The Social Game Gold Rush is Over!

I have written a good amount about the success of companies like Zynga and how these apps should be called Viral Games and not Social Games.  It was the ability to utilize the different FB communication tools (Feed, notifications, wall posts, invites, etc.) that drove the massive scale of these apps.  Eventhough social games are only able to monetize at Lifetime Values of about $.40 per user, they made the economics work because the virality and scale of Facebook gave them a path to become large and profitable businesses.  This created the Social Game Gold Rush as companies were raising money and game developers were emerging left and right.  Well, I have news for you:

The Gold Rush is Over!

So what has happened?  Well Facebook has completely curtailed all of the viral mechanics that made these games successful.  To give you an idea of some of the practices that were stopped, here is an example.  Game developers were building aggressive practices such as showing a friend invite screen to anyone that first joins the game and then defaulting the invite so all of your friends are checked.  So you were defaulted to opt in to invite all your friends on Facebook.  People would mistakenly hit “Continue” not knowing that they just sent an invite to their hundreds of friends and then their friends would go through the same experience as they checked out that game and most likely fall for the same viral trick.  Facebook obviously found this “spammy” which they should and made a rule to all developers that they were no longer allowed to mass invite your friends to a game when you first join or they would be shut down.  This is one of many changes made by Facebook and some people would argue that reason why they are shutting down these viral channels is to force social gaming companies to spend money on advertising via Facebook.  That may definitely be true but I think the bigger motivator was that it just added a lot of “spam like content” on Facebook and users were getting fed up.  When you have a Facebook fan page titled  “I dont care about your farm, or your fish, or your park, or your mafia!!!” and it has over 6 million fans, pretty much proves the point that these virality mechanics were definitely getting spammy.

So where does it leave us.  Well, if you are a game developer without a hit game/app that has achieved scale then you are pretty much toast.  There were 3 legs of the marketing stool to FB apps/games – viral, cross marketing and paid.  If you are not already one of the bigger boys then you are now left with just 1 leg of that stool – paid marketing.  And unless you have figured out how to monetize your app or game so much better than everyone else, it is pretty impossible to make the economics work when your marketing costs are now so high.  For the companies that have already achieved scale, they survive for now by having the 2 legs of the stool they need to explore other avenues of distribution.  And from recent announcements from Zynga such as the distribution deal from Yahoo, it sounds like they are doing just that.

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