Examining the power of social games
The most popular game in the world in September was not World of Warcraft. It wasn’t Guitar Hero 5 or a first person shooter. It was a game based on farming.
Farmville has seen a level of growth unprecedented for any game. It was launched by social games publisher Zynga on 19th June and within two months had over 33 million players. By the time you read this, it will probably have passed the 50 million user mark.
Farmville has changed the perception of social games. It may also mark a fundamental shift in usage of Facebook, as the social network emerges as the gaming platform of the future.
And most recently, both Zynga and its rival Playfish have been the source of serious acquisition speculation - with one report even pegging the latter as part of a big $250m acquisition by 'traditional' games publisher Electronic Arts.
There are six reasons why gaming on Facebook is such an increasingly vital part of the games sector:
An obvious reason for Farmville’s success is simply that Facebook has a lot of users. Over 300 million. Some reports put the figure at 330 million. Compare that with an installed base of 100 million Nintendo DS units or 25 million PlayStation 3s. Any game developer should be trying to put their content where the users are, and on that measure, Facebook is a winner.
But that’s not enough of an answer. There are at least 40 million iPhones and iPod touches out there, but for a game to reach a penetration rate equivalent to Farmville’s 10-15%, it would need to sell around 5 million units. We don’t see very many of them.
Of course, iPhone games cost money. (Except for the extremely popular Lite versions of many games). On Facebook, games are free.
Free is very powerful price point for attracting new users. The Facebook gaming model is to allow users to experience your game for a long time without paying a penny. The key benefit of this is that it reduces the need to spend substantial amounts of marketing money to overcome the hurdle of getting users to shell out cash for your project.
Being free doesn’t necessarily mean that you will get users, though. There are plenty of great games on Facebook, and it can still be tough to stand out from the crowd. Zynga is one of the top ten advertisers on Facebook, and shelled out at least $2 million to seed the initial success of Farmville.
Free does not mean unprofitable. Facebook users have become accustomed to the freemium model, whereby they have the option of paying for virtual goods, which might give them special powers, accelerate the levelling-up process or allow them to express their identity.
Numbers for Facebook games are hard to come by but across the web, many freemium games are generating ARPPU (average revenue per paying user) of around $20. Some users are spending hundreds of dollars a month.
The key advantage of microtransactions over subscriptions is that there is no upper cap to how much money a user can spend on your game. It is not a binary choice between £0 and, say, £4.99. It is a sliding scale between zero and a very large number indeed. Bigpoint, for example, have several users who spend over $1,000 each month on virtual items in their web-based games such as Dark Orbit. The downside is that the revenue is not as predictable as subscriptions, but if you are a good game designer, you should be able to make substantially more money from microtransactions than from traditional subs.
Companies like Playfish and Zynga are both profitable and have been almost since inception. Although both companies have raised substantial venture capital (Playfish:$21 million; Zynga: $39 million).
At the recent Games Gone Wild event in London, CEOs of social and casual games companies like Playfish, Jolt Online, Mind Candy, CyberSports and eRepublik were unanimous: the secret of success in this sector is metrics. Kristian Segerstrale of Playfish said that the toughest people to find right now were the analysts who could sort through the 300-400 million datapoints that his company generates every day to determine how to improve gameplay, stickiness and, crucially, conversion to making virtual goods purchases.
A Facebook game is endlessly tweaked. Developers try different colour buttons or slightly different text to see if it has an effect on conversion rates or ARPPU. When you have 50 million users, an increase of a fraction of one per cent. in conversion rates can have a very substantial impact on the bottom line.
Facebook games are only 20% complete at launch. That’s not much more development than that required to get a traditional console game to a “vertical slice” prototype. Only the difference here is that the vertical slice is not put in front of a greenlight committee of suits and producers; it’s released to the end consumer immediately.
The developer gains in many ways: they get to test the product in the wild; they can generate revenue from day one; they keep their own IP. Perhaps most crucially, they can see very quickly whether their game idea has traction, in which case they should throw more money and resources at it as fast as possible, or whether it is, in fact, a rubbish idea that punters don’t like and should be trashed so that the developer can move onto a new project.
The idea of “fail fast, fail often” is common to web startups but a new concept for many developers. Facebook makes this possible and is a crucial first step for developers trying to move away from a dependence on publishers.
The most interesting development at Facebook is Facebook Connect. Connect allows developers to use Facebook credentials and a user’s social graph outside the core Facebook website. Many blogs now allow you to register and comment using Facebook Connect, and I think many games will start allowing users to login using Facebook credentials.
This blows the market wide open. Instead of having to create a Facebook app, with all the limitations of layout and design that entails, developers can get the best of both worlds: a game on a separate website with more flexible technology combined with the viral effects of the largest social network in the world.
Combine with Facebook’s ongoing efforts to make a simple, trusted billing system and I think that Facebook has the potential to become the gaming “platform” of the future.
Nicholas Lovell is the founder of Gamesbrief (www.gamesbrief.com), a blog about the business of games. He is non-executive director of nDreams and advises a number of games companies on their business and web strategy. He will be speaking at the Casual Games Forum on 29th October and at Develop North on 5th November.