If Facebook games are an arms race, then Zynga have clearly won it. They have more users than their next nine competitors combined and a lock on cross promotion that can’t be beaten. Only Zynga is able to regularly make games that will acquire more than 20 million users, and they have been tenacious to a fault in dominating every channel they can find.
Meanwhile their competitors can only look on and stare at their own (mostly) declining fortunes. One publisher really does rule them all, and is about to IPO itself a couple of billion dollars to become as big as Activision. And there’s nothing they can do about it.
Why Zynga Won Facebook
Unlike the Apple app store, the Amazon home page or the Chrome web store, Facebook has never had a storefront. It has always played the role of disinterested platform rather than motivated shopkeeper, and lets developers figure out their discoverability issues on their own. For developers, this means advertising and the use of publishing channels to acquire and retain users. Smart developers realise that the key to doing well on Facebook in the long term, therefore, is to establish a network of users that will interconnect with each other.
Metcalfe’s Law is what Facebook is all about. It’s about building the biggest user network and watching it become exponentially more valuable than your competitors. Like Google, Amazon and Groupon, more valuable networks tend to accrue monopoly-sized advantages. The difference, however, is that on the web those networks are destinations, but in Facebook they are a web of cross promotions between apps.
Zynga grasped early that the use of viral channels and advertising to grab users and build valuable networks was what mattered. Not the games (which they happily copied from competitors) but instead the presence. They built an invisible platform of cross promotion across a number of games, advertised them like crazy and took advantage of all of the platform features as much as possible. And so their network grew more quickly than anyone else’s, becoming exponentially more valuable.
Then they found the trend for farm games, built FarmVille, plugged it into this platform that they had been scrambling to grow, and exploded. They followed this strategy again and again while their competitors preferred to sit back and let their games do the talking, and in some cases cashed out.
Zynga raced ahead and built an unstoppable lead. They have continued in that vein, seizing on trends in the market quickly and applying the same process of spend-and-cross-promote to acquire massive numbers of users. They now have more monthly active users than their nine closest competitors combined and each of those competitors is stuck in the awkward position that if they do manage to make a breakthrough hit, the Zynga response will probably overwhelm it.
Zynga have, as the Americans say, locked Facebook up.
Second and Third Tier Blues
That doesn’t mean that everyone else should pack up and go home. 32 million users is still plenty, and many of Zynga’s second tier competitors (EA, Crowdstar etc) are profitable even if they are operating at a much smaller scale. Similarly, there are a number of third-tier developers like Funzio doing perfectly well with a single great game. Even some fourth-tier (small sub 500k MAU games) developers are happily chugging along.
However none of those tiers are experiencing sustained growth. You still see social applications like 60 Photos and Badoo achieve strong, if cheap, growth. But the likes of Playdom and Digital Chocolate are not really growing any more. Most of the second-tier publishers are actually in decline, in fact.
To take EA as an example, their number one app is still Pet Society. They’ve lost millions of users from Restaurant City and all they seem to really be doing these days is shuffling a declining user base around from FIFA to Monopoly Millionaires. Playdom’s Gardens of Time is doing really well, but almost every other game that they have is dying (City of Wonder is down 87%). Crowdstar’s Happy Aquarium used to have 28 million users. Now it has 6.
While each of these companies can certainly function as a going concern, they don’t make a great case for actively pursuing new game development. While new games are always great to make, from a business standpoint are they really doing anything other than stealing from Peter to pay Paul? And would they be better served if they focused on retaining their existing audiences?
What I’m talking about is not defeatism. Wooga and Kabam are still growing incrementally, for example, and Funzio apparently have big plans off the back of a recent investment round. Applifier is trying to solve the discovery problem, even going so far as to build a storefront.
What I am saying is that perhaps Facebook is no longer the best venue for launching a new game. Perhaps it is better viewed as a retention market from hereon out, and most or all new development work should go into supporting those games that have already launched. Maybe if you have a new game in mind, it’s time to look elsewhere.
Investors: Forget Facebook
A lot of VC-type investors don’t really get that Zynga has won. They continue to pour money into Facebook developers, each with essentially the same supposed Zynga-beating business model of virality and leveraging social blah blah blah.
Each will probably go no further than becoming a third tier developer at best. There’s a perfectly respectable business to be had in the third tier, but most investors are not looking for that kind of boutique payoff. They want explosive growth and ten-timed returns, and up until now the conventional wisdom was that Facebook’s virality was the ticket to achieving that.
It’s not. Over the last year there have continued to be many investments made in social game makers, but few successes to show for it. The conditions in the market have changed because of the overpowering presence of Zynga.
Zynga is like the Bengal tiger. In the jungle, the Bengal tiger is king and every other species has evolved to get out of the tiger’s way. They can’t fight the tiger, so the only option they have is to run and alert others when the tiger is near. So the tiger remains king and gets its choice of meals, and every other species lives or dies by the movements of the tiger.
Investors throwing money into Facebook game makers don’t want to feel left behind (but they already are) and in many cases are misunderstanding that Zynga is the tiger. They don’t have the war chest needed to really take Zynga on (and especially won’t after the IPO) and don’t realise that even if their game strategy is great, Zynga will probably respond. Army Attack, meet Empires and Allies. Social City, meet CityVille.
Zynga has the network. Metcalfe is on their side, not the plucky little developer with the $5m that could. To get into a fight with Zynga is to probably lose, and you will have to spend a lot of money to do so. So why get in that fight?
Open Web Social Games
Did you know that BigPoint registered their 200 millionth user last week? That Tap Zoo is the top grossing game on iPhone? That eRepublik is trucking along quietly with a very loyal user base? That Jagex has been running Runescape for years and employs over 400 people? That Moshi Monsters is taking over the world? Or that even little old Rail Simulator has a hugely passionate audience?
It’s a different landscape outside the walls of Facebook. There are other networks to consider. There are browser-based app stores. There is the forthcoming Twitter integration into the iPhone. There is the Amazon app store. There are tablets.
Each of the above platforms are perfectly valid venues for you to ply your wares, but really it’s all about the open web. It is the hub around which all platforms are ultimately built, and so it is the hub from which games will seed themselves into many platforms. Facebook included.
The open web is different to Facebook. The communication channels are not as easily manipulated. You don’t really have access to the Notifications layer. However you are far more findable on search engines. Your game sits on an easily-remembered dotcom address that people can share and discover. Your payment solutions more likely take 10% rather than 30% of your sales. You own your customer completely rather than working through an intermediary. You don’t have to work within a 760-pixel width and have your game enclosed by the permanent distraction that is Facebook. And you can use ‘Connect’ style social graphs to still plug into friend lists etc.
The open web is more about long term building toward niches than short-term building toward muggle appeal. It tends to facilitate tribes of users building around a passionate interest rather than a passing one, which translates to sustained growth. A game like Mafia Wars has to permanently advertise itself or be destroyed by ambivalence, but Runescape has been running for years with very little need to aggressively advertise in the same way.
The open web also needs bolder ideas. Whereas Facebook automates sharing and effectively turns it into bland advertising (which rewards broad concept games), open web games need users to want to share them. That means they’re better suited to communities that want to form, so games like Realm of the Mad God can succeed on the open web. It would have no chance in Facebook.
The new frontier is the web itself, not Mark Zuckerberg’s house. For developers and investors alike, that means taking a step back from the assumption that social games automatically means Facebook games. Think instead about whether the games you want to make need to live in the jungle with the tiger, and whether they really need to find their audience rather than mass-advertise their way into one.
If so, forget Facebook. It is not the El Dorado that you think it is.