Social games – is the Facebook fad over?

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The Financial Times yesterday ran a story arguing that the social games industry is about to see a lot of acquisitions.

It said that a senior executive at a leading social games company thinks that “smaller developers are more interested in being acquired than running long-term businesses”.

It also suggests that these attitudes have changed in the last few months, which is perhaps not surprising:

• Facebook has limited the use of the newsfeed as a viral channel
• Facebook has pretty well ended notifications for applications
• Facebook has brought in Facebook Credits which are likely to become a 30% charge for distribution on Facebook
• Zynga has started spending more and more on advertising, and its competitors are having to do the same to keep up.

In short, we may be reaching the stage where the bigger become bigger and everyone else struggles. Perhaps the acquisitions we are seeing are simply a recognition of this change:

• Playdom has acquired five companies including Three Melons and Merscom
• Zynga has acquired two companies in the last few months, including Serious Business
• EA bought Playfish
• Bigpoint is rumoured to be for sale (admittedly this is not a Facebook game company, but it is an indication that even large-scale companies think the time might be right to sell)

So does this mean that the Facebook goldrush is over?

Yes and no.

Yes, in that the easy money is over. Zynga has climbed the Facebook ladder, and pulled it up behind them. As fast as it discovers new viral channels, it exploits them so mercilessly that consumers complain and Facebook shuts them down.

To grow is now  very expensive. You need to invest in customer acquisition which means spending money on Facebook ads. It means being a professional marketer.

No, in that Facebook is still a cheap place to experiment with new games and to get distribution. You will have to spend money on marketing but there is no arbitrary gatekeeper like Apple shutting out your content. And you can use a variety of techniques to drive customer acquisition.

So what has changed?

There is one REALLY BIG change. You have to know your business model from the get-go. If you are going to spend money on marketing, it had better be worth it. So it’s not enough to build a game and hope that if you get enough scale, you will be able to make money from it. If you are going to place ads on Facebook, you need the money to be well spent.

How do you know?

That’s easy.

Track it. How much are you spending per click? How many clicks lead to active players? How many active players pay you money each month? How much do they pay you?

Then it’s simply a question of plugging that lot into a spreadsheet. If you are focused on conversion, you’ll be able to spend less than your competitors on marketing and still make more money.

It’s not the end of Facebook as a gaming platform. It is the end of Facebook as a way for developers to pretend that they don’t need commercial skills to be successful in the new world of self-publishing.

Confused? I will soon be publishing my book “How to Publish a Game”. 200 pages of advice on business models, sales and marketing, and how to get the money together to make it happen. Watch this space.

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