Social Media Gaming – A Future, Part 1

Apr 12, 2011

The Gold Rush is on—the intersection of social media and business is being “gamified” and, in the process, monetized.

“Video-gamification” of social media marketing has exploded onto the global business scene so fast that brand marketers are scrambling just to separate hype from truth and grasp the basics of this onrushing mega-trend that has turned an industry on its head.

Current media headlines are reminiscent of the ‘90s dot-com bubble.  Venture investors are placing colossal valuations on consumer Internet companies like Facebook, the Web’s largest social networking service turned largest online gaming website, and Zynga, the top social network game developer.

Social gaming is barely three years old, but Zynga and Facebook led a 51 percent surge in the private market valuations of top Web companies in this year’s first quarter, according to Nyppex, a New York-based research and advisory services firm.

Zynga, maker of the Cityville and FarmVille online games, rose 81 percent in value from the fourth quarter to about $8 billion (other sources put that valuation closer to $10 billion). Facebook climbed 57 percent to about $65 billion. Even though other sources put Facebook’s valuation somewhere in the neighborhood of $52 billion—that’s still more than 25 times revenues.  The valuations are based on transactions among institutional investors.

The Wall Street Journal reported in February 2011 that Zynga had revenue of $850 million in 2010, just its third full year, more than triple the year before.  Facebook’s revenue went as high as $2 billion in 2010, its sixth full year.

Not only is revenue exploding, but profits are, too. Through the first nine months of 2010, Facebook made $355 million, meaning it likely made a profit well over $400 million, if not $500 million, for the year. (In contrast, Google’s net income in its sixth year—2003—was $399 million.)  Zynga’s profit was also about $400 million in 2010, only its third full year.

Facebook has become the largest online gaming website on the Internet because, of the 500 million users registered with the service, nearly three-quarters of them play at least one game on a regular basis. Moreover, a majority of the applications on Facebook are games, both small and big.

According to the latest App Data report released April 4, 2011, Zynga dominates the social gaming market with more than 269 million monthly active users across its 55 apps, most of which are gaming properties. Gaming publisher Electronic Arts, with a market capitalization of $6.3 billion, is far behind with 36.4 million monthly active users across its 39 gaming apps. Self-funded CrowdStar follows with its 32.3 million monthly active users across 20 gaming properties.

All the green in the water is attracting some pretty big sharks.

For example, in March 2011, media giant News Corp announced plans to build its own social-gaming business—and it won’t be on the carcass of its social entertainment site MySpace (whose sale or spin-off the company has begun exploring).  Instead, News Corp’s social-games drive would center on Making Fun and IGN, two small companies it bought in the past few years.

It gets even more interesting when you consider that social gaming is part of a larger gamification trend in which businesses of all kinds weave elements of games into applications that otherwise have little to do with typical game playing.  Earlier this month, Bloomberg’s Business Week reported how huge companies like Siemens, SAP, Nissan and Mattel are using game technology to improve how they train workers and design and market products.

The market for all this gamification will grow to $1.6 billion in 2015, from $100 million in 2011, says Wanda Meloni, founder of M2 Research, a consulting firm that researches the gaming industry.  According to a new report from Parks Associates, revenues in the social gaming market will increase to $5 billion between now and 2015.

That’s just a small part of the $28 billion U.S. video game industry, but social gaming is moving up the charts with a bullet, while the rest of the video game industry struggles with its own monetization problems.

All of this begs the question, what does all this online video gaming foment in the social media marketing space mean to brand marketers?  Check back next week as I delve into the implications for brand marketers.