New York: It may be a financial bonanza for investors riding on the coattails of Facebook's grand initial public offering, but in social gaming land, few are celebrating.
Facebook, whose popularity among its nearly 1 billion users has been partly fuelled by social games published by Zynga, Electronic Arts and others, may be facing a collapse of its gaming ecosystem, according to a book released last week by P.J. McNealy, a media analyst with Digital World Research. Titled Early Days: The Social Gaming Market and Facebook's Achilles' Heel, the book argues that developers are no longer making as many Facebook games because it has become impossible for them to make money. Instead, they're taking their games to tablets such as Apple's iPad, Amazon's Kindle Fire and tablets that run Google's Android or Microsoft's Windows Mobile software.
New path
"Game developers are already following the new path away from Facebook," McNealy argues, "and some of the emerging platforms could shift market share positions in a surprisingly short time frame." In other words, Facebook could quickly become a graveyard for games published by anyone other than the top five publishers. Want proof? Here's the simple math, according to Peter Relan, a serial Silicon Valley game entrepreneur and investor who has backed companies such as OpenFeint, a mobile games platform that was sold a year ago for $104 million. Now the chief executive of social games publisher Crowdstar, Relan said his company went from getting 90 per cent of its revenue from Facebook users in 2010 to only 50 per cent in 2011. This year, Relan expects to see only 10 per cent of Crowdstar's revenue from Facebook players — the rest of its revenue will come from people who play his games on smartphones and tablets.
"Faceboook is no longer the viral platform it used to be for games," Relan said in an interview earlier this year.
Hurdles
Why? Relan and McNealy cite two hurdles. The first is Zynga, whose dominance on Facebook makes it difficult for smaller developers to compete. The second is related to the first — to get significant attention, developers must spend money to advertise. "It becomes prohibitively expensive, and Zynga will always outspend you," Relan said.
"Looked at another way, developers must agree to give Facebook a 30 per cent cut of any money they generate from their games. They also must spend an additional 20 per cent or so of their revenue on advertising to get the attention of players.
"That's half or more of your revenue," Relan said. "It's not an ideal network for game developers anymore." This creates a potential headache for Facebook as well, McNealy writes.
"This will mean Facebook will miss opportunities, and will become increasingly reliant on Zynga," McNealy writes.
— Los Angeles Times
