Posted in: facebook, social gaming, social networking, virtual goods, web20, zynga

Is Zynga’s A Sign of Things to Come or a Clever Hedge?

I was reading TechCrunch’s article on Zynga’s launch of earlier today. I’ve seen a lot of speculation about why Zynga might do this and what it means for the industry. I don’t think it signals a major shift away from Facebook or social networks, but it is an interesting hedge (at best) or a signal of a desire for more leverage (at least).

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Before delving into this too deeply, it’s important to remember why games on social networks, Facebook in particular, are growing so quickly. Many of these games and game concepts are not new. What’s new is the combination of low-cost and low-friction distribution on social networks, a working virtual goods model, and rapid user acquisition by the underlying platforms themselves. This is a really potent combination that’s clearly working.

There’s one other thing that’s really important (in my opinion) and not frequently discussed. On the open Internet, game developers have two ways of acquiring customers. You can do a deal with a big games portal or other centralized distribution point. Or you can buy media on the Internet and drive users to your destination site. Either way, the dominant model is to find people on the web and drive them to your site or the place where you’re distributing your game – it’s basically a herding model. Part of why games on social networks are growing so fast is that they break this model; instead of finding people who want to play games and driving them to your game, social games turn this on its head. Instead of chasing people down and trying to get them to play games elsewhere, why not just put the games where the users already are? Turning this paradigm on its head means you can do one really important thing – you can reach people who aren’t looking for games. This is a big deal. And this is, in part, why social games are succeeding in expanding the audience of people who play games. Skeptical? Talk to a Farmville player. Ask him (or more likely her) what else he or she plays and you’re not likely to hear console or even traditional casual games – for a lot of players, this is their onramp to games.

If you’re Zynga, the one big problem you have is not the offer controversy. Your biggest problem is that Facebook feels like the only game in town for social game developers, other than the open Internet. That probably won’t change anytime soon. There are other platforms with reach, growth, or good monetization, but not any one platform that has the scale, growth, viral channels, and monetizable audience that Facebook offers. Changing that dynamic will take a long time. And with Facebook’s proposed roadmap changes coming later this year or early next year, what’s Zynga to do?

Building up a web presence is a good hedge – if you’re serious about building it out, you have the opportunity to succeed where few others have by building a web-scale social game off a social network. That would require you to build a game that works (done), drive traffic to a destination site (doable, but expensive), and replicate the economics that you see on Facebook (unknown, but possible).

What would it take for a “crossover” game that started on a social network (no offense to Harvest Moon) to succeed by moving to the web? Three, things, in my opinion:

A game with wide appeal – A game with wide appeal has the opportunity to attract a large audience. This has two benefits. One, you get more people into the funnel, playing the game, and potentially transacting. Second, a game with wide appeal does not need to focus on advertising on the sites or networks where every other web-based game does – you can look to reach people in places where other games can’t. Think about it. If you’re building a hardcore MMO, where are you going to advertise? Where hardcore MMO players hang out, right? If you’re building a game that credibly could appeal to everyone, where CAN’T you advertise and expect some decent yield?

Known monetization – Farmville makes money. They sell virtual goods and Zynga has some sense as to how profitable users are in terms of unit economics. So they can afford to spend on customer acquisition as they are doing on Facebook today. Because the game works on Facebook, you could spend money on acquiring customers from day one. If the web audience ends up being less lucrative, you could still afford to spend to build up the web user base by subsidizing the web property with revenue from Facebook. If the economics are the same, there’s no issue. God forbid the economics of web players are superior – I can scarcely imagine what that would mean for the industry.

Knowledge of customer acquisition tactics that work at scale – One nice thing about the Internet is that you’re not restricted by social networking platform policies around how often and through which channels you can contact users. For all of that benefit, though, you lose all of the known things that work on Facebook but do not exist on the open Internet (the wall, the newsfeed, notifications, etc) and need to learn what works on the web. This could be a positive or a negative – not sure how steep the learning curve would be when it comes to succeeding on the web.

I don’t want to undersell the disadvantages of being off of a social networking platform. One of the best things about building games on social networks is that you can be ambient – having a presence there means that you get many more opportunities to engage users when they’re not thinking about your game. They could be messaging a friend, reading an article, using IM, or otherwise making use of the Facebook platform when you hit them with a call-to-action that drives them back to your game. Best part is that they don’t have to leave Facebook. I’m not sure that it’s a huge win to give all of that up unless you can replace it with something really powerful.

If you’re not super serious about building out your web presence, though, this is a very cheap and clear way of signaling your concern / displeasure with the balance of power on the Facebook platform. Also, if you’re thinking about possibly going public or achieving even larger scale, it gives you a simple first answer to the “what will you do if Facebook makes life miserable for you” question.

One last thing. I’ve heard a few people suggest that Zynga would use this as a way to use Facebook Connect for registration without being subject to the rules of the platform. I find it highly unlikely that Facebook will be anything other than very strict with the way that people use Facebook connect. The last thing they want is to have people start to use Facebook Connect to extend the FB brand and brand promise to the web and have developers end up using it as a way to circumvent the rules of the platform.

There you have it. Feel free to comment away. Thanks for reading!

And if you’re really into this stuff, I hope you’ve checked out Inside Virtual Goods, the research report that Justin Smith from Inside Network and I co-authored.

Comments (9) on "Is Zynga’s A Sign of Things to Come or a Clever Hedge?"

  1. We're definitely looking into moving our games onto the web. There still are some pretty big questions we'll need to answer before it becomes our sole focus though.

    1. Do web-based viral channels work well? Can you do invites via email/IM succesfully? Clearly you can allow people to send and unlimited amount of them, but what's the response rate? If you reward people for invites, how much work do you have to do to prevent multi-accounting from deflating your virtual economy?

    2. What does it cost to buy traffic from Google/Yahoo/etc. and how much reach is there?

    3. As you mentioned, how do RPUs compare? Can you keep people coming back as easily?

    I hope to find out these things in the near future.

  2. Matt,

    I think you're asking a lot of the right questions. As for question #1, I think the folks at places like IMVU, Gaia, and others have been trying to solve these problems for awhile. It's clearly hard to do, but there are some learnings that can be borrowed.

    The harder challenge, though, is what you raise in #3 – how can you re-engage users on a regular basis when you need to drive them back to a standalone destination and not a top independent destination like Facebook.

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  4. When are they going to put out more applications so people other than those with the iphone can use the features on farmville/facebook?

    I wouldn't mind paying a fee…it will weed out those not interested in it and never play their farm again after their first visit. I am sure that this has clogged up a lot of space on the servers.

  5. When are they going to put out more applications so people other than those with the iphone can use the features on farmville/facebook?nnI wouldn’t mind paying a fee…it will weed out those not interested in it and never play their farm again after their first visit. I am sure that this has clogged up a lot of space on the servers.n

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