Last week at the Engage Expo in Santa Clara, the speakers were quite enthusiastic about the future of Social Gaming and its huge forecast revenues. It’s true that market data from different players are appealing: $826M Social Games revenues expected by Screen Digest this year and $1B in 2011 while Virtual Goods market will represent $9B market for 2010 if you combine Asia and the US markets according to Allison Luong from Pearl Research. It’s still a niche but a growing one compare to the $20B spending in video games in 2009 in the US announced by NPD.

But as HI5 CTO Alex St john pointed out in an article on Techcrunch one weeks ago, the reality is quite different for the thousands of small studios which are more and more depending on Facebook platform and their no-spam policy. All the big players like Zynga, Playdom, Playfish or Crowdstar used wisely the Facebook “spam” virality tolerance of the early days to build an active fan base which jumped from game to game following the iteration of these studios. One year ago, Facebook realized that less than 40% of their user base was happy about the social gaming spam in their newsfeeds and consequently, Facebook changed the rules of the game. Thanks to the crazy based that they acquired during the good old days, big studios just iterated more and more games with massive marketing budget and cross promotions campaign while new entrants were getting very hard time to build from scratch significant audience that would make their business model relevant. To have a better idea about the dominance of the biggest studios, just take Zynga which has 215M MAU (same number as the US population from 12 to 64 years old) and represent half of the Facebook Social Gaming business according to different sources.

So what are the opportunities? The virality which was key to build an audience and harvest money quickly is dying as John Pleasant claimed it few months ago, and new form of long term engagement will have to emerge. They key success factor will be (again) original content that will engage people with the game and provides tone of opportunity for monetization. Also, even if Facebook is the actual platform for Social Gaming, other alternatives exist and new platforms will be the next frontiers: tablets, smartphones… and consoles that could be the next big thing in a few years as they could apply the combo freemium plus virtual goods to their games for their next generation console.

Strategic Analyst