Why Owen Mahoney stepped down after a decade of success as Nexon’s CEO

Owen Mahoney joined Nexon in 2010 as CFO, and he oversaw its initial public offering in 2011. He has led the company as president and CEO since 2014. Under his leadership, Nexon delivered consistent growth in revenue and operating income and the most robust pipeline in the company’s history.

So why is he stepping down? Nexon announced on November 11 that Mahoney will step down in March 2024 and be replaced by Junghun Lee, head of Nexon Korea and a board member.

Despite the fact Mahoney was a Westerner in charge of a company with its headquarters in Japan and much of its development staff in South Korea, Mahoney had a stellar record while running the company that is known for Dungeon & Fighter, MapleStory, Kart Rider on the PC and recent mobile hits like Dungeon&Fighter Mobile, MapleStory M, Blue Archive and Dave the Diver. During the most recent quarter, MapleStory grew 46% compared to a year ago.

Starting next March, Mahoney will stand for re-election to Nexon’s board and serve as senior advisor. Both Lee and Mahoney will serve in their current roles until the succession is formally approved. It will be interesting to see where this company, valued at $20 billion in the stock market, goes next.

Here’s an edited transcript of our interview.

GamesBeat: Thanks for doing this interview. I was surprised to see you made this decision. I wonder why you did that at this time?

Mahoney: Well, personally for me, it’s just been a great run. And an incredibly enjoyable 10 years as CEO. I joined Nexon 13 years ago as CFO. And then I became CEO 10 years ago. A public company CEO’s tenure is usually somewhere around six years. Ten years is a very long time to be CEO. And it’s been a very enjoyable run from a personal perspective. From a professional perspective, the real question about timing and CEO succession is really a topic about the long term. It’s about longevity of returns for shareholders, which is a corporate governance topic.

And we are very serious about long-term returns for our shareholders who are very serious, therefore about corporate governance. You see a lot of companies talk a good game about corporate governance, but when it comes right down to it, they really have a struggle with the topic of CEO succession. And we’ve seen some great companies really stumble on this topic, and it’s been not great for shareholders. From our perspective, we want to be very serious about this. But you don’t just wake up one day and say, ‘Okay, we’re going to transfer to the next generation.’ You have to have a very good bench of fantastic people in place. And so it starts with having a great bench.

And I would, respectfully submit that in the online games business, Nexon has got one of the best, if not the best executive teams in the world of any online games company. The second big component of it all is about timing. And, the question is, when do you want to do a generational change? And you don’t want to do it when you’re on your heels as a company. That makes a transition very, very difficult. And you’re doing no favors for the next generation. You want to do it when things are going great. In our case, we just had an absolutely phenomenal quarter. We gave guidance for our seventh consecutive quarter of double-digit, year-over-year growth with no major new product launches, major new product launches.

And then we’ve got the best pipeline in our history, arguably one of the best pipelines in the whole games industry. The Finals was just an incredible beta, and we think it points to a very, very strong pipeline. And then there’s much more in the pipeline after that coming from Embark and other parts of Nexon studios globally. So we’re in great shape. We’re firing on all cylinders. And so now’s a fantastic time to be doing it. Again it’s not that common to do it the way that we’re doing it, but we think that any company serious about shareholder returns and corporate governance would do it, takes this approach.

GamesBeat: You’re going out while you’re on top of things.

Mahoney: That’s one way to put it. The other way to put it is setting up the next generation for success rather than setting them up for challenges. And again, if you’re a long-term shareholder, you care a lot about this stuff. And so I think now is a very, very good time for transition to a next generation, for sure.

GamesBeat: Have you also figured out what you want to do next?

Mahoney: The short answer is, first of all, I’m staying on the board as directors. And I’ll continue to be an advisor for the company. Overall, I think that the games industry is an underachiever for what it could be. And we’ve proven out a few things around themes that you and I have talked about for the last decade Dean. We’ve proven those things out at Nexon, and we think that this quarter is a case in point of proving those out. That is, in our live virtual world’s longevity, we just grew MapleStory 46% year over year, globally.

And that’s for a game, a live virtual world, that is 20 years old. That not only has never been done in the video games industry. That is just astounding. And nobody thought that was possible 10 years ago. Nobody thought it was possible at any point in history, basically. And it’s bigger than ever, and it’s stronger than ever. So that was point No. 1. Point No. 2 is we just introduced, or we’re in the process of introducing, what we think is one of the biggest and most important intellectual properties to hit our industry in some time. And that’s very hard to do. And we’re talking about The Finals here. But it’s not just about The Finals in a single game. It’s about the way we’ve gone about it.

Which is, we think that we can bring great new triple-A IP into the world without having to have a thousand people in the development team. This isn’t a topic about cost savings. This is a topic about getting game developers closer to the development process. If you’re a game developer and you have to manage a team of 500 people or a thousand people, you’re not really a creative professional. You’re an HR manager. And that’s not what you got in the games business for. And so by building some software tools, and bringing a better workflow and an approved set of software tools to the fore, you can then get game developers to be game developers again.

And we think that’s really important. And you can still have a triple-A game. So this whole concept of throwing bodies at the problem has created a situation in our industry that really makes it difficult to be creative and to bring blue ocean new ideas to the industry, and to customers. So the situation in the industry right now is that customers are very understandably unhappy because they see a lot of the same product. And it’s not as differentiated. Game developers are unhappy because they’re working very hard, essentially doing factory work. And massive teams are building art by hand. That could be done much more efficiently and effectively.

Of course, investors who are our bosses are unhappy because people like me have to, in the traditional game business, give the green light a hundred million dollars to $200 million projects, which have huge downsides. So that causes people to be a lot more conservative rather than go out and search for the blue ocean. And so from each of those perspectives, it’s bad. And we think it’s very important to change that situation in the games industry. So getting back to your question, I think the industry has a lot that it can still develop in many new and different ways. And I hope there’s a lot more that we can do in the industry.

GamesBeat: It’s mixed time in the industry, a tough time in terms of lots of layoffs. People might be looking for some reassurance here. Are they seeing the whole picture? I wonder if you could address the big picture?

Mahoney: When you talk about people, do you mean employees or investors?

GamesBeat: The data we have is that there’s been a lot of layoffs of people, and we don’t know what the big picture is.

Mahoney: Oh, I see. Well, look, it’s too early to declare victory with the way that we’re doing games. But I think it’ll work. And if it does, we will prove that you can do something different. And you might remember we made a presentation back in 2019 at an investor conference, and we said, ‘Look, if current trends continue, triple-A game development is rapidly blowing through a hundred million dollars in development spend for a game, plus call it another hundred million dollars in marketing spend. And it’s going to hit 200, 300, 400 very quickly. And this is something that Raph Koster has pointed out over the years. I think there’s a graphic in his book that was about this. This is unsustainable. This trend line is completely unsustainable.

And I think we’re starting to bump into this problem right now. If, as a CEO of a publicly held company, I make a $200 million bet. And I blow it then and I blow it a second time, there will be a long line of people who call for my head. So what do I do as the CEO of a publicly held company? I wouldn’t do it. My natural inclination would be to lower the risk. And what does lower the risk mean? That means you make darn sure you’ve got a lot of people working on a game, that they are building a game that you think is, if it does anything, it’s not going to fail miserably. It’s not going to be a belly flop. And because otherwise you’re going to look dumb.

Shareholders will be calling for your head because you wasted their money. And it’s their hard earned money, and their reputations are on the line as well. So what do we get? We essentially get the same game year after year, and customers don’t like that. We’ve managed to turn out, as an industry — I’m not being critical of any specific company or anything like that — but as an industry, it’s a problem because we’ve got a lot of red ocean products. And I think we’re seeing some of that right now with Murderers Row end of year product launches. And when those don’t work out, there tend to be layoffs, and the layoffs happen in very large numbers because these teams are very big.

And we think that isn’t a model that’s going to work, and we don’t want to be in that business. This is going back several years in my tenure. We looked at our business and we said, ‘Look, we have these live virtual world games like MapleStory and Dungeon & Fighter and several others. And they go up and down a little bit, quarter by quarter, but they essentially grow very consistently over a period of years or decades. That gives us enormous stability. We don’t have to replace old lost revenue with new revenue. We can build on top of each other. We can build and then when we do new game development, we should be going farther out with something that is new and different and wacky and strange, because that’s going to give us a more likelihood of a blue ocean opportunity, meaning less competition.

So our products end up looking less like other products if we do our jobs well. And that has been a core part of what we do with new development. The second part of new development is rather than throwing bodies at the problem and trying to get the last pixel on the page, or the last polygon, we bring software to bear. Instead of putting people on it — hiring more hundreds of people — we use software to solve some of these game development problems. And as a result, we have a much smaller development team. Now the team that made The Finals is under a hundred people. And it’s a triple-A game.

And that’s a revolution. And if we do that well, we’re going to be able to take more bets that are farther out there, rather than less. So it doesn’t mean that we have to employ less people. It just means that we’re able to put them to more effective use. And by the way, it’s not about the whole idea of having cost savings so you have a smaller team rather than a massive team. You can have a 100 person team instead of a thousand person team. Isn’t that great? It’s not even really about that. What it’s really about is getting game developers closer to the development process because game development at its core is a highly iterative process.

And it is usually artists and creators standing in front of a whiteboard, arguing about new creative ideas. Throwing out things that don’t work, trying something new, saying, ‘Hey, wouldn’t it be cool if we did this?’ And iterating over and over. And so to do that, you can’t do that with a cast of thousands or a cast of hundreds. You can only do that with a smaller group. That’s why we think small teams being more effective is a very, very big deal. And the good news is there’s a lot of software coming at us from around you, from outside the industry. What we really need to do is leverage those tools much more effectively.

GamesBeat: Do you worry though that those teams could also take just forever to finish their games, the smaller ones?

Mahoney: Well, that’s always a problem. But that’s a problem with big teams too. It’s just much more damaging with big teams. I would respectfully submit that artists get in the business ultimately to ship products. And so people who are very, serious about making great new products want to ship it. They want to have a big fan base. And so they want a live product out in the world.

GamesBeat: Yeah. And I suppose AI is going to sort of factor into how you can make companies or teams more efficient in the future?

Mahoney: AI is certainly one of the software developments that we’ve spent a lot of time and effort on over the years, going back about five years or so. You’ve covered this in great depth [about how the rest of the game industry has moved into] esports and VR and the metaverse.

GamesBeat: Even blockchain.

Mahoney: Yeah. All those things. And we really sort of steered clear a lot of that, what we really put our time and effort into is AI. And other related software tools that are not AI, but make us a lot more efficient and a lot more effective at developing games. A lot of what the industry puts bodies onto are problems that can be solved with software. And what we found very early on that AI was — this is going back to 2017 or so — that we saw immediate returns on our AI and machine learning investments in our live game operations. The more we did, the more we found that it really worked.

And then we started in our Embark Studios starting to experiment a lot with new game development. And it worked there as well. It’s not always LLMs. That’s very new. But the returns [on early AI investments] are very, very good. And again, the whole concept is not about AI specifically. It’s about using software where previously we had to use people. And by doing so, we get game developers, the creative people in the industry, much closer to the development process.

GamesBeat: And do you feel like the payoff from AI is still come, like maybe still far into the future? Or is it actually already very close to paying off?

Mahoney: No, I definitely think it’s already happening. I mean, it certainly has been happening for some time. I’ve used this example before publicly where just in matchmaking, within about 17 sec seconds of you playing the training level on an FPS, we can start to figure out pretty quickly how to rank you.

And it’s not just about ability, it’s about matching you with the optimal group of people. They may be more skilled or less skilled than you, but your gameplay style matches very well. There’s an optimization function in any given liquidity pool of people that are in the game at that moment. And that’s the type of thing we could hire a million people and we wouldn’t be able to create that sort of outcome.

But we can do it with machine learning very quickly on the fly in real time. And it has an immediate impact on retention and of course retention leads immediately to revenue. And I give that example about life game operations and when we used to talk about this, people’s eyes rolled, it’s still not the sexiest part of AI, but it’s here today and we use it. And we use it in MapleStory and other games that we live in today.

GamesBeat: What about the main concern that people fear right now — that it’s going to eliminate jobs?

Mahoney: Well there’s always going to be a fear of that, for sure. And that’s a very important topic. But I would respectfully submit that the people who are game developers and who are game artists got into the games business because they want to make games. They want to be creative. And they love the art form. And games are an art form, a fabulous art form. It’s my personal favorite by far compared to painting or music or movies or great novels or what have you.

And yet, what does our industry ask them to do? Again, they end up working among hundreds of other developers painting virtual leaves under virtual trees in Photoshop. They get treated like factory workers. It’s a trap. They’re not being asked to be their best creative selves. So, I think game developers who are great, truly creative people, don’t want to be doing low end factory work. They want to be creative. And they want to create great games that blow people’s minds. I see the delight of the game developers that I work with — because they are able to do that. They’re able to work with a small team to build something really great.

I can’t think of better work to be doing that, that you want to be doing. And I think our industry will be much bigger and therefore employ many more people if we can bring better games to market. Games that are different and more interesting. And that’s not just talk. We’ve seen it happen over and over again. Think of all the people who didn’t used to be FPS players who came in to play Fortnite. Think about the people that Minecraft brought in. Go back to Zynga when they did their IPO. They made a very good point [about making blue ocean games].

I thought it was very eloquent when they said we think of gamers as a certain type of a certain age, a certain gender, and so on, but everybody’s a gamer. Maybe they play Sudoku, maybe they play chess, maybe they play golf or tennis or what have you. I think that the industry pie can be much, much bigger if we bring a wider variety of creativity in games to the industry. So going back to developers, if we can unleash developer creativity, we are going to have a much bigger industry, which means we’re going to be employing a lot more people overall. That’s my take.

GamesBeat: Are there some closing thoughts you have about things like how Nexon is understood. And anything more about, say, achievements or frustrations?

Mahoney: Well, my answer to your question is they’re all sort of wrapped into one. I mean, for 12 or 13 years I’ve been working very hard with the team to explain what Nexon is all about. And for most of that time, people have had a really hard time understanding that you can have a live virtual world last and grow indefinitely.

That was something that was heavily misunderstood. People just didn’t believe it for a very long time. I think a lot of what you and others wrote about the Metaverse opened people’s eyes that a game experience isn’t a disc that you buy or a product that you download that has a natural product lifecycle that goes up and that goes down. It’s actually a place that you go to.

And you might keep going back to that place for a very, very long time because it’s so entertaining. And because the developers keep making new things to go back to. And that from a business perspective, that can last for many, many years. People have a, especially investors have a really hard time understanding that. So when the No. 1 question I’ve gotten during my entire tenure is, ‘Okay, when are Maple Story and Dungeon Fighter and these other massive franchises going down? Congratulations on their longevity, but when do they start going down?’ Because that’s what everybody’s mental model of the product lifecycle is. We have proven over and over again that they actually can continue to get bigger and bigger if we do our job well.

As a result, our business could double within a few years without ever adding a single new product launch. The second big thing that we’ve sat and firmly believed is that we can build a new franchise that doesn’t look anything like [an existing] genre, but that looks very different from other things that are out there. And by doing so, by not being like other things that already exist out in the market, that we can bring fresh games out and the gamers will really appreciate that. And this last quarter was really, I think it illustrated both points really well. Oh, by the way, we can also do it without having to hire hundreds of people.

We can do it with a much smaller team that can be much more creative and much more nimble. So all those things I think are really important. And they’re important for, again, addressing three very understandably frustrated groups. I’m a game player, and as a customer, I’m frustrated. I’d like to see more innovation in our industry. I think that would be, that would be really great. As an employee, I think employees would like to be closer to the development process and be closer to being creative, rather than what the industry has asked them to do largely, which is to be kind of, again, factory workers or HR managers for these very, very large teams.

And investors have been understandably very concerned about these very large development spends. To do something, to, to walk right into the withering crossfire of a red ocean to mix my metaphors a little bit like, they don’t want us to make red ocean products because they usually don’t have break out outcomes. And so all three groups have been frustrated. And I think we’ve really gone a long way. It’s been an uphill battle for sure, but we’ve gone a long way to show a new way of going about addressing our industry to the benefit hopefully of these different constituents. All of them are very important.

GamesBeat: Interesting. So hopefully you’re going to get some time to do some fun things.

Mahoney: Yeah. We’ll see. I hope so. I hope so.

GamesBeat: Your car has amazingly good internet too.

Mahoney: Well, I’m in Korea right now. It’s like one giant WiFi land. It’s actually been running off my mobile phone too.

GamesBeat: Wow. Congratulations on a great run. We’ll be interested to see where you wind up, whether traveling the world or other things.

Mahoney: Nice to talk to you, Dean.