social gaming: boom, bubble, business or bust?

(eyeball time: 2.5 minutes but you might read faster…)

the dea skinny on what’s happening:

for those who closely monitor the gaming industry, the term, “social gaming” may conjure up images of gaming farms in korea or large mmo conventions in las vegas. it’s the world of warcraft crowd or the halo armies on an xbox360. nope. it’s not that. well. sorta. it’s the complex multi-player fully interactive experience played by (and sold to)  the millions around the world. what once was a simple collaborative gaming feature for is now much bigger….it is a full multi-million dollar business. social networking and collaboration is not a simple  “collaborative game feature” anymore. they have merged into social gaming.

the stakes:

in late july, 2010, news spread of disney’s $763.2 million acquisition of playdom games. the purchase not only diversifies the entertainment company’s media portfolio, but underscores a growing trend of reaching potential customers via platforms they prefer. playdom is the third largest social gaming platform on facebook and zynga with about 42 million monthly players. it also claims that half of all facebook users engage in a social game amounting to 40% of total usage time spent on these games. that’s 42 million potential new customers for disney. as noted, social gaming is by no means a new concept. however, social gaming built on social networking platforms has only recently emerged as its own industry. these games tend to be less complex and far more casual than its predecessors on microsoft xbox or sony playstation.

consumers’ appetite for social games is growing — zynga’s “farmville” has more than 60 million active monthly users, as of july, 2010. according to appdata.com, zynga, the leader in social games, has raised approximately $520 million in venture capital, and the company claims 1.3 million daily active users. the company also recently announced the development of a $150 m US joint venture with japan’s softbank to accelerate development of the social game industry in Asia. these numbers are only attracting bigger players, like disney, who want to tap new sources of growth. retailer, gamestop corp. also recently agreed to buy online game distributor kongregate inc. for an undisclosed amount.

the value is also not lost on future entrants into the social-networking world. reports indicate that google, who has been rumored to be developing “google me” (a competitor to facebook) is also in discussions with social gaming developers, such as game network inc. and razorfish. a successful google offering would mean social-game developers wouldn’t be so heavily dependent on facebook, where the vast majority of users access the games. indeed, by august, 2010,  word leaked out that google has invested $100 million in social gaming with zynga in anticipation of its roll out of google gaming.

the dea takeaway:

will casual social games become as lucrative as its console brethren? the increase in offerings, funding and attention would indicate so. indeed, will probably go far beyond.  even nintendo, known for its casual gaming wii console, recently reported a net loss of about $289 million for its fiscal first quarter, compared to a profit of $487 m US in the same period a year ago, citing a strong yen and weaker sales of its hardware.

however, as the market becomes saturated and interacting on a social network becomes a daily norm, several questions emerge:  is the rash of new acquisition activity in social networking and social gaming just another tech bubble where people are over paying and over funding them? could disney’s acquisition of playdom be short-sighted? or will social networking become so prevalent that it is included in all future business development and practices? finally, how will mobile gaming play into this equation. the possibilities are vast; or is it a bubble and will it burst? we are betting it is a new vibrant global business.

for more information, please contact us at 512.825.6866 to discuss the issues more fully and the specific impact & implications to your business. it’s free!