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Videogames see social networks as growth engine

For those wondering when the videogame industry will enter its next console cycle, some argue that the new cycle has already started, with social networks as the next big opportunity.

Such was apparent this week at the Game Developers' Conference in San Francisco, an annual gathering of videogame designers and publishers. While the event saw some big developments among traditional gaming--most notably, Sony's new motion-control system--a big theme running through the event was the rapid growth of social networking and the related opportunity for game makers.

The opportunity is big indeed. The largest social-network site, Facebook, alone has more than 400 million monthly users. MySpace, its closest rival, has 100 million monthly users. Those numbers are far above the number of people who own traditional videogame consoles.

"We have a new mainstream mass audience," Gareth Davis, platform manager at Facebook, said during a panel discussion at GDC. "We think this is a lot of opportunity for game developers to tap into."

Games are becoming hot property for social networks. The soaring popularity of games such as "Mafia Wars" and "FarmVille" over Facebook has attracted the interest of both game makers and investors looking to pump money into the next Big Thing.

Such was apparent at GDC this week. Among the crowd of programmers and designers were venture capitalists, financial analysts and private equity funds, sniffing for opportunities in the market.

These investors are not looking to sink money into the next PlayStation or Microsoft Corp.'s Xbox game; rather, they are looking for the next Zynga--the San Francisco-based company that makes "Mafia Wars," "FarmVille" and other social-network games. Still privately held, Zynga landed $180 million in funding late last year from Digital Sky Technologies, or DST, the Russian outfit that also bought a large stake in Facebook.

Media reports said the investment gave Zynga a market valuation between $1.5 billion and $3 billion. The company reported 100 million unique monthly users in November, and reportedly has about $250 million in annual revenue.

"Amazingly, there are over 200 million people playing games on Facebook each month, out of 400 million total Facebook users, suggesting a 50% penetration rate," said Todd Greenwald of Signal Hill Capital, who also noted that more than 500,000 gaming apps have been developed to date.

Competing for gamers - and developers
For game makers, the growing interest among social networks provides a new opportunity beyond the industry's typical channels--which are largely consoles such as the PlayStation 3, Xbox 360, Nintendo's Wii and associated handheld devices.

These social networks are competing against each other to lure developers--and each offers its own unique set of advantages and disadvantages.

Facebook offers the largest base of users, by far. Offsetting that is recent developments whereby the social-networking giant will be taking a portion of the revenue generated by games in the form of virtual goods sales. The company has also changed some of its policies that had previously allowed game makers to market their games more aggressively, after several users compared the efforts to spam.

"When you have 400 million people, it's important to protect the user experience," Facebook's Davis said.

MySpace--which runs a distant second to Facebook in terms of market share--is taking a slightly different approach.

"Right now, I don't worry about us generating revenue within game space," MySpace co-president Mike Jones said in an interview at GDC."I want developers to get rich off MySpace. I want their businesses to flourish. I don't want to change the rules on them."

MySpace is owned by News Corp., which also Dow Jones & Co., publisher of MarketWatch and this newswire.

Hi5, a social network with about 50 million monthly users, is working to make itself into a gaming-focused site. The company recently hired Alex St. John--founder of the successful online gaming site WildTangent--as its president and chief technology officer. St. John said the company will target the best games from developers and give them top promotion, in order to reduce the need for promotional activities by the developers that may upset users.

"We are going to be a gaming-focused experience," he said.

Already crowded?
While social networks offer game makers a large potential audience, the business models are very different from the traditional, retail-based game business.

Many social games are free to play. Rather than charge up-front costs, producers try to drive revenue through in-game transactions and some advertising. The social networks themselves are trying to solidify their own businesses.

"We continue to expect worldwide online game revenues to increase 30% in 2010, driven primarily by emerging platforms and international," wrote Colin Sebastian of Lazard Capital Markets in a note to clients on Friday.

In his own report, Greenwald admitted that social games were "growing like a weed," but the industry is facing some new challenges. Facebook's new policy of taking a portion of gaming revenues and issuing limits on how game makers can promote their products to other users may crimp future growth, he said.

"Developers just starting to get into social gaming now will be forced to outspend each other in order to drive awareness of their games," he wrote in a report Thursday. "While Facebook will remain a very healthy and growing gaming platform, we believe the 'gold rush' aspect of it may be coming to an end."

But social games are still expected to change the overall face of the gaming business. Traditional high-end games such as "Call of Duty" take two years to develop and can cost near $100 million in production expenses.

"FarmVille" was developed in five weeks, according to Mark Skaggs, vice president for product development at Zynga. During a presentation at GDC, Skaggs contrasted the development cycles for the two types of games, noting that social games have the advantage of being continuously improved based on user feedback.

"With traditional games, most of the work happens before the launch," he said."With social games, most of the work happens after the launch."

Источник: Total Telecom

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