Social Gaming Predictions For 2012The social game market has been on a wild ride in the past couple of years, as the market expanded, major players were acquired, and the leading social game company prepared for an IPO. As we stand on the verge of 2012, the future looks to be an interesting one. The growth of social gaming is projected by analysts to continue, with the market in the US projected to grow 30% in 2012 and hit somewhere around $2 billion in revenue.
Everyone expects big growth, but how exactly will that be accomplished? Zynga had its IPO this month, so it goes into 2012 with a $1 billion war chest. How will that be used? How will other publishers respond or react? It's going to be an interesting year as the stakes get higher, the competition gets fiercer, and it won't get any easier to make money on social games.
Our top 5 predictions for the next year in social gaming are intended as a starting point for discussion. What do you think will be the key trends for 2012? Jump into the comments and predict away.
#5 Monetization Expands
Selling virtual goods to somewhere between 3% and 5% of the player base (the general percentage for social games) isn't enough for 2012 and beyond. Not when you're a public company with big investors breathing down your neck and expecting quarterly income growth. This will be a major area of emphasis for big companies like Zynga and Electronic Arts. It would seem that even a minor improvement in the percentage of users that pay would have a huge effect on the bottom line. Yet many would argue that social games already can be annoying in multiple attempts to ask for money. An easy and obvious solution is merely to tighten up on the amount of free play users get, forcing them to either play less or pay something. The problem is that you are engaging the users less, and perhaps narrowing your audience more than you would gain by adding revenue from the remaining audience.
The risk is especially great when you mess with an existing game. Zynga's Empires & Allies recently made a fundamental change in the energy you use to perform actions, dividing it into two parts, one for fighting and one for tending your empire. At the same time, the regeneration rate for energy was halved. The result is that existing empires are mostly unworkable unless you completely remake them or regularly spend money to get the energy to make them work. It's probably not a coincidence the game has lost nearly a million users since then, and the forums are filled with complaints. Messing with an existing design is a dangerous task.
Aside from changing designs, what else will we see in social games in order to improve revenues? The most likely scenario is an expansion of different ways to monetize beyond virtual goods. We'll see more sponsorships, as advertisers begin to see the value of the sort of long-term engagement that social games offers. If you have a city in a social game, why not have recognizable businesses? Savvy advertisers will be looking for opportunities like this where they can pay the publisher a fee to get their products appearing in social games as useful items that people will want to have. That will increase people's enjoyment of the game and creative positive associations with the brand. (And it should be obvious that there would be links so you can get more information or marketing offers if you're interested.)
Of course, there's always just straight advertising. Right now social games are usually surrounded by ads for other social games from the same publisher. We'll see a richer variety of ads in 2012 as publishers leverage the their player base in order to generate revenue. Most players probably won't object. If there is some annoyance factor, well, you can always provide a way to get rid of the ads by paying a little bit. (These monetization schemes can be insidious.)
These aren't the only possibilities that will be explored in the coming year. Subscriptions, contests, promotions, incentives, cross-promotions – the whole panoply of marketing and advertising tools will be pressed into service to get that 3-5% number into the double digits.
Prediction: Some of the top ten social games will be using more than just virtual goods sales to bring in revenue in 2012.
#4 Social Game Design Experimentation
One of the complaints about many social games has been the lack of variation in the mechanics and style of play. To hear critics complain, you'd think every social game played like FarmVille... which is regrettably true in some cases. There has been far too much reliance on some basic mechanics that give many social games a certain sameness regardless of the difference in art styles.
As the market continues to get more competitive, publishers will look for more ways to gain an advantage over the competition. Game design is an important place to seek an advantage because the whole field is so new. There's plenty of design innovation to be found within the boundaries of asynchronous play, social network-based, and freemium that most social games operate within.
It's not even necessary to have design geniuses on staff, since there are plenty of social games to look at on the market with a wide variety of ideas that you can, er, pay homage to. You know, the way Zynga was often accused of doing in its early days. Now, of course, Zynga does have game design geniuses like Brian Reynolds on staff, so it can unleash the creativity in house. Still, there are roughly 1 zillion social games on the market with small audiences but interesting design ideas. An enterprising publisher could get many good ideas from the experimentation being run already, or even just buy the publishers and remake their game as their own.
As part of the experimentation in design, publishers will look to attract different market segments. One of those will be the hard-core gamer who usually sneers at the idea of a social game. Sure, a Call of Duty player usually isn't interested in raising cucumbers, but that doesn't mean the right social game wouldn't be of interest to them. Hard-core games have the advantage of proven ability and desire to spend money on games, which makes them an attractive demographic for social game publishers. Publishers will be trying harder to reach those gamers, and 2012 will be the year when something for the hardcore gamers breaks into the top 20 or so games. Publishers will compete for players with marketing dollars, but trying out different design ideas can be an even more effective weapon in the battle for Daily Average Users (DAU).
Prediction: Expect some significant new styles of social game play in 2012. At least one of these will hit the Top Ten DAU during the year.
#3 Zynga Loses Lock On Top 5
Looking back on 2011 Zynga has generally dominated the leaderboards for social games, despite strong competition. We did see Electronic Arts' The Sims Social rocket to a #2 position for a while after its release, but it has since fallen back and Zynga has been on top with the help of some of its strong releases in the last few months (notably CastleVille).
The situation is going to be different in 2012, we think. While Zynga has a series of new titles lining up for release, and their new warchest gives them plenty of money for marketing efforts, our prediction is that Zynga will lose its stranglehold on the top 5 positions on the leaderboard for social games. The competition is just getting too strong for this not to happen sometime in 2012, and for an extended period.
Exactly what games will do the job, and what publisher will be behind them, isn't clear. Certainly you'd have to suspect Electronic Arts will be taking a run at the top 5 again, perhaps even with a renewed push for The Sims Social. Playdom is a likely contender, too, fresh off of winning Facebook's pick of Gardens of Time as the Most Popular Game of 2011. There are other games in the works with major marketing efforts planned, along with some licensed titles that may be able to access a large audience swiftly.
It's important to note that Zynga losing its grip on the top 5 titles is not the same thing as Zynga having a bad year. The growth in the social games market looks like it will be more than enough to keep Zynga in doggy treats even if they don't own the top 5 slots on the leaderboards. If anything, Zynga is likely to have a good year because of its strong lineup of new titles and a whole lot of money to spend on them.
However it works out, there will probably be a lot of movement in the user bases, as they respond to new releases, marketing efforts, and changes to existing games.
Prediction: Look for more churn and some surprises in the leaderboards for 2012, as Zynga dominates the Top 5 for no more than 8 out of the 12 months.
#2 Social Goes Mobile
While Zynga and others have been battling over the market for Facebook-based games, the massive opportunities awaiting in the mobile market have not gone unnoticed. Smartphones and tablets have been growing at an amazing pace, and there are now more than 500 million such devices out there, all perfectly suited to playing the not-particularly-demanding social games.
Or they would be, if it wasn't for the fact that most social games are built in Flash. Apple has never allowed Flash on any iOS platform, and it isn't about to start. Android does, sort of, but Adobe has thrown in the towel on mobile Flash development, and basically declared that they can't really make the technology work on a mobile platform. Apple has been pushing HTML 5, and Adobe is working hard on their HTML 5 tools in order to capture the increasing number of mobile developers.
That's all well and good, but it has meant that social games haven't just magically appeared on mobile platforms. All of the social game publishers are fully aware of this issue, and they're working hard to create versions of their social games for mobile platforms. The issues are complex, though. Smartphones have small screens, and the typical social game likes to have a lot of space to provide some visual impact. The entire game design has to be rethought and reimagined for a small screen, and for a touch interface as well. Tablets are even more of a problem, since there's a wide variance in screen sizes.
With all of those issues to consider, the process of bringing successful social games to mobile platforms has been slow. Building a substantial audience on mobile has been even slower; you won't find FarmVille high on the list of mobile apps. Don't expect social game publishers to just give up, though. There's too much money to be made out there.
2012 will see a renewed emphasis on mobile versions of social games. The initial focus will be on getting existing social game players a mobile version of their favorite games, increasing the level of engagement with the players and hopefully increasing the chances of selling some more virtual content. We've even seen a very successful transition the other way with Zynga's purchase of Words With Friends, the hit iOS game that's now become a major hit on Facebook as well (even without Alec Baldwin's help).
Prediction: Expect some social games to earn a place on the best-seller lists for iOS and Android in 2012. Maybe we'll even see Amazon's social game come out on the Kindle Fire.
#1 Facebook Remains The Key Platform
The #1 prediction for social games in 2012 involves the elephant in the room: Facebook. Facebook has largely been the driving force behind the social game industry for the past several years, even though it doesn't produce games itself. Facebook has grown so explosively, and the use of Facebook has become so commonplace, that social games have risen to new heights by giving Facebook's more than 500 million users something interesting to do in between posting status updates.
Even when Facebook dropped the Facebook Credits bomb on game publishers this year, making it mandatory to use Facebook Credits and thereby give Facebook 30% of all game revenue, the social game business continued to grow. There were stories about a very tense time when Facebook and Zynga nearly had a falling out over the Facebook Credits issue, but things were patched up and everybody moved on.
But nobody has forgotten.
When you read through Zynga's S1 document they filed with the SEC, one of the major risk factors they mention is that 96% of their revenue comes from Facebook. That's a number that's bound to keep executives awake at night. What if Facebook decides one fine morning that, hey, 30% of everything every social game company makes on Facebook is great, but wouldn't 35% be so much nicer? Or if Facebook stumbles in yet another revision of its “privacy” rules and users start to leave in droves?
Nightmare scenarios like these are driving social game publishers to look for alternatives. Zynga's Project Z is yet another attempt to create a non-Facebook platform for Zynga's games, creating a social network built around games and gamers that would not have to give up 30% of the take to Facebook. This effort was announced back in October, yet we haven't heard much since then, perhaps due to the impending IPO. It's a monumental undertaking, though, and will doubtless take years to fully realize.
Similarly, many social game publishers have welcomed Google+ with open arms, seeing a potential alternative to Facebook. Maybe someday, but Google+ is still less than 10% the size of Facebook. It's not going to be a threat any time soon. Ah, but what about running social games from dedicated web sites? Zynga's tried that, too, as have others, with a notable lack of big success.
Prediction: Despite the deep desire of social game publishers to have viable alternatives to Facebook, and efforts to make that happen, Facebook will continue to be the place for social games. That dominance will probably extend for years, too, unless something incredible happens.
