Facebook and the Fate of Social Gaming in 2010

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Facebook is staggeringly huge. They have over 400 million active users, half of whom log in on any given day, over 500k active applications, and can rattle off plenty of other impressive totals for those who’d like to listen. As an open platform, they have provided companies like Zynga and PlayFish with millions of dollars in revenue, and provided many other developers with a shot at financial success. Despite these achievements, and despite an estimated company valuation that extends into the billions, monetization remains the one aspect of Facebook’s business that hasn’t matched their growth. With this week’s sure-to-be-critiqued changes, that last piece of the puzzle may be ready to fall into place. But first, a bit of background…

On January 21, a group of the Bay Area’s social gaming forces descended on Google’s Mountain View campus for a panel discussion hosted by Peanut Labs and Google Orkut. The evening was inspired by a post on Three Rings CEO Daniel James’ blog which laid out some predictions for the industry in 2010. The panelists included folks from Zynga, RockYou, PlaySpan, Three Rings, Outspark, and Inside Social Games, and they all seemed eager to share their opinions, even if most kept their cards close to their chest while doing so. As the discussion progressed, one thing became crystal clear: the growth or decline of social gaming in 2010 will rest largely on the shoulders of Facebook.

Specifically, the discussion hinged upon upcoming changes to the way Facebook interacts with applications (changes that are now being put into effect). Prior to this week, any programmer on the planet, given some development time, could make money off of a Facebook game without Facebook earning a single cent. Devs could even use Facebook’s tools to grow their game virally for free, sending messages to users and posting notifications on players’ newsfeeds.

This was, originally, in Facebook’s best interest, since being an open platform helped them attract the attention of thousands of developers. It also meant that Facebook owned all the users these games collected, making the developers reliant on the platform for their successes. This setup worked like a charm, allowing folks like Zynga and PlayFish to reach a huge audience and turn an enormous profit.

Now the folks at Facebook have, understandably, decided they want to monetize the successful system they’ve developed. As a bonus, they’ve also figured out a way to clean things up in the process. The new “games” page borrows heavily from Apple’s app store setup, providing users with lists of the most popular games and info on what their friends are playing. Meanwhile, the recently introduced Facebook Credits will provide users with a universal in-app purchasing system. Finally, once the changes are solidly in place, applications will not be allowed to send notifications directly to their users, cutting down on the “spam” messages that many have complained about over the last year.

Facebook Games Page

(Image courtesy the Facebook Blog)

This promises to make the user experience significantly smoother on Facebook, but it also marks a significant shift in power behind the scenes. By making developers live within the framework they’ve established, Facebook is forcing devs to rely far more heavily on traditional outreach like PR and advertising for growth. Advertising is of particular interest to Facebook, especially when you consider the incredibly valuable ad space they now have to offer on the “games” page. Facebook Credits, meanwhile, will let them take a measure of control over in-app purchases (as well as a small cut of the profits) while solidifying their grip by getting users to tie their credit card info to the platform.

Thus, the new system still provides developers with room for viral growth, but it’s not going to be the rampant, sometimes questionably spammy, growth of the past. Facebook is taking control of the platform, both for their own sake and, ostensibly, for the sake of their users. This could be bad news for the developers who have been really cashing in, but as with Apple’s app store, developers that are willing to play by the rules should still be able to profit handsomely.

At least, that’s what Facebook is hoping. Only time will tell whether this plan will bear fruit or put a chokehold on the rapid growth of social gaming on the platform. Either way, 2010 is going to be interesting times for the social gaming industry!

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