Unraveling Zynga's Internet Gambling Strategy

Zynga’s recent announcements regarding their internet gambling strategy has confused  business analysts, game publishers, game developers,  internet gambling experts, Zynga employees and land based casino business managers causing them to reassess  their relationship with Zynga and their own approach to the opening of the US internet gambling market.

The confusion and debate about Zynga’s short and long term association with internet gambling  has been driven by two seemingly conflicting actions.

Party/Bwin Zynga UK Introduction Of  Internet Casino Gambling Platform – Zynga has decided to forego the development of their own “real” money internet gambling platform and has opted to have Party/Bwin launch the UK Zynga   gambling brand using the Party/Bwin gambling platform and gambling operation. Essentially, Zynga has recognized that there is a significant  difference between their current social casino games and operations  deciding that, for now, it would be wiser to have a company with expertise in the internet gambling space  run their UK internet gambling business.

Executive Decision To Not Pursue A Nevada Internet Gambling License – Zynga has recently gone though an upper management change  and the new management has decided that investing in a Nevada internet gambling license is not in the best interest for Zynga at this time.   They have decided that the core social/freemium business should be their primary focus. It appears that working on a Zynga internet gambling platform and launching a US facing internet gambling business will consume valuable time and resources that could be better deployed improving the social/freemium game business.

So how do we interpret these potentially conflicting actions. Is Zynga in or out of the  internet gambling business?

Apparently, Zynga is not completely out of the internet gambling business. If they were they would have shutdown the Party/Bwin/Zynga UK internet gambling effort in addition to the pull-out from the Nevada Internet gambling business.

The recent reluctance to enter the Nevada internet gambling business could  be a recognition that the Nevada market is too small to support a meaningful internet poker gambling community.  In addition, Ultimate Poker has recently launched a “real” money internet poker business in Nevada further questioning the viability of the Nevada poker market if two poker brands are active in the state.

The slow roll-out of legal internet gambling in the US could  have influenced their decision to not get a gambling license in the US.  Is poker a viable gambling product in the US if the US continues to pursue a state by state roll-out of internet gambling?  Is the ratification of a federal bill the only way poker can be successful in the US?

Struggling Social/Freemium Business – There is no doubt that Zynga’s core business is struggling and this business must be put back on track before a significant  amount  of resources are invested in developing an internet gambling games, a gambling platform and a marketing effort that targets internet gambling players.

Low Conversion Rates Of Social/Freemium To Gambling Players – There is mounting evidence that social/freemium casino players are not easily converted to “real” gambling players. Zynga was no doubt counting on a significant amount of their social/freemium player to migrate to “real” gambling when they first contemplated a move into the gambling space.. With this expectation in question where would Zynga’s  gambling players come from if they did launch a gambling operation?

Testing The Power Of The Zynga Brand – In many ways the Party/Bwin launch of  Zynga  in the UK is a test of the power of  Zynga as a gambling brand.  The games are not Zynga games and the operation is not run by Zynga.  Essentially Zynga has licensed their brand for use in the UK  gambling market.  This will be a very good test given the hyper-competitive UK internet gambling market. If Party/Bwin can take marketshare away from other well known gambling brands in the UK using the Zynga brand the future of internet gambling for Zynga may become more important in it’s  evolving business strategy.

Overall, despite the confusing nature of Zynga’s recent internet gambling announcements and actions,  Zynga is not necessarily “out” of the internet gambling business. The UK experiment will give Zynga much insight into the viability of getting into the internet gambling business themselves. The timing and nature of the roll-out of legal internet gambling in the US will also have a significant impact on Zynga’s decision process.

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.










Unravelling Zynga's Internet Gambling Strategy

Is Zynga Relevant Any More?

At the recent Casual Connect conference in San Francisco there was much discussion about Zynga’s  past, present and future influence on the social/freemium game market, US Internet gambling, gaming related IPO’s and funding of social game companies. The question at hand is how relevant is Zynga at this time in respect to these associations?

The answer to this question requires an understanding of how Zynga rose to prominence in the social gaming and casino space and why  they have recently struggled to maintain that position.

Zynga was the first application to be launched within the Facebook environment in 2007. The fact that the first application to be released in Facebook was a game and an inherently social game outside of the Facebook environment is quite significant because of the  unfettered virality that Facebook provided Zynga in the early roll-out of application content within Facebook. Poker was an  especially interesting first Facebook application because poker is “social” outside of the context of a social network.  This perfect storm of the first Facebook application launched, poker being a naturally social game, combined with unfettered access to Facebook members( virality) and no competition in the environment for months resulted in Zynga acquiring a high percentage of the Facebook community in a very short time. This situation made it difficult for other game publishers to release games and even social games like bingo and poker in Facebook to match the Zynga lead.

Zynga continued to leverage this lead by introducing a series of games such as Farmville  and Cityville into the existing network of players that had and were playing Zynga poker. This further reinforced the dominance of Zynga as a social game publisher and perhaps the only “relevant” game publisher in Facebook that mattered in the early days of Facebook.

Facebook and subsequently Zynga went public riding the Facebook popularity craze. Post IPO, financial analysts and purchasers of Facebook stock realized that “monetizing” in Facebook via advertisement revenue was not as easy as expected and at the same time Zynga began to struggle keeping their MAU(monthly active users)  and revenue to the growth expectations of the market.

Facebook reacted to the advertising revenue challenge  by further restricting  application”virality” to only a few connects per member and eventually to a meager single referral. The purpose of this restriction was to force application providers to “advertise” their properties to attract players as opposed to obtaining them through  free virality referrals.

This change had a significant impact on Zynga. Prior to this change Zynga was paying virtually nothing for players and generating revenue from them through virtual currency transactions and in game “branding” deals. Zynga began to advertise increasing their cost of acquisition. Competitors with new and more interesting game content emerged  out flanking Zynga in terms of game popularity. More importantly  player attrition began to exceed player acquisition decreasing Zynga’s MAU’s.

Mobile Strategy – It is no secret that Zynga was late to mobile because they were concentrating on games within Facebook and attempted to leverage Goggle+ as a new emerging social platform to grow a game community instead of entering the new and emerging mobile game market. Again Zynga poker  was the first game in Google+. However, Google+ failed as a truly social platform undermining Zynga’s growth strategy .  Meanwhile other game content providers rushed into mobile and have dominated the mobile game market ever since. For the first time in Zynga’s history they had to compete on a new platform without a strategic advantage and no early lead. Clearly, this has been a struggle for them and it remains to be seen how well they will do in this environment.

Given Zynga’s history, the evolution of Facebook and the importance of mobile gaming should we still be looking at Zynga as a bell weather for social/freemium gaming and for the emerging introduction of Internet gambling in the United States?

Certainly from a generic investment in social/freemium gaming as a category probably not. Zynga does not represent the current crop of game companies within Facebook or in a mobile environment.  There are a number of very successful social/freemium game companies that are worth investing in and there are new start-ups cropping-up all the time that compete head to head with Zynga and are winning.

Internet Gambling – Zynga has never invested a tremendous amount of resources in Internet gambling.  Despite this they have been viewed as a big threat to existing European Internet gambling poker rooms and have scared away a number of US based social casino game publishers from considering entering the Internet gambling space.   Zynga recently announced a new internet gambling strategy that indicates they are more interested in fixing their social/freemium game business. This is a wise   decision because it is becoming more evident that social/freemium players have different motivations for playing relative to “real” poker players. Gaming platforms that are truly “gambling” centric are much better suited for “real” gamblers. Sorting all of this out and getting current Zynga poker players to “convert” to real money play will require more work to Zynga’s freemium game content and sophisticated player profiling.

So should we count  Zynga out all together from a investment perspective or as a reinvented game company that can compete in the brave new world of social, mobile and US internet gambling?

I would suggest that we should not count them out for a number of reasons.

Cash War Chest – The IPO brought in a significant amount of working capital for Zynga  giving them resources to re-invent themselves and once again develop new and interesting games that players will engage with on a number of gaming platforms and environments.

Branding – Zynga’s brand is still very strong and attracts players to their games and sponsors that want players to experience their products and services. The Zynga brand itself will drive revenue and continued sponsorships from well known consumer oriented companies.

Active Players And Dormant  Players – Despite Zynga’s sagging MAU’s it  still has access to a large pool of existing and dormant players( if properly farmed) to offer  new and interesting games too. Mining these players will require more effort then they are currently investing in the recapture effort. However, there are a number of clever ways they can employee that should help them to regain player market share.

There are headwinds that Zynga must face and overcome to reassert themselves as a leader in the space.

Build Creative Innovative Games – Historically, Zynga has not focused on building new and creative game content. They have copied existing and successful game content models and moved them into a truly viral Facebook environment. This is not going to work anymore and they need to create a game development environment that fosters a creative license to experiment and take risks in game design. Creating successful mobile games should be their primary focus.

Marketing/Advertising Differentiation – Zynga has never been a great marketing company. Instead, they have leveraged their first mover status in Facebook to acquire players and to leverage them over a number of Zynga games.   This methodology for acquiring players must change quickly giving rise to an organizations that deeply understands marketing and brand identity outside of a viral context.

Overall, Zynga is far from being irrelevant in the game space given time and a reinvention of their organization they could once again return to prominence. However, they are certainly not the leader in social/freemium game space that they once were and other game publishers/developers should not be judged based on Zynga’s performance. This is especially true in the mobile space.  Zynga does not have a “mobile platform culture” and needs to reinvent themselves in a mobile contextual world.   Savvy investor should evaluate the gaming space at a macro level for growth, revenue and innovation trends before making any substantive  investments in this space.  The international popularity of social/freemium games should be taken seriously especially in Asia and South American countries. These markets are potentially better places to invest gaming directed capital if an investor really understands the dynamics of those environments.  Internet gambling is still an interesting area providing the US legalizes internet gambling on a much broader scale then its current roll-out in the US is trending. Zynga holds some strategic advantage in the sector because of its brand awareness. However, their brand will most likely will be exploited by established  third party Internet gambling operators as Zynga tries to regain momentum in the social/freemium game space.

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.


Is Zynga Relevant Any More?

What Does Zynga's Launch Of An Internet Gambling Business Really Mean?

There has been much  commentary in the press and on blogs about Zynga's  anticipated and perhaps rather late entry into the Internet gambling(iGaming) business.  This topic has been discussed for years and it is finally here. Although Zynga is the 600 pound social/freemium game company in the room they are not the first cross over company to have a social/freemium business and an Internet gambling business under one roof. Gamesys' Jackpotjoy was one of the first "true" crossover entries into the combined social and iGaming  realm. However, Gamesys has come from the opposite direction having been in the  UK Internet gambling business for some years. Betable is an example of a hybrid introducing third party freemium game content within their Internet gambling platform.   From all indications Zynga's predecessors have not witnessed a meteoric adoption of gambling by the social/freemium sector. So the question remains why now for Zynga and what are the long and short term goals for the initiative?

 Bwin.Party  Launching A Zynga Branded Internet Gambling Business - The fact that Zynga is using a Bwin.Party gambling platform and not a Zynga gambling platform indicates how tepid Zynga's iGaming launch really is. In press releases Zynga is very open about this acknowledging that their social game platform, development resources, games, marketing acumen, etc. are not iGaming  enabled and not appropriate for Internet gambling. It also appears that Zynga is not actually operating the iGaming business. Essentially, Zynga's overall resource commitment to the  iGaming business sector is relatively insignificant. The details of the business deal between Bwin.Party and Zynga are unclear. However, it is most likely a flat annual fee and a revenue share where Bwin.Party receives most of the proceeds.  

Zynga iGaming Launched In Facebook And Not On Mobile Devices -  The launch of a Zynga iGaming in Facebook and not in a mobile device environment is somewhat counter to Zynga's stated goal of gaining more traction on mobile devices. One of Zynga's biggest strategic business mistakes was not giving more consideration to the growing mobile market.  Their stock and their revenue growth have been negatively impacted by their singular focus within Facebook. So, once again we see Zynga investing in the Facebook platform with their iGaming business. 

This decision could be interpreted in a two different ways. On the positive side Zynga is admitting that Facebook is their home turf. They have a big audience in Facebook and their social poker product and audience  could be used as an up-sell vehicle into their gambling product. The "convergence" approach could be a big win for them if they can prove that a meaningful percentage of their current social poker players can be converted to the iGaming product.  Historically, selling leads to iGaming operators in Europe has not proven to be fruitful for either Zynga or the European iGaming operators. Essentially, Zynga does not know how the profile of a Zynga poker player maps to the iGaming environment. They have never invested any significant effort in sorting this out. Will they invest energy and resources in social/freemium/igaming player profiling going forward?

Cost Of Player Acquisition And The UK Internet Gambling Market - The UK has perhaps the most mature regulated Internet gaming market in the world. This has a positive and negative side to it for Zynga. The positive is that the population is very comfortable with Internet gaming and the government has put into place a number of safeguards to protect the public form abuse and problem gambling. The process of hosting and operating a gambling operation for the UK population is clear and well mapped. The downside is that the iGaming market is highly competitive with player acquisition costs going as high as $600 USD.  Party is quite familiar with this but Zynga is not. So it will be interesting to see how Zynga will react to this market reality. Party and Zynga are certainly hoping that Zynga's social player DB can be leveraged to decrease the average cost of acquisition. Remember that Zynga is not launching an Internet gambling business based on their own platform. Party is launching their platform decoupled from the Zynga social player audience.  

iGaming Revenue And Analyst Expectations - Zynga has wisely down played  any predictions on revenue from iGaming. Despite this business analysts are insisting that the iGaming channel could be a significant revenue stream for Zynga. Zynga has been very clear in their communications and by their rather limited resource investment into iGaming that the Bwin.Party deal is an experiment with the goal of learning what the iGaming world is all about. They have no stated public revenue expectations from iGaming.

US Legal Internet Gambling - Clearly Zynga is most interested in  the US Internet poker gambling market and not in the UK market. This first introduction into the UK market will be an interesting yet limited learning experience for Zynga. The UK launch is essentially a Bwin.Party product with some Zynga branding. If Zynga wants to win in the US iGaming race they will have to be more aggressive and actually invest time money and resources into Internet gambling. The fact that they are not going to get much operating experience in the UK is a bit of a concern. Clearly, Bwin.Party, 888 and others will be much better prepared for the legalization of gambling in the US. 

In conclusion, the Bwin.Party launch of a Zynga branded iGaming platform in the UK is an experiment for both Bwin.Party and Zynga.  Zynga is not going to commit significant resources to this effort unless they see a working business model in the UK.  Zynga will learn something from the UK launch but not nearly enough to build and launch its own Internet gambling poker product for the US market. It may be that they will also concede this gambling market to Bwin.Party as well. 

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.

  

Online Poker: The Impending Perfect Storm

Recent events and announcements surrounding Internet poker give you the feeling that a perfect storm is brewing in the online poker space. It is not just one or two announcements and initiatives but a series of them, when combined, could result in a perfect storm for Internet poker businesses and players.
  

US State and Federal initiatives to legalize online "real" money poker is very old news and acts as a backdrop to many new emerging poker trends that are being fueled by the US government intention to legalize real money Internet poker.  The hope of legalizing online real money poker in the US is significant.  It is obvious that a US Federal or State(s) bill allowing poker to be player across the US would certainly re-energize the online poker industry. However, there are also a number of other announcements leading us to believe that the prospects for poker are even more encouraging and perhaps much bigger then just the US opening up of online poker gambling to US residence. Combining these new new elements with the prospect of legal "real" money US poker gambling certainly does feel like a perfect storm brewing.  

European Union Allowing Intra-Country Poker Liquidity - The European Union and some of the member countries are starting to realize that the country by country licencing of Internet gambling in Europe may, in fact,  not be the best way to legalize  and control Internet gambling in Europe.      

The essential problem with the current EU approach is that it is destroying any Internet gambling game that requires "liquidity" to maximize its popularity. Obviously, poker is highly dependent on large amounts of players participating to keep the poker ecology healthy including enough "fish" for the "sharks" to exploit without depleting the amount of fish to the point where there is no ecology. Also, poker players, fish and sharks alike, want to have as many game and tournament options as possible to engage in multi-table play and to have the opportunity to actually meet and play with new players. Yes, poker is a very social game and the current European approach to Internet gambling is undermining poker.

The current move by Spain, France and Portugal  to consider combining forces to create a larger pool of poker players is a cleaver and wise move on the part of these countries to once again create a large European poker player liquidity pool. The European government entities are beginning to understand how poker works and are wisely considering a more broad based European plan for poker.

The European's are realizing that country by country closed Internet gambling markets are bad for poker. US regulators have been watching Europe's gambling regulatory strategy anticipating that they to will be regulating the industry. If Europe opens up poker liquidity so will the US when poker gambling becomes legal in the US.

Bwin/Party Poker Zynga Partnership - The other notable announcement is the Bwin/Party Poker and Zynga announcement designed to  combine Zynga's large social poker community with Bwin's Europe "real" gambling community.  The first step in this relationship is relatively insignificant with a focus on the UK exclusively. Apparently, Bwin is somehow going to enable Zynga's UK current social poker players to play poker for "real" money in the UK .I suspect this will also extend to Spain, France and Italy at some point.

The importance of this in the long run is much more significant depending on how the Bwin/Zynga relationship evolves. Zynga has been selling leads to the European gambling operators for years with little success of converting their social gaming leads to paying gamblers.  This new relationship with Bwin will begin to result in a more precise way of "profiling" social poker players that will in fact cross over to gambling. If Bwin is really smart they will also allow their gambling community to play in Zynga's  social poker room. We already see pro poker players playing in Zynga. If Zynga can effectively create an eco-system where they monetize players in both environments it will be a closed system resulting in high retention of players and increased revenue per player.

Facebook Platform Supports Internet Poker Gambling - This is also old news, however, the Facebook/Gamesys deal to allow Gamesys to offer real money bingo game wagering in Facebook could have a potential big impact  on poker providing Facebook expands  gambling withing Facebook to current poker gambling game operators and they allow Zynga and other  Facebook poker operators to play real money poker within Facebook. If this happens, and there is very good chance it will, the numbers would be staggering with potentially millions of people concurrently playing real money  poker within Facebook. 

US legalization Of Internet Poker Gambling -  There is much speculation about this subject. With no one really knowing for sure how and or when US Internet gambling will become legal. However, if it does, or if California only  becomes a market where Internet poker gambling is allowed, it will certainly tip the scales into the perfect storm scenario combining US players, European liquidity and real money poker acumen with Zynga/Facebook social poker player volumes. Clearly the US is the home of poker and poker market size will far exceed  Europe's.  The Zynga experience has taught us that even in the absence of any real money poker in the US the game is still extremely popular.

Internet Poker gambling was certainly very big and successful before 2006 and the emergence of Zynga social poker and the development of the European poker market.  Looking forward the new Internet Poker market could be substantially larger. The added fuel provided by the  increased size of the US population, the addition of the current regulated combined European poker audience,  the success of mobile devices as an easy way to access poker, Zynga's population of poker players, the potential viral impact of  Facebook's world market reach and the legalization of US Internet real gambling poker could result in a very interesting poker economy.

  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. 

Zynga Gets Into The Real Internet Gambling Game

First it was Facebook with the Gamsys deal and now Zynga has decided it needs to get into the "real" gambling business in the UK.

The following quote is an extract from the Washington Post one of the financial news letters that follows Zynga's financial statements."The company is trying to convince investors that it can revive growth, and on Wednesday said that it’s signed a deal to offer online poker and casino games, played with real money, in the U.K. It plans to launch those games in the first half of 2013."

There is nothing really special about this announcement as most people in the social gaming industry were waiting for this announcement.

However, there are more questions then answers now that Zynga has announced its intention to get into the "real" money Internet gambling business.

Real Money Poker Platform -What platform is Zynga going to launch its real money poker on?  Zynga has been scouring the globe for "real" money poker platforms and they have also hired "real" money poker techies within their teams. So, what will it be? A third party real money poker platform or a modification of their current social poker?

Zynga Social Casino Games - Also, Zynga is not really known for its social casino games. So what are they going to do in this space? Buy, build, etc.

Within Facebook Or Outside Of Facebook - Are they going to launch the games in Facebook or outside of Facebook? Gamsys is within Facebook with most UK players that have experienced the Facebook gambling offering   describing it as underwhelming. Will Zynga take the easy route and do the same or will they finally free themselves from Facebook and launch independently?

Facebook Social Gambling Game Cross Over -  There has been much speculation and debate about the potential for up selling Facebook social gambling game players into "real" gambling games. If any company is poised to pull this off it is Zynga with its large liquidity social poker audience and the realization that "real money" poker players currently play Zynga poker. It is certainly tempting and makes sense to make a go at it to jump start real money Zynga gambling.

Preparing For US Legal Internet Gambling - Zynga has millions of US players playing their poker game. When and if US Internet gambling becomes legal again Zynga will perhaps be the most well positioned company to take advantage of it by up selling their current Facebook poker players into "real" gambling. Even if the conversion rate is relatively low the overall numbers of converted players will be in the millions. This does not bode well for Euro gambling operators wanting to kick start their struggling Euro businesses with US poker players.

Clearly, we have more questions then answers at this time. However, it is a relief to hear that Zynga is finally getting into the "true" gambling business. We do not have to speculate anymore. This move will inevitably change the iGaming industry in a significant way and influence the impending legalization of Internet gambling in the US. 

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. 

Disappointing Facebook And Zynga Quarterly Earnings Not Surprising

The continuing disappointment investors are expressing in both Zynga and Facebook's earnings is indicative of how poorly investors understand their  Facebook and Zynga investments.  It is just dawning on analysts now how symbiotic the  relationship between these two companies really is. I see simplistic, almost, child like presentations created for investors in these stocks explaining how Zynga, virtual currency and social media actually works. Sad really with a deserving outcome for the investors that obviously had no idea what they  had invested in.

When Zynga and Facebook were steaming to their IPO's I wrote an analysis of both the Facebook and Zynga S1's showing how close these companies were aligned.. The S1 of Facebook did reveal a 12% dependence on Zynga for virtual currency and virtual goods sales through the Facebook transaction platform. It did not mention the advertising dependence it also has on Zynga. Zynga generates plenty of ads in its games as well. So is the revenue dependence more like 15% or perhaps even higher?

Conversely Zynga is almost 100% dependent on the Facebook community for its revenue. If Facebook  falters in their growth so does Zynga.

So what do both of these companies have to do to continue their expected population growth and revenue per individual?

Mobile - All of the analysts Facebook and Zynga themselves are saying that mobile is the place to be to sustain their growth. However, the mobile environment is very different than the Facebook environment and  not a place either company spend enough time on during the early growth years of mobile platforms.  Jumping in late is not going to be easy. Yes people are accessing their Facebook accounts on their mobile devices. However, the experience in mobile needs to be different from the Facebook web version. Navigation, invites and the very limited time people will spend in a Facebook mobile app will be less then the web version.

Zynga's challenge is that their massive games such as Farmville and Cityville will be hard to convert to a mobile environment. Interface, play time, player navigation through the game environment are all different. Smaller and easier to understand games that clearly and intuitively guide the player through the experience is required. The tablets may be the saving grace for Zynga providing a larger playing surface enabling MMO type game play and a differentiation for Zynga.

So where are these companies headed with a stalling revenue model in the Facebook environment and a very late start into the mobile world for Zynga?

Clearly, in the short run(next 2 quarter)s not likely a pleasant outcome. Sure they both have big cash reserves based on their IPO's and could buy their way into the mobile space. However, in the end they really have to have organizations that understand the mobile universe.  Facebook has to continue to be "interesting" to existing members and they have to somehow continue to add more people to Facebook then are dropping off. We have seen social platform fatigue before with Friendster, MySpace, etc. Are we seeing this in Facebook now? I am not sure myself. I believe the Facebook platform is more flexible then their predecessor platforms and therefore provides Facebook with more options on how to retain and grow its community. Depending primarily on advertising revenue as its main source of revenue is very risky. Their virtual currency move was very clever and has contributed good revenue to the bottom line. However, in mobile there are many other virtual currency options for gamers do they really need Facebook.

In the coming months look for  Facebook to create a "true" mobile platform and see how Zynga games are converted over or if they embark on en entirely new game strategy for  mobile. This will give us all a better picture of what future earning will look like for these companies.

 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. 

How Will The Facebook IPO Impact Zynga's Stock Price?

Zynga's stock price has had a less than stellar performance post IPO late last year. However, since the announcement of Facebook's IPO and the publication of the Facebook S-1,  Zynga stock has steadily risen from about $8 per share to a high of $13 and change. This is interesting and does make sense. Prior to the Facebook S-1 publication many investors did not even know who Zynga was or what they where all about. A social game company? Also, in looking at Zynga's S-1 it is filled with more doubt about the future than hopeful optimism. It also spelled out that Zynga was heavily dependent on Facebook for their future growth. Without the benefit of seeing the Facebook S-1 Zynga was a relatively hard sell even to savvy institutional investors.

Per my analysis of the Facebook S-1, which I recommend you read if you really want a good understanding of the relationship of these two companies, 20% of Facebook's revenue is coming from Zynga's virtual currency sales. Facebook clearly states, without Zynga Facebook will be significantly challenged to keep its projected revenue growth rate. These companies are in a symbiotic relationship if they like it or not. The question is how deep does this co-dependency  go and who benefits most or gets hurt the most if this relationship thrives or deteriorates?

"According to AppData, we have more monthly active users on Facebook than the next 15 social game developers combined. Our players are also more engaged, with our games being played by more than 60 million average DAUs worldwide. According to AppData, we have more daily active users than the next 30 social game developers combined. "

This Zynga S-1 statement reveals that no other social game company comes close to contributing the amount of revenue Zynga is contributing to Facebook.

"In July 2010, we began migrating to Facebook Credits as the primary payment method for our games played through Facebook, and by April 2011, we had completed this migration. Facebook remits to us an amount equal to 70% of the face value of Facebook Credits purchased by our players for use in our games played through Facebook. We record bookings and recognize revenue net of the amounts retained by Facebook.

Facebook is the primary distribution, marketing, promotion and payment platform for our games. We generate substantially all of our revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future. Any deterioration in our relationship with Facebook would harm our business and adversely affect the value of our Class A common stock."

This statement indicates that Zynga is giving 30% of its revenue to Facebook for the privilege to publish its  games within Facebook. This is a serious amount of money for using a payment platform. If Facebook increases this percentage it will hurt Zynga. If Facebook is forced to reduce this percentage for all E-commerce applications within the Facebook environment it will help Zynga. This is a real possibility if Facebook really wants to expand its payment processing to other no-social game companies. 


Zynga) have benefited from Facebook's strong brand recognition and large user base. If Facebook loses its market position or otherwise falls out of favor with Internet users, we would need to identify alternative channels for marketing, promoting and distributing our games, which would consume substantial resources and may not be effective."

The Zynga brand is not the important brand the Facebook brand is. Zynga can call itself anything it wants. Essentially, Zynga is Facebook's social gaming company.  

Reading the Facebook and Zynga S-1's reveals that at this time these companies are heavily dependent on each other. With Zynga being the most vulnerable and most co-dependent. The Facebook stock price will and should impact the Zynga stock price.This may explain why Zynga has not been particularly aggressive with adding games to Google+. I suspect they do not want to rock the Facebook boat. Facebook also has to be careful about how it treat Zynga. Having 20% of your revenue coming from a single source is non-trivial. A breakdown of this relationship will put a dent in the Facebook stock price. This also means that their fortunes and stock price will rise and fall with Facebook's performance. This also begs the question should Facebook buy Zynga with its new found IPO cash. You also wonder if Facebook can do any deals with big international social game companies like Tencent in China? Will this force Zynga out of Facebook? Google is also in play here. It is no surprise that Google's stock is slipping as the Facebook IPO becomes imminent.Google needs a boost to counter Facebook's impending big IPO cash trove. Should they buy Zynga? 


Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively 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.

What Facebook's S-1 Filing Reveals About Social Gaming

Many analysts have dissected Facebook's Security and Exchange Commissions S-1 filing. For the most part the goal of this evaluation has been to determine the risk/reward ratio of investing in the Facebook IPO. My interest in looking into the S-1 was to focus on the role of social games in Facebook's business model and how that impacts their future projections. The following are key portions of the S-1  relevant to that subject and my own opinion on how to interpret Facebook's social game commentary.

"When users purchase virtual and digital goods from our Platform developers using our Payments infrastructure, we receive fees that represent a portion of the transaction value. Currently, substantially all of the Payments transactions between our users and Platform developers are for virtual goods used in social games. According to an industry source, the worldwide revenue generated from the sale of virtual goods increased from $2 billion in 2007 to $7 billion in 2010, and is forecasted to increase to $15 billion by 2014. We currently require Payments integration in games on Facebook, and we may seek to extend the use of Payments to other types of apps in the future."

 Facebook's introduction of  its own virtual currency payment system was clearly the result of research conducted on the virtual gaming/currency bonanza  initially developed in China, Korea and Japan. The projections for a 15 billion dollar industry in 2014 is astounding and speaks to the shift away from the importance of physical goods and "traditional (Dollars, Euros, Yuan") currency. Clearly Facebook wants to establish itself as the issuer and manager of a universal currency to attract and retain social gamers and virtual currency transactions around the world. It also wants to draw social gamers and publishers in Asia that have already accepted virtual currency as a viable transaction model. Should Facebook use its IPO money to buy Tencent in China?

" The substantial majority of our revenue is currently generated from third parties advertising on Facebook. In 2009, 2010, and 2011, advertising accounted for 98%, 95%, and 85%, respectively, of our revenue."

Why is advertising revenue dropping as a percentage of total revenue? It is dropping because social games are beginning to generate more and more revenue based on virtual currency and virtual goods transactions.  Essentially, game related revenue is growing faster than advertising revenue. 

"Apps built by developers of social games, particularly Zynga, are currently responsible for substantially all of our revenue derived from Payments"

Social games are the only application(s) currently generating revenue from virtual currency and virtual goods transactions. This is likely to change as "gamification" begins to take hold and other types of Facebook applications begin to integrate virtual goods and currency into their models. The concept of loyalty points traditionally issued by airlines, credit card companies, etc would be a great target market for Facebook. Facebook also needs to leverage its virtual currency outside of the US and especially in Asia if it expects to support aggressive growth projections.

"If Facebook-integrated websites draw users away from our website, it may reduce or slow the growth of our user activity that generates advertising opportunities, which could negatively affect our advertising revenue.

Although we believe that there are significant long-term benefits to Facebook resulting from increased engagement on Facebook-integrated websites, these benefits may not offset the possible loss of advertising revenue, in which case our business could be harmed."

 So what is Facebook talking about here? Recently web sites and game sites have decided they do not want to go through the effort of building Facebook specific applications. Instead, they are redirecting people from Facebook to their web applications by embedding a redirect in Facebook. Facebook realizes this and worries that this will result in Facebook users realizing that there is a world outside of Facebook. Facebook wants to keep you in Facebook. They have already taken steps to shut down the ability to move Facebook users out of Facebook via the fake Facebook application strategy. 

"We currently generate significant revenue as a result of our relationship with Zynga, and, if we are unable to successfully maintain this relationship, our financial results could be harmed." In 2011, Zynga accounted for approximately 12% of our revenue, which amount was comprised of revenue derived from payments processing fees related to Zynga’s sales of virtual goods and from direct advertising purchased by Zynga. Additionally, Zynga’s apps generate a significant number of pages on which we display ads from other advertisers. If the use of Zynga games on our Platform declines, if Zynga launches games on or migrates games to competing platforms, or if we fail to maintain good relations with Zynga, we may lose Zynga as a significant Platform developer and our financial results may be adversely affected. "

Clearly Zynga's influence on Facebook is enormous. It also indicates that social gaming has an impact on advertising revenue as well. Not sure if the 12% takes  into account the advertising revenue that Zynga generates and how much of the total revenue Zynga contributes to Facebook. We will have to dig into Zynga's own S-1 to sort that out. Also, Facebook does not mention the total revenue influence of all social games in Facebook from a virtual currency and advertising perspective. I suspect Wall Street was not wise enough to ask this question. If you are going to invest in Facebook you should find out the answer to this questions. There are several large game publishers in Facebook and I suspect the aggregate has a big influence on Facebook's bottom line. 

So what is the total revenue contribution of social games to Facebook's bottomline? I suspect far greater then the 12%  that they are reporting from Zynga. If you add up the other social game publishers and the advertising revenue they generate for Facebook the story is very different than the one pitched in the S-1.

"Our users can use the Facebook Platform to purchase virtual and digital goods from our Platform developers using our Payments infrastructure. Depending on how our Payments product evolves, we may be subject to a variety of laws and regulations in the United States, Europe, and elsewhere, including those governing money transmission, gift cards and other prepaid access instruments, electronic funds transfers, anti-money laundering, counter-terrorist financing, gambling, banking and lending, and import and export restrictions. In some jurisdictions, the application or interpretation of these laws and regulations is not clear. To increase flexibility in how our use of Payments may evolve and to mitigate regulatory uncertainty, we have applied for certain money transmitter licenses and expect to apply for additional money transmitter licenses in the United States, which will generally require us to demonstrate compliance with many domestic laws in these areas. Our efforts to comply with these laws and regulations could be costly and result in diversion of management time and effort and may still not guarantee compliance. In the event that we are found to be in violation of any such legal or regulatory requirements, we may be subject to monetary fines or other penalties such as a cease and desist order, or we may be required to make product changes, any of which could have an adverse effect on our business and financial results."

There are a number of things we can derive from this statement. Clearly government  regulators are beginning to look more deeply into Facebook's virtual currency payment platform and social game transactions that allow or require players to "buy" virtual currency with traditional currency. There are all kinds of issues that could arise from drawing so much attention and revenue from these transactions. First and foremost is the age of people transacting with virtual currency and especially in games like poker and other gambling style games.  If people under the age of 18 are buying currency to enter gambling games and losing is this legal? If it is should the authorize do something about it? Even if they are not gambling games should these people be allowed to buy unlimited amounts of virtual currency and goods?

With the opening up of US legalized gambling and the history of  legal Internet gambling in Europe Facebook is rumored  to be interested in allowing gambling games in its environment to serve these markets. How will Facebook make money on this and how will they safely implement gambling within Facebook?   Regulators will be watching.

"Twelve percent of our total revenue in 2011, and less than 10% in 2010 and 2009, came from a single customer, Zynga. This revenue consisted of payments processing fees related to Zynga’s sales of virtual goods and from direct advertising purchased by Zynga. In May 2010, we entered into an addendum to our standard terms and conditions with Zynga pursuant to which it agreed to use Facebook Payments as the primary means of payment within Zynga games played on the Facebook Platform. Under this addendum, we retain a fee of up to 30% of the face value of user purchases in Zynga’s games on the Facebook Platform. This addendum expires in May 2015."

Zynga begrudgingly entered into this agreement with Facebook. They even threatened to pull out of Facebook all together.  Zynga did  cut a deal with Google to put games into Google+ to offset their dependence on Facebook. 2015 is certainly  light years away in social networking time. However, if the Zynga/Google partnership can make a dent in Facebook's social gaming dominance Zynga will have more negotiating power to reduce the 30% haircut.

"When users purchase virtual and digital goods from our Platform developers using our Payments infrastructure, we receive fees that represent a portion of the transaction value. Currently, substantially all of the Payments transactions between our users and Platform developers are for virtual goods used in social games, for example virtual tractors in the social game FarmVille. According to an industry source, the worldwide revenue generated from the sale of virtual goods increased from $2 billion in 2007 to $7 billion in 2010, and is forecasted to increase to $15 billion by 2014. Payments integration is currently required in apps on Facebook that are categorized as games, and we may seek to extend the use of Payments to other types of apps in the future. Our future revenue from Payments will depend on many factors, including our success in enabling Platform developers to build experiences that engage users and create user demand for their products, and the fee arrangements we are able to negotiate in the future." 

Facebook is clearly thinking about how it can encourage "force" all e-commerce transactions though its payment system. Not a bad idea really if they can pull it off. Facebook's current dependence on social games to generate all of its virtual currency revenue is certainly dangerous, especially if Zynga threatens to withdraw from Facebook unless the fees are reduced. The more Facebook dominates the E-commerce world requiring all business to have a presence in Facebook the more likely this will occur. 

In conclusion the Facebook S-1 does not reveal much more than most followers of Facebook already know. The dependence on social games for Facebook's long term growth is obvious. Add the advertising revenue generated in social games with their virtual currency and goods sales will expose a much higher dependence on games then the S-1 has revealed. From an investor perspective impeding legislation to regulate virtual currency transactions may have a significant impact on Facebook's revenue if many of the social gamers are under the age of 18. The introduction of gambling in Facebook could be paradoxical adding an additional revenue stream and at the same time resulting in regulation of existing virtual currency transactions. Although Zynga has made a fortune off of Facebook they have also become a prisoner of this relationship. They have to be thinking about how they can diversify outside of Facebook to reduce their own risk and to increase revenue outside of Facebook.  This means that Facebook should, and is going to decrease, its revenue dependence on Zynga by expanding virtual currency beyond games and to attempt to gain market share with Asian game publishers.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively 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.

Why Is Social Gaming So Important For Online Gambling Companies?

I had the pleasure of participating in a GIGSE panel discussion this year where I was asked to comment on the role of social gaming in the context of the potential legalization of online gambling in the US.

I indicated that social gaming should be a critical strategic consideration for any company interested in taking advantage of the future prospect of legalized online gambling. I also implied that even if US online gambling is not legalized or takes a long time to happen a serious look at  social networks and social games should be a part of any gaming companies strategy.

I pointed to the success of Zynga as an example of how a social gaming strategy has created perhaps the most successful online gaming company to date.

Despite Zynga's  impressive numbers many of the people in the audience dismissed Zynga or any other social gaming company as irrelevant and inconsequential relative to online gambling. The reaction I received from many attendees was a bit shocking to me.

The argument's they used to support their position are as follows.

1.) The majority of social gamers are under the age of 18.

2.) The social gaming experience is different then "real" online gambling.

3.) There is no money in social gaming. Revenue per player is very low.

4.) There are only a  "few" high virtual currency transactors in social gaming.

5.) Zynga's lead generation to online gambling operators has been very poor.

6.) Social gaming companies do not know how to operate real gambling sites.

Although some of these arguments have merit others do not or are taken out of the context of the intricate online gaming ecosystem.

The following are items online gambling companies should take into consideration before they completely dismiss social gaming.

1.) Average Age Of Facebook Players -Just about everyone has a Facebook ID. The average age of Facebook members is now 35 years old and getting older. The 18 to 25 year old age group is a significant portion of Facebook membership. This is the perfect age group profile for online gambling. If you have every played in Zynga poker you will see (their pictures) that many of these players are the traditional age group for online gamblers.

2.) Social Games Are Different For Online Gambling Games - Yes the social game experience is different from an online gambling experience. Of course it is, because online gambling is not allowed in Facebook. Companies like Zynga have shrewdly decided to offer a game experience that matches the social environment. This is one of the reasons why Zynga has 250 million players and online gambling companies are not even close to these numbers.

3.) Social Games Will Change If Online Gambling Is Legalized - If online gambling becomes legal in the US and Facebook embraces it (which they will in a clever way) online gaming content in Facebook will change making it more gambling like. The gaming companies will not change their current casual offering. Instead they will offer a different game experience and upgrade casual gamers into the gambling operations. Even if the conversion rates is in the single digits the numbers are astounding. Also, Goolge, Apple, Yahoo, Amazon, EA, etc. and other major online companies that have large numbers of online profiled transactors will create online gambling games and seek to convert their current visitors to online gambling.

5.) Making Money In Social Gaming -Many online gambling companies that come to me to help them understand the social gaming world are appalled at the relatively small monetary transactions per player. They become discouraged by these numbers not realizing that if a gaming company can create a gaming application that has a viable social component and a good social network marketing strategy the shear numbers of players will make up for the lower transactions per player. No this is not an easy thing to do. However, if successful, social gaming can begin to pay for itself.

In contrast to online gambling companies, social gaming companies use a variety of game "monetizationr" techniques to make money from social gaming. In gaming advertising, virtual currency, virtual goods, lead generation for other social applications, etc. In aggregate these numbers start to add up. Virtual currency and good sales alone are climbing to rates equal to and exceeding online gambling revenue. It is estimated that the virtual world will be generating 5 billion USD per year in the not too distant future.

6.) Player Profiling And The Online Gaming Ecosystem - Treating  online gambling and social gaming players as distinct and separate individuals is not realistic given the large numbers of players engaged in social gaming. Inevitably there is an intersection between these two groups. In the past two years social gaming companies with the help of third party companies specializing in social network profiling have begun to take a look at all of the Twitter, Facebook, Google search, etc data to decipher the likes and dislikes of people on the web. Evaluating and making sense of this data is not easy. However, some progress is being made to provide hints as to the propensity of an individual to buy a certain product, play a certain game, travel to a specific destination, etc. There is still much work to be done to in this area and privacy issues abound. However, with the increasing amount of information we are all contributing freely to the Internet there will be a time when  profiling will get to a point where we can successfully to move players to and from different environments with a high degree of accuracy and increased moneitization.

7.) Marketing And Player Acquisition On The Social Web - An online gambling company has to learn how to market to players within the social web even if they believe that social gamers are not the target audience. Everyone is in a social network of some kind and online gamblers are no exception. Developing a productive and effective social networking marketing program is non-trivial and requires a very different approach then tradition web, affiliate, e-mail, physical, etc. marketing. Ironically, social games are one of the most effective ways to market products and services because they do have the potential to get close to a truly viral application. This is the holy grail of social marketing and and should be a goal for online gaming companies even if they never launch a social game of their own.

8.) Social Games As A Separate Business Unit - At the ICE conference in London this year I had the opportunity to help organize a special session on social game monetization.  It was revealing because it came to light that traditional gambling companies like 888 and BetWin are creating separate social gaming business units not related to their gambling properties. These companies realize that the future of online gaming is within social networks. This is where the growth and innovation will be. They want to be in it and be just as successful as Zynga and other high profile social gaming companies.

It is clear that  many online gambling companies do not fully understand the importance of  social networks and social games in the context of online gambling and distinct social gaming applications. Some of them do and are taking steps to explore how to be successful within social networks and to launch social games that can stand on their own taking advantage of the social graph. This space is certainly evolving quickly making it more difficult to get into the social space and establishing expertise and brand awareness. Despite this a presence in social networks is becoming mandatory for any company wishing to maintain market share and to grow. The sooner an online gambling companies embraces this reality the better off they will be.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively 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.

Monetizing Social Games Conference Summary (London January 2011)

The conference  revealed some interesting surprises even for the more educated social gaming attendees. The conference attendees and speakers represented a good cross section of casual games, online gambling, social gaming, social media and advertising, legal and payment processing representatives. US and European entrepreneurs, business owners, legal experts and investors provided a good mix of opinions providing a global feel to the conference.  The following are some of the more provocative revelations that were uncovered during the conference.

Traditional Online Gambling Companies Are Investing In Social Gaming Companies - 888 and Bwin have decided that social gaming is the place to invest in  for the future. Both Mytopia and United Games have received funding from the big online gambling companies. The interesting thing about this investment is it is not designed to feed gambling leads to the major gambling brands. Instead these social and casual game publishers/developers are looked upon as a separate business unit with the objective of penetrating the social gaming market and growing that part of the online gaming market.

This says something about the emergence of social games as a legitimate "revenue" generating segment of the online gaming market. Not too long ago conventional wisdom considered social gaming as a small and insignificant revenue generator. Most attention was placed on spending big marketing and acquisition numbers on acquiring "real" gamblers. This has obviously changed with the realization that social gaming is a legitimate contender for the wallets of online gamers.

Do Virtual Currency/Goods Transactions Categorize Social Games As "Gambling" ? The speakers and panelists were pressed very hard on this question and would not concede that virtual currency/goods transactions with gambling style social games constituted "real" gambling. The legal experts indicated that virtual transactions were not even on the radar of European regulators. This indicates that it will be clear sailing for social gaming companies using this form of revenue generation to monetize their games.

Virtual Currency Inflation - There was some acknowledgment that the flooding of the  games economy with Facebook credits could be a future problem. However, most social games companies using Facebook credits were more concerned about the 30% of revenue that have to give up to Facebook to use their credits.

Facebook Threat As Payment Processor For All Facebook Transactions - The audience acknowledged that Facebook was moving into PayPal territory by becoming a payment processor for all forms of monetization within Facebook. The representative payment processors also conceded this with the caveat that the current processors would be processing all virtual currencies and not just Facebook credits giving them a competitive edge with publishers and merchants.

Getting Recognized In Facebook Is Getting Harder And Harder - With the Facebook pull back on notification based  virality it is harder to achieve massive player acquisition without resorting to Facebook advertising as a primary source of lead generation.  The days of  exclusively depending on virality are over. It is time to pay up and get the word out through conventional Facebook advertising.

More sophisticated development of Fan pages, cultivation of groups, co-marketing relationships with other Facebook application aggregaters all need to be used in tandem to achieve critical mass for a game promotion and continual player growth.

Does The Little Guy Have A Chance Anymore? - Yes and no. The budgets for game promotion are going stratospheric with big box companies like Zynga spending tens of million on game promotion and game development. Game development and advertising is now taking the same track as Hollywood movie development and promotion leaving the smaller developer and publisher in the shadows.

With this said the little guy can have a successful social/casual game business within social media platforms. A game does not have to be in the top tier to make money or to be popular. In many was this niche market  approach may be the best place to be. Under the radar and making money does not attract competitors and allows a company to sustain a realistic business model.

Portfolio's Of Games Helps To Increase Revenue Per Player - If you have a game that is reasonably successful monetize the players of that game over a wider array of games. Essentially, more game content matters. Having a bunch of games helps raise revenue per player and player retention.

Opportunistic Game Demographic Targeting - Currently the demographic of a frequent casual or social gaming player is female between 32 and 40 years of age.  They are spending the most money. Yes make sure you make games for them. However, this also leaves a big hole in the market. Facebook and big box game publishers ares clearly starting to lose the per-teen. teenage and early 20's segment of the marketplace because the majority of the game content is not geared to them. This may be the biggest opportunity for new game companies or new games.

Big Brands Want In - It is no secret that big consumer brands want in on the social and casual game party. They do not have the game development chops or advertising know how of seasoned game developers and publishers. Look to the big brands as a major source of revenue. This is tricky because you do have to build and promote a popular game no matter the brand. However, if this can be sorted there will certainly be good money in it.

Mobile Casual/Social Games - Mobile games have been a big disappointment primarily because it is difficult if not impossible to get the viral effect going. With this said everyone believes that there is gold to be found in mobile gaming if cost effective virality can be achieved. There were two companies presenting that had abandoned model game development all together and moved to conventional social game platforms because of their frustration with poor revenue generation from mobile gaming. However, they both indicated that they woulds dive back in if virality could be achieved in the mobile gaming environment.

Conclusion - Now that everyone realizes that games are the key to monetizing social network participants the competition amongst game publishers and developers is intensifying. Companies that considered social gaming as a fun yet insignificant segment of the online game space have now decided things have changed and they want part of the action. This means that the competition for social gamers is going to intensify. It also means that success breeds success. If a title goes viral and generates big numbers then revenue will be plowed into yet other big budget titles. There is room for new games developed and promoted with low budgets to succeed in generating enough players and revenue to support a sustainable business model. This may be the best place to fish for success in the casual/social gaming space.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively 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.