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Monday, December 10, 2012

Facebook Crackdown On Social Game Use Of Facebook Social Graph Outside Of Facebook

In September 2012  I drafted a blog entitled Making Games Social Outside Of Facebook . I was amazed that Facebook would allow game operators and developers to exploit the Facebook social graph outside of Facebook.  In October Facebook identified this practice as an issue and gave  game developers until December 5 2012 to  stop the practice. Most game operators, especially social casino operators ignored this warning and kept using the API's. December 5th has shown up and now the API's are being shutdown.

 Social game operators and developers were  stubborn about not adhering to the Facebook policy for a number of good reasons.

Avoid The 30% Facebook Tax On Virtual Currency Transactions - The 30% tax Facebook levies on  virtual currency transactions is clearly draconian  and also a major source of revenue for Facebook. Game operators jumped on leveraging the Facebook social graph outside of Facebook when they realized API's existed that would allow them to access the social graph without paying the tax, adding an additional  30% to the bottom-line. 

However, the problem with this strategy is that all good things come to an end at some point. Facebook was not going to standby and watch this revenue slip through its fingers. 

 Acquire Facebook Members For Game Play Outside Of Facebook Without Marketing Within Facebook - In an effort to bolster its own revenue Facebook has directed its attention to in-Facebook advertising as the primary source of revenue for the company. Any Facebook policy that would undermine that revenue stream clearly would never last very long.  The cost of advertising within Facebook continues to go up. Avoiding or diminishing this cost and substituting web and SEO advertising was a prudent strategy for a social game operator.  

 Making Games Social - The term "social games" has become distorted recently with many games claiming they are social when in fact there is nothing social about them. A slot game that does not have access to a social network platform is clearly not social at all. This is one of the reasons why  the cost of acquisition is so high for solitary  games especially real money gambling slot and table games. The Facebook platform has allowed traditionally  anti social games to become social making the Facebook API's very attractive the single player games.

The Bottom Line, Investors And Potential Acquirers - For companies in the public sector, interested in being acquired or looking for investment capital this new Facebook twist could be very challenging. How do you explain a 30% decrease in revenue and perhaps falling into the minus category and not the plus category when it comes to profitability? This is unfortunate because the day of reckoning was announced by Facebook. No excuse really. 

Facebook depends heavily on games for revenue and for applications that are "sticky".  Facebook made it clear to game developers and operators that Facebook wants its 30% if a company wants to use their community and their social connect API's to drive traffic and revenue. Shame on the business managers and game companies that did not see this coming.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes  about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.   

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