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Social Gaming on the Rise, and Lessons for Would-be Entrepreneurs

Posted on Friday, Jul 3rd 2009

By Guest Author Saad Fazil

Social gaming is changing the way games are marketed and distributed. Rather than relying on big publishers and distributors such as Electronic Arts, studios are leveraging the power of social media to virally spread their games. In order to better understand how they have built sustaining businesses, I talked to the CEOs of some of the top social gaming companies. You will see that all of them have different yet successful strategies.

Mytopia

Mytopia is the first company that has focused seriously on cross-platform development. It makes games (some examples are backgammon, bingo, and chess) that work seamlessly with Facebook, the iPhone, MySpace, Android, Symbian and other platforms. In addition to being played on desktops and smartphones, their games work on classic phones, which still make up 80% of the world’s phones. Users on one platform can play against users from several platforms seamlessly.

Mytopia’s cross-platform strategy has a number of advantages:

1. Without cross-platform framework, each game might require around $20,000 in development. Multiply that by four or five platforms, and ad the cost of updating the game across all platforms. RUGS (Mytopia’s cross-platform framework) can reduce most of this additional development time.

2. Mytopia doesn’t charge any money for Facebook games (but makes money from micro transactions), thus resulting in more downloads. However, since playing on different platforms is fairly seamless, even if there are fewer iPhone players in the beginning, platforms with more users, such as Facebook, will provide much-needed network effects on the iPhone.

On the flip side, in order to design a game that works well across several platforms, Mytopia has had to take least the common denominator of all platform features. However, it is able to minimize the effect by considering the type of input device (touch screen, keys, keyboard, and mouse) and designing games such that 98% are well supported across all platforms.

Instead of making money from ads, Mytopia uses Facebook to build scale and then move those users to the iPhone, where they pay to download games.

Social Gaming Network

After talking to Guy Ben-Artzi, the CEO of Mytopia, I was convinced that cross-platform was the way to go. My conviction only lasted as long as my conversation with Shervin Pishevar, the CEO of SGN, whose approach is very different. The company primarily focuses on the iPhone, and it makes high-quality 3D graphics games that few other companies can match. F.A.S.T. on the iPhone is a good example: it ranked fourteenth in the app store and sells for $5.99. SGN’s strength and focus is to develop best games for one platform and then think about moving to other platforms.

So how then SGN is able to market its games without a significant, or sometimes even any, marketing budget? The secret lies in the high quality of the games, which in turn become viral and spread by word of mouth. Moreover, SGN cross-sells its games. For example, if you are a regular player of F.A.S.T., you will see promotions for SGN’s other games, and chances are you will try some of them.

SGN does have games on Facebook, though it doesn’t charge for them nor does it make money from ads. It does make money from micro transactions, though. SGN’s philosophy is to create the best experience with no ads. The gaming experience is prone to ads, and therefore it is important to keep the games clean.

Playfish

Playfish has yet another strategy. Rather than focusing on the sheer number of users, it lets gamers play with their friends only. Due to the nature of the company’s games, this makes more sense and it is more fun to play the games with friends, which results in very strong user engagement and in virality. You can get some indication of Playfish’s strong community by checking out their community page.

Playfish games can be extremely addictive and time-consuming. For example, one game, Restaurant City, runs in the background even when the user is not online. It’s to the player’s advantage to check very regularly to make sure that all employees of the restaurant are well fed. One hundred million Playfish games have been installed by players only 18 months after the company launched its first game.

Playfish makes money mostly from ads and micro transactions, as well as from some sort of product placement. This again is in sharp contrast to SGN’s business model.

All three companies seem to be doing extremely well despite their very different strategies, or might I say due to their different strategies. Their brands are well differentiated, and their unique positioning allows them to do well in different ways. Let’s look at some of the lessons learned, which might be useful for any kind of entrepreneur but especially for anyone aspiring to be an entrepreneur in social gaming and apps.

Positioning

Positioning is important! Even though you might not have very clear positioning in the beginning, you should develop it soon into your venture. All these entrepreneurs are extremely clear about what they want and what they don’t want. While Mytopia focuses on several platforms, SGN focuses mostly on the iPhone. While Mytopia allows strangers to play with each other, Playfish focuses on playing with friends. SGN specializes in high graphics action games, whereas Playfish makes “community” games (Restaurant City, Who Has The Biggest Brain), which are extremely viral.

Revenue Models

There are different business models in play. While SGN doesn’t make money from ads, Playfish does. SGN primarily focuses on the iPhone; therefore, it gets most of its revenue from selling games.

Marketing and Distribution

More surprisingly, none of the above companies has any marketing spend (or perhaps very little). Playfish relies on the virality of its games, Mytopia leverages its cross-platform network effects, and SGN — though at a slight disadvantage because its primary platform is the iPhone — relies on the high quality of its graphics to spread the games through word of mouth. All three companies cross-promote their games.

Opportunities for Indie Developers and Newcomers

While social gaming is still a very small part of the overall $50 billion gaming industry, it is astonishing to see how social gaming has changed the value chain: one doesn’t need a game publisher such as EA to distribute social games. Social networks, especially Facebook, have revolutionized the way distribution is done. This means anyone with a good product can distribute freely. Of course, the rate of success is extremely low, but if you develop a killer game, at least you don’t have to worry about marketing and distribution. Selling a game or two to one of the big studios is a very viable option.

While Facebook and the iPhone have become extremely crowded, there is ample opportunity to shine in newer platforms (Palm Pre, Android). Consider giving out your first game free. Once you have a name in the market, you can start penetrating other, more competitive platforms, and be on your way to becoming a millionaire!

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Comments

This is a greenfield category with immense potential. Companies like Zynga, Playdom, SGN are creating new ways of entertainment through social asynchronous games.

Wonder how the unit economics works ?

abhi

Abhi Friday, July 3, 2009 at 1:23 PM PT

SGN’s games are quite complicated to develop and would require a lot more than several other studios which develop casual games for example. Perhaps it’s no surprise that SGN doesn’t rely on ads but charges $5 or so for each game.

saadfazil Sunday, July 5, 2009 at 5:07 PM PT

A very good concise overview of social gaming. Thanks Saad

rehan tahir Tuesday, July 7, 2009 at 10:31 AM PT

Saad,

Great piece.

What is the status of the availability of games on the newer platforms?

Sramana

Sramana Mitra Tuesday, July 7, 2009 at 1:28 PM PT

Not a lot of excitement around Palm Pre but all of them are tracking these platforms closely. Playfish is mostly focused on Facebook with recent traction on iPhone, whereas SGN is mostly focused on iPhone.

Saad Fazil Tuesday, July 7, 2009 at 8:19 PM PT

Saad – this was a very interesting article. Would you happen to know where information is available on how much each of the social games are making thru their monetization process?

Thank you!

Marlon Wednesday, August 19, 2009 at 1:02 PM PT

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