would come flooding in, so the server often went down. (laughs) From that time on, I began to feel that this "two-way communication" between the community of viewers and the television programs was the most interesting aspect of entertainment. Around this time, an offer came in to me from Mr. Kikugawa through an acquaintance. Mr. Kikugawa managed a large online community in Japan and intended on expanding globally. Basically, he asked if I would help with their Korean enterprise, Aeonsoft/NFlavor. I had always been interested in other countries like Japan and the United States, so I thought, "This is a good opportunity!" and I decided to accept his offer.

Q: How was it that you ended up in Silicon Valley?

Jung: At the time, GALA had developed an online community called "GALA Friends." It also had services like "e-mining" and "Cyber Cops" that managed risk information and filtered out libel and defamatory material. But Japan's Net business environment still lagged far behind South Korea's. Before coming to Japan, I had the impression that Japan was more advanced than South Korea in every way, so I was in for a big shock. (laughs) There was no way that things would have gone well if we had introduced the Japanese business model in South Korea without modification, because Net businesses were so much more advanced in South Korea. So, we just couldn't get a South Korean subsidiary launched. Looking back, I think that the factors for success just weren't there. But, around that time, another project was floated. This one aimed to develop a similar business in the United States. I was already interested in the United States to begin with. On top of that, I had a sense that I really wanted to succeed this time, so I decided to give it another go.

Q: So, then you came to Silicon Valley?

Jung: No, not right away. See, in order for the Japanese main office to send a South Korean like me to the U.S. subsidiary, I needed to get a work visa for foreigners. They thought it would be hard for me to get the visa under the existing conditions, so unfortunately, the plan to send me to the United States fell through. Since this didn't work out, I resigned from GALA and joined Excite Japan at my friend's invitation. I started working in the online game business that was just starting up in Japan. At the time, there was a wave of interests in online gaming that Excite Japan was able to captivate. The number of users was increasing by leaps and bounds. My experience in managing a community at GALA also came in handy. Then one day, I was suddenly contacted by Mr. Kikugawa again. He told me the visa problems had been worked out, and he asked me to come back. I still had my heart set on succeeding in business in the United States, and I figured it must be fate. So I returned to GALA, and finally ended up coming to Silicon Valley.

Q: So, you finally made it to the United States. Could you tell me specifically what you're doing now?

Jung: We're developing and managing online games under the "Free to Play" business model. Actually, we pride ourselves on being the pioneers who introduced this business model to the U.S. market. Our best-known games are "Flyff" and "Rappelz," both of which are MMORPGs (Massively Multiplayer Online Role Playing Games) that lots of people can play at once. "Flyff" is a fantasy game that is popular with hardcore gamers. "Rappelz" is an MMORPG with a European flavor that can be played more casually. Both have built up some of the largest gaming communities in the world. I hope all of your readers will give these games a try – they help reduce stress. (laughs)

Q: So, how did you manage to get the "Free to Play" business model established in the U.S. online games industry?

Jung: Well, if you look at how online games were launched in Japan, you find that people initially thought you had to have special hardware in order to play the games. When we were trying to sell the "Free to Play" model, people would ask us how in the world they were supposed to make a profit from an online game that was "Free to Play." Wherever we went, no one would take us seriously. We got exactly the same reaction in the United States, but when I heard that, I secretly thought, "Now's our chance." Now, it's true that most of the major U.S. online games companies rack up sales through a subscription model, where they pay a regular usage fee every month. But this subscription model just didn't make any sense to me because even users who didn't play the games at all would still have to pay a monthly fee. Let's say you go to a shopping mall. Imagine that you walk into a store, and before you even have a chance to look around, the clerk says to you, "Please pay now." What would you do? I don't think anybody would pay under those circumstances. (laughs) Now, with our "Free to Play" model, on the other hand, people can play our games free of charge. The only time they have to pay money is when they want to obtain an item like a weapon or a costume for one of the characters. Then we have them purchase the item, and that's how we generate income.

Of course, some people were opposed to the "Free to Play" model. They said, "Won't we make a bigger profit under the subscription model?" But we already had competitors in the United States who were using the subscription model, so we couldn't really expect to bring in that much income from it. So we went ahead and started up the business utilizing the "Free to Play" model and we found that the average monthly payment from users who were buying the items was several times what we would have taken in with the subscription model. Now we have 5 million members registered worldwide. In the United States, a significant percentage of the users buy the items, and in Europe, it's even higher.

Q: Five million users worldwide is quite impressive. How did you handle marketing?

Jung: We basically have focused on the Net for that. Because we were a small venture business, we couldn't afford to spend a lot on advertising. We began by using Google AdWords. When we first started using it, there weren't any businesses comparable to ours in the United States. If you were to do an Internet search for "Free games," our advertisement would be in the top spot, thus we have received a tremendous advertising impact. I guess you could say we enjoy the benefits of being a pioneer in the market. Then some competitors moved in, but we handled that by using SEO (search engine optimization) techniques so that our company's advertisements would still appear at the top of the list.

Q: Your games are played in Japan, the United States, and Europe now, but are there any other countries you have your eye on?

Jung: Turkey. It is proven that people in the online game industry pay the most attention to the Internet diffusion rate. The Internet businesses can grow rapidly in countries where this rate of Internet usage is 25 to 35 percent. In both Japan and the United States, it has already exceeded 70 percent, but Turkey and Russia are in the strike zone. The gamer population is growing in Turkey, in particular, and this is the number one country that we should focus on next.

Q: Do you have any plans for other kinds of games? "Flyff" and "Rappelz" are role-playing games. What about other genres?

Jung: Well, there is wide support for Wii Fit and brain training, so we are developing games that incorporate fitness and education. Conventional games have targeted males in their teens to early thirties, so this market has already been saturated. It's hard to squeeze any more profit out of it. Nintendo's Wii and DS still have explosive popularity because they have developed a lot of games that can be enjoyed by a wide variety of age groups (i.e. children, women, and elder people). Based on this market trend, we aim to cultivate new markets in online games. We are working hard to provide games that can be enjoyed by a very broad segment of the population.

Q: What was the one thing in your life that influenced you the most?

Jung: "Galaxy Express 999." My life changed after I watched this Japanese anime. From then, I had a fascination with the stars and the virtual world. I even wanted to study astronomy at the university level, but one of my high school teachers said, "There's no money in that, so don't disappoint your parents." (smiles wryly) My family was not that well off, so I think they had great expectations of me. Anyways, I gave up on studying astronomy at a university level and decided to study engineering. But until this day, I still read books about the stars. I even have a telescope in my office. When I have a little free time, I do some stargazing. (laughs)

Q: You mentioned that you had a fascination for the virtual world. How do you think the virtual world including games will develop in the future?

Jung: The world of games is virtual and is powered by the imagination. I think the virtual world is going to be more and more important in the future, not only in games, but in everyday life, especially in business. I'm talking with you all like this now, but how about if I say to you, "Let's meet again in twenty years?" In twenty years' time, don't you agree that the virtual world will have evolved to the point where we won't have to physically meet in this place? Maybe our avatars will meet in a conference room in the virtual world and talk business. Gala-Net's mission is to "Connect the World through Online Games: facilitating interpersonal interaction on a global basis and crossing over the barriers of age, gender, race, nationality, time, and location, will lead to the creation of value, the fostering of understanding and mutual respect between individuals around the world, and ultimately, greater international goodwill," and that is my personal dream as well. We play for keeps, venturing to make that dream come true, every day.

(Editors: Michiru Lackey and Tatsuro Maeda)