Social gaming. It’s awfully exciting isn’t it? Hundred million dollar acquisitions, joint ventures, software deals and more new products being released than you could shake a stick at.
While social gaming is still in its formative years, there are some figures that suggest that its explosion in popularity has ceased and the novelty is close to wearing off. Rather than hearing about IGT dropping $500 million on Double Down Casino, most of the traffic has been heading in the other direction.
The issue of monetisation still looms large – highlighted by Facebook’s increasing lenience towards real-money gambling on their site. It was even deemed that the champions of social gaming Zynga were in need of some real money play away from social networks as the launch of Zynga Plus Casino and Zynga Plus Poker demonstrates.
Perhaps as a result of the monetisation factor, investment in social gaming in 2012 halved from the previous year. A Digi-Capital report published in January showed that investment in 2012 was 94% lower than it was at its highest point in 2011.
Investment in social gaming returned to similar levels that it was at in 2010 and the 94% decrease from 2011 to 2012 is estimated to amount to around $1 billion. This trend hasn’t escaped the attention of those with an interest in the industry with the likes of Techcrunch questioning the suitability of VC investment in gaming companies.
The New York Times claimed that the increased wariness among investors had been caused by what they labelled as ‘the Facebook effect’. The initial public offerings of Zynga and Facebook itself have provided weight to the argument that social gaming may not be a sustainable long term industry.
There are of course social games that are kept away from social networks such as Facebook and it’s these products that are still able to find funding relatively easily. The fear of an over-reliance on social networks is stunting the growth of many social games start-ups, but are there ways to restore confidence? And if not, how can social games creators react?
The reputation of monetisation
One issue regarding the bigger picture is that social gaming hasn’t quite found its place in life yet. Many companies that work within the traditional online gambling industry are yet to decide whether it’s simply a marketing tool, whether it’s acquisition or retention, and whether these new apps can make money as a standalone product.
Of course, this is where monetisation rears its head yet again. The fact that there’s no necessary and immediate income from free-to-play games has made for an easy excuse for much of the media and analysts regarding any issues that have been had by game creators.
Raf Keustermans is co-founder and CEO of Plumbee, a social gaming company that has had few problems in raising investment. The London-based company has raised $3.8 million to date with $2.8 million of that coming in August 2011 at a time that not only were revenues were not yet coming in but a product hadn’t even been launched.
Keustermans explains that there’s still plenty of hope for those looking for funding. Fortunately for them, not everyone is quite so downbeat about the free-to-play format that most social games have adopted.
He says: “I think every investor worth their salt knows the free-to-play model. This is becoming the standard dominating model in entertainment so if you’re not aware of it or sure of how it makes money then you’ll have problems investing in the industry.”
While their are clear benefits to the free-to-play model as Keustermans’ Plumbee and others have demonstrated, it’s hard to ignore the fact that many social gaming companies have struggled with monetisation in the past. But this is now something which Keustermans believes developers are getting much better at.
“All the companies that I know have improved their monetisation in the last couple of years even though, particularly on Facebook, the audience has stagnated a little bit,” he says.
“Pretty much every studio that’s chosen to use the free-to-play model has definitely learnt a lot about optimisation on all metrics but especially monetisation.”
Lots of less
Speaking broadly about social gaming investment, Keustermans agrees that the increased competition on Facebook is making it harder to get started.
“If you’re only on Facebook I can see that investment has definitely dropped in the last couple of years. The perception is that Facebook is a very mature platform and it’s much harder to grow. It’s still a big platform, it’s still very viable but there’s much more opportunity to grow and grow fast on mobile and tablets,” he explains.
“There’s still a lot of money going into games and games companies but if you’re only on Facebook that makes it a lot harder.”
However, he’s very keen to emphasise that it’s by no means doom and gloom. Quite the opposite in fact. Interestingly it may be that while you’re not going to see much of the type of deals mentioned at the beginning of this article, there are plenty going on that just aren’t headline news.
Keustermans explains: “It’s a bit harder to find Series A or Series B money, if you want to find someone to write a $5m, $10m or $20m cheque that’s probably still harder. But that’s not just in games, that’s across the whole spectrum of start-ups.”
“On the flip side it’s probably never been so easy to find seed capital.”