We just launched our social casino game, Hit It Rich, on Facebook. Please take a look and let me know what you think.
Archives For zynga
For those who have not seen the news, Zynga acquired Spooky Cool Labs today.
I have been reluctant to join the bandwagon of people declaring Facebook dead, either overall or as a social gaming platform, but I have gotten to the point where I have lost confidence in Facebook. It has been fashionable since Facebook’s IPO to say the platform was in trouble because of the shift to mobile. In the game space, the anti-Facebook crowd got started even earlier, suggesting the only wise course for social game companies was to develop for mobile platforms instead of Facebook. I was reluctant to join this chorus, given the incredible user numbers Facebook has and the revenue that some games were still generating on Facebook (which dwarfed comparable mobile games). However, I have been rethinking my position.
The big news in the social gaming space this week is that Facebook and Zynga have significantly changed their relationship. Two years ago, Zynga entered into a “special” agreement with Facebook that gave both companies exclusive privileges in exchange for special treatment. While Zynga’s stock has taken a much bigger hit than Facebook’s after this announcement, this new relationship will impact the changing social game ecosystem and the risks Facebook faces.
The Impact on Zynga
The key change that will negatively impact Zynga is that Zynga now must abide by Facebook’s Terms of Service (ToS). In the original agreement, Facebook gave Zynga the ability to bypass certain Facebook requirements, primarily related to cross-promotion and viral calls. Zynga will now have to follow the same policies other Facebook game developers face, primarily stopping its ability to promote games on Zynga.com or mobile from within its Facebook games. Continue Reading…
Much has been written about the opportunity for Zynga to accelerate its revenue by moving into real money gambling, but there is another contender coming from the social/casual game space who probably has a better chance of success. Last week, Big Fish announced it was teaming with Betable to bring a real-money, social mobile casino game (Card Ace: Casino) to the UK (and other markets where it is not prohibited). The announcement received less attention than the news that Zynga has spent about $75,000 on lobbying to legalize online gambling (keep in mind that you can’t even buy one Congressman for $75,000; that amount is virtually nothing in the world inside the Beltway).
Originally, I was not going to post about Zynga’s earnings report, which was released Wednesday evening. I am not a stock analyst and I did not feel I brought much to the party. However, the announcement caused so much conversation both from companies in the social gaming space and pretty much everyone else, that I felt remiss if I did not add my analysis.
If you haven’t seen the news, they had to halt trading today in Zynga’s share because of a very sharp decline. Given that there really has been no change in Zynga’s business, I would guess this is due to the secondary offering not sucking up enough demand for employee shares finding their way onto the market.
There are many conversations, articles and even books on how to optimize in-application purchases (IAP) in social games but most neglect the most important element. Rather than focusing on adding friction, tweaking price levels, running sales, etc., there is one aspect that does not get enough attention and can make all the difference between success and failure: Continue Reading…
There has been a development recently in the social gaming ecosystem that has generated very little buzz but probably will have a major impact moving forward, the fact that two of the top social gaming companies are now publishing third party titles. In the last few weeks, Playdom licensed Triple Town from SpryFox to publish in English on Facebook (Playdom announcement). Even more significantly, last week Zynga announced it was publishing Slingo (Washington Post article on Zynga’s move).
These moves are significant because for the first three years of the Facebook game business, the only publishing option for developers who could not or did not want to self-publish on Facebook was 6 Waves (now 6 Waves/LOLApps). With Zynga and Playdom both moving into third party publishing (though for Playdom, it did try some publishing in 2010), and the way the social game business is almost defined by fast following, it is likely smaller developers will have multiple publishing options on Facebook.
The Risks and Downside of Soliciting a Publisher
Before you rush out the door and try to find a publisher, I wanted to highlight a few of the risks. First, there have been a few big stories lately about companies allegedly “borrowing” ideas from developers. A few weeks ago I blogged about 6 Waves/LOLApps allegedly copying Triple Town while in negotiations with Spry Fox (my blog post). Earlier this month, a federal district court refused to throw out the lawsuit from SocialApps against Zynga claiming Zynga used confidential information obtained while negotiating to license myFarm (Zynga/Social Apps article).
A second reason not to rush into a publishing relationship is the foregone revenue. In the social gaming space, I have seen many publishing deals pay the developer up to 50 percent of revenue, especially if no advance or guaranteed payment is involved. In the traditional core game space, the royalty back to the developer is usually in the 15% to 35% range (i.e, the developer gets paid 15 percent of the revenue its game generates). So you are looking at foregoing from half to more than three quarters of your revenue, which could be a huge cost if the game is a hit or even keep you from breaking even if the game is mediocre.
A third concern with using a publisher is how much mindshare and resources the publisher will devote to your game. When you are negotiating, they will tell you how much they love you and will treat it just like an internal title. That claim is worth about as much as a politician’s promise during an election campaign. Now the first few games a publisher licenses will probably get a lot of attention, as their publishing model matures you will be fighting for resources with all the third party titles (and not even be in the conversation compared to first party titles). If the game comes out of the gate strongly, they will probably continue to promote it. If the game, however, stumbles either in terms of monetization or overall adoption, you are likely dead. Once the publisher moves on to another game, they will not revisit yours regardless of the changes you make (despite what they say). In my experience, contractual marketing commitments have little value. Publishers will either ignore them or fudge the numbers. At the end of the day, if the game is not hot they do not worry about losing the rights.
Reasons to Consider Using a Publisher
Although there are some significant drawbacks to using a publisher, there are still several major reasons to consider this option. Most importantly, it costs a boatload of money to launch and market a social game. The major Facebook game publishers spend well over $3 million per month per top title just on Facebook ads (with some spending much more than that). Those companies that claim to generate most of their installs organically (cross promotion, virality and other free channels); well see my comment earlier about politicians during an election. You may be able to get traction and grow a game slowly and steadily without a huge marketing spend, but if you want to acquire users quickly (important if you are worried about being cloned), you need access to deep pockets. If you do not have the resources on hand, a publisher can be an appropriate choice.
A second reason is cross-promotion. The major social game companies have millions of monthly users that they can direct to a chosen title (in Zynga’s case, hundreds of millions). For a company launching its first title or one that does not have a large user base, the traffic a publisher can bring is a huge advantage.
A publisher can also give a developer expertise in does not have. Small developers, especially if they are on their first social title, may not have the understanding of monetization, analytics, game services (customer support) or marketing/user acquisition, which a proven publisher does. These competencies are often the difference between success and failure for a social game. Depending on the type of relationship you enter into, access to the publisher’s expertise could be more valuable than anything else they bring to the table (and may have a greater long-term benefit to your company, as you can then learn and leverage these skills on future titles).
When to Use a Publisher
Unfortunately, there is no clear cut rule as to when to use a publisher or when to self-publish. It is not just an issue of size, even some of the largest publishers license to other publishers outside their core markets. The thing you must do is look at the situation objectively and weight the benefits and costs.
You must also do your due diligence on the publisher so you can minimize those costs and risks. See how they have treated other developers. Understand how your product fits into their portfolio. Learn how they will market your game and what their key indicators are for continued support. Go past the first phone call and dig deep to understand exactly what they can and cannot do for you. Then, once you have made your decision, get behind it fully and do everything you can to succeed.
One of the more interesting developments in the social gaming space is the buzz around gambling. There are rumors and “hints” that the US government at some point will weaken or remove the restrictions on online gambling. I give credence to these rumors for three reasons
- Zynga’s stock initially broke through its IPO price because of rumors it might move into gambling (the stock subsequently rose because of the projected Facebook valuation). I still believe in the efficient market so do not think the stock would of moved so much if there was no basis to the rumors
- Caesar’s acquired Playtika for over $150 million. There are few companies that understand the US legal environment for gambling better than Caesar’s and they would not have spent $150 million just to sell virtual goods
- IGT spent over $500 million for DoubleDown. IGT is the leading manufacturer of gaming (gambling) machines, so like Caesar’s has a great feel for the regulatory environment. And, as above, I doubt they have much interest in the social space without real gambling
The impact of legalized online gambling on the social gaming industry is a little gray. Some of my closest friends, who I strongly respect and are often right, feel it could destroy the non-gambling part of our industry. They believe a Zynga move to gambling and other big players pouring billions into gambling social games would overwhelm the social game ecosystem. Consumers would then equate social games to gambling games and those who are not interested in a gambling experience would feel there is nothing for them in the social space.
I have more positive expectations on the impact of legalized gambling on the social game space. First, I do believe it will draw Zynga’s attention as well as that of some other existing social game companies. I do not see EA or Disney going down that route but many of the others, especially some of the struggling second tier players, are likely to pursue it as a possible panacea. This move will decrease the glut of quality games available to players seeking a traditional social gaming experience (I do not think these players will be scared away by Casinoville), allowing the remaining social game companies to launch and run games in a less competitive environment. Also, with less competition for these players (and I am assuming they are primarily different users than those who will play gambling titles), the cost of performance marketing to these players should stabilize or even fall.
Second, as I mentioned in several other posts, the valuation of social game companies will be largely contingent on the metrics of the industry leaders. As we saw, even the hint of gambling had a strong positive impact on Zynga’s valuation. I also remember the huge valuations of the UK based online gambling companies prior to the US crackdown. If Zynga and other social gaming companies enter the gambling space and start experiencing great revenue growth and strong valuations, it will positively impact the valuations across our industry (and access to capital).
My guess is that it is still awhile away before online gambling is legalized again in the US, especially in an election year, but for the three reasons outlined above I do think it will happen. I also feel it will end up being a great boon for our industry, even those companies not involved in the gambling side.