So what’s so fascinating about the social gaming space beyond the entertainment factor for those of us who enjoy the casual game?
Simple: Almost every company in the space is staggeringly profitable.
When dissecting the success of companies like Playfish, Zynga, Playdom, MindJolt, etc., a few things become clear very quickly: their expertise is more about viral marketing than game development. They have mastered mass user acquisition at the lowest possible cost while introducing simple business models to generate revenue. More importantly, they own the relationship with users/players, which is not only critical to their promotion strategies, but also to game development and future business models. In other words, your success formula looks something like this:
Success = Simple game + Cloning + Virality + Freemium business model + Direct relationship with the user
SimpleGaming – The simplicity approach taken by game developers, both in terms of access and gameplay mechanics, has significantly facilitated user adoption and repeat visits. Access, which for all companies is browser-based, is also about being on or off the platform. Games on the platform (those on Facebook, MySpace, etc.) get massive leverage and easy-to-reach user bases. Off-platform games have more flexibility with game development at the expense of “viral-ability”. On the game mechanics front, allowing users to quickly understand the game, making the game light, interactive and competitive have been key aspects in triggering user adoption and return. The light and casual approach to game mechanics has also drastically reduced game development times (3-6 months for most developers), but has also facilitated a cloning wildfire.
cloning – To a large extent a legacy of traditional games such as Ataris and Nintendos of the world can teach us. While it’s easy to frown on companies constantly releasing obviously cloned games, cloning is arguably a smart business approach in early-stage and immature markets. After all, people like playing instantly recognizable concepts just like they like watching familiar formats on TV (what’s the last original Reality or Game Show format you’ve seen?). Also, if the uptake of Facebook games is any indication, a cloned game is more likely to satisfy areas of the market that haven’t been reached by the original game’s developer than to erode that developer’s existing market. For example, when Zynga introduced Café World earlier this month (16 million users in its first two weeks), it had no visible impact on Playfish’s Restaurant City user counts and growth. As the market matures and users demand games with more depth and sophistication, cloning will become more difficult and, as a consequence, an unsustainable model. The first proof of this may come with the recently announced Facebook version of the classic Sid Meier’s Civilization.
virality – Let’s be clear from the start: both Zynga and Playfish have spent millions on advertising to gain their initial critical mass of players. They also mastered how to make the most of that initial investment, using virality to significantly reduce additional user acquisition costs. As companies on the platform, they have taken advantage of the many integrated viral opportunities that Facebook offers: integrating and automating status updates, wall posts, suggestions, touches from friends, etc. They have also cleverly turned their games into their own advertising platforms. The games promote each other (which is half the reason Zynga hit 16 million in the first two weeks after launching Café World) and encourage returning users through games based on the game. time, challenges from friends and those annoying reminder messages.
free business model – Play the most popular games for free to remove barriers to entry. The interactive and competitive features of social games (ie friends wanting to outdo each other) have facilitated the introduction of “virtual currency”. Virtual currency can be purchased for cash or for free by signing up to services offered by advertisers (and in many cases, sadly, bidding scams), and is used by players to purchase virtual goods that help them reach new levels. faster, access advanced games. areas, obtain special powers or even for vanity purposes (decoration of their virtual environments and avatars). Sound flaky? Zynga is rumored to have a $100 million annual run rate for 2009, while Playfish is reportedly on track for a $75 million run. According to Venture Beat, even the hundred garage game developers present on Facebook earn between a quarter and a half million dollars a year.
Direct relationship with the user – Unlike traditional game companies that gave up the user relationship with retailers, social game companies interact directly with their users. This has given them a couple of invaluable advantages: 1) access to a wealth of data and metrics, and 2) immediate feedback on game features. Therefore, social game companies are in a position to rapidly improve and extend the game (most feature games at 25% completion), increase virtual goods conversions, and most importantly, provide a data set that can generate much greater value for advertisers and for the creation of new business models.
Looking ahead, new business models and new levels of gaming sophistication are likely to emerge as the market matures. Media buyers can realize that engagement is more than clicks and impressions and use social games to engage with their audiences over a longer period of time with “ad games” (imagine a TGI Friday restaurant town) or integrated advertising (earn enough points to take a virtual Audi to the next level). As users begin to demand better games, game companies will need to combine their existing skills in viral marketing with new ones in software development and, for that matter, patenting. This can also happen through acquisitions led by traditional game companies (as I write, EA is rumored to be in acquisition talks with Playfish for over $250 million). Niche games are likely to emerge in the way niche social networks are already doing thanks to Ning and Drupal. A great first example is Mind Candy and her game Moshi Monsters aimed at young children. As an off-the-shelf company focusing on education and parental control, one of Mind Candy’s potential growth paths could be joining forces with school systems to provide teachers with fun managed environments to assign and review. Tasks.
As with any emerging industry, predictability is extremely difficult. On the other hand, so is the instant return…
Originally published on http://digitalpopuli.com