Facebook: A lesson in Competition
Posted by SERIAL GANKER [HTML][XML][PERM][FULL] on 19 March 2010, 2:44 pm
The critical point I wanted to get across about social gaming (i.e. Farmville) in yesterday’s post is that these games don’t compete with our leisure time, they compete with time wasters during our work week. It’s the accessibility of such games through a browser that makes them popular because they can be played in situations where we couldn’t otherwise play a full-featured game like Team Fortress or World of Warcraft.

They don’t compete against our leisure time primarily because the gameplay doesn’t have enough depth to hold our attention or interest like other leisure activities. In other words, it beats working – but it doesn’t beat reading a book, watching your favorite TV show, or anything else that we do during our leisure time while we are not at work.

The perceived threat to full-featured games
I think the fear that social gaming will impact full-featured games stems from the idea that social gaming is more attractive to investors. At GDC, Evan Wilson clearly articulated this concern:
How important is game development when you have poor quality free social games generating these kinds of numbers?    (source)
Evan’s question addresses the scary idea that if poor quality games can generate big profits, no one will want to invest in developing better games. This is the real reason that traditional game developers and gamers fear social gaming.

Don’t be afraid
Traditional game developers and gamers need to stop being afraid and take some comfort in Laws of Competition. In the short-term, social gaming is going to see a nice influx of investment. Cheap games for big profits is going to attract money. No doubt about it.

HOWEVER, because it’s cheap, the barrier to entry is low. Right now, I could grab three of my best friends and write a game for Facebook that could be as popular as anything else currently available. And if it doesn’t take much effort to create a cheap game, you are going to see LOTS of them.

And each of these cheap and easily created games is going to be competing against the growing over-abundance of social games.

The Laws of Competition are going to require a successful social gaming company to compete by either:
  • creating lots of crappy games (most options)
  • and/or, build better games to distinguish themselves (best option)
Both of these things are going to increase development costs and raise the barrier to entry. The attractiveness of developing cheap social games for big profits is going to go away because developing such things will no longer be cheap.

This is what happens with market forces in a free market. Big markets with big profits attract lots of competition. Which, in turn, drives profits down because more people are chasing the same pool of dollars.

The point here is that while social gaming is attractive to investors right now, it’s not always going to be this attractive as competition drives down profits.

Out of 80 million Farmers, how many pay to play?
I signed up for Farmville. Played it for twenty minutes and never logged back on. I still count as a “neighbor” to people in my social network and I’m sure I count towards that 80 million player mark that Zynga claims.

I also never paid Zynga a dime to play Farmville.

Like all Free2Play games, the model depends on a small percentage of the user base to pay for it. It’s this group of ‘hardcore’ social gamers that Zynga and other social game developers are chasing.

So while it’s easy to say that such games are “mainstream” because they have 80 million accounts, the actual pool of players paying in some form to play these games could easily be smaller than the subscriber base of Warcraft.

Although, in fairness, I think one thing that is unique to social gaming is that the user isn’t always paying directly. For example, while I never paid Zynga to play Mafia Wars, I did signup for NetFlix through a link they provided and earned Reward Points. NetFlix, in turn, paid Zynga for the referral.

Of course, my decision to signup for NetFlix was not influenced by Mafia Wars in any way and was a completely independent decision. Had I not signed up through that link, I would have signed up on the NetFlix website directly.

As a marketer in real life, I question NetFlix’s approach here and will be curious to see if the trend to such referral offers continues to be accepted as social gaming matures. Marketers are still trying to figure out how to best use social networking, so expect some changes on this front.

Also, as social gaming competition grows, one area they will also be competing is for these referral dollars. For example, NetFlix might find it makes sense to offer a smaller referral fee but include more social games. The net effect is continued shrinking profits.

Better Games
The future of social gaming is not going to be with cheap throwaway games. As I wrote yesterday, these games currently don’t compete with our leisure time because the gameplay sucks. I’ll play at work, but not at home.

Cheap games are also not going to steal all the development dollars because increased competition is going to make such investment less profitable. To be successful, developers are going to have to create better and better social games.

The cheap game works right now only because the market is emerging. As it matures, we are going to see games like Sid Meir’s Civilization on Facebook which offer radically better gameplay. We might even one day see a decent MMO developed on that platform.

And yet, the pool of dollars and profit margins aren’t going to be so fantastic that we see developers ignore other markets. 

There is more money in Console games than PC games, but that didn’t kill the PC market.

And if I’m being blunt, I don’t really think the case has been made that there are more dollars to be had in social gaming than the traditional PC gaming market. Despite the 80 million Farmville users, I think “gamers” are simply willing to pay more than the “mainstream” Facebook users.

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