Social Apps vs. Social Games

By Guest Author Saad Fazil

After reviewing social gaming companies, I move on to RockYou and LivingSocial — two very successful companies in the social applications space — to find out more about the similarities and differences between social games and apps.

You can see from the top Facebook apps list here that although they are fundamentally different, apps and games that are popular on Facebook and other social media are generally entertainment-based rather than utility-based. What’s more, on the iPhone, one out of three apps is an entertainment app or a game. Let’s look at some specific similarities and differences.

Revenue Models

While the dominant revenue source in social gaming is micro transactions, social apps rarely rely on such transactions for their revenue. The reason is simple: micro transactions make sense in an environment in which players can be tempted to buy small virtual items (such as clothes for a character in a game) or attain higher levels. By nature of the applications, micro transactions make more sense in games. However, it is important to note that several RockYou applications such as heroworld, superpets, and speedracers can be categorized as social games, and therefore RockYou does make money from micro transactions.

A major source of revenue for social apps is, not surprisingly, advertising. RockYou creates and distributes widgets over several platforms such as Facebook, MySpace and Bebo. It has over 10 million registered users and gets over 150 million widget views from over 200 countries per day. Distributing its widgets across several platforms has allowed RockYou to monetize from creating its own ad network. Moreover, RockYou makes money from performance marketing and premium subscriptions.

LivingSocial’s strength, on the other hand, is building huge databases of books, reviews and other items. It touts more book reviews than Amazon itself, a huge achievement that owes itself to the viral nature of social networks. This allows LivingSocial to monetize referrals: if users click on a “buy book” tag while using LivingSocial, they are forwarded to Amazon, which then gives LivingSocial share of the revenue.

Marketing

Just like social gaming companies, social application companies have little or no marketing spend (this does not mean, however, that there is no opportunity cost). There are four prominent ways to market apps (or games for that matter): news feeds, notifications, friend invites, and cross-application promotions. By creating viral content and using the aforementioned ways of marketing, these companies are able to attract millions of users at a low cost.

My post on social games as well as this one on social apps demonstrate the power of social media as a marketing and distribution tool. Facebook in particular has created a very powerful platform which several companies are leveraging to sell or distribute their content. At the same time, Facebook has done an excellent job of respecting the privacy of its users: there are several privacy controls that prevent applications from spamming users.

Cross-platform development is still an issue as it requires development and even design overhead. What’s popular on Facebook might not be so popular on Bebo or a smartphone. In the social media space, OpenSocial has tried to bring down the cost of some of the cross-platform development overhead, though OpenSocial itself has been much less popular than Facebook.

Both articles also clearly spell out the opportunities for small companies and indie developers. M&A in social apps and games is picking up. If you develop an app or a game that fits well with a particular company’s portfolio, and are able to get certain number of users, selling the app to one of these strong companies would be a viable option. Social media, though attractive for new entrepreneurs, is still evolving fast. It will be interesting to see how the industry shapes up in the next few years.