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Social gaming will "crash very hard" - Dyack

Wed 11 May 2011 10:51am GMT / 6:51am EDT / 3:51am PDT
Social NetworkDevelopment

"I don't think there's an economy there," claims Silicon Knights boss

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Current social gaming trends are adversely affecting the traditional games market but will in time see a rapid contraction, according to comments from Silicon Knights founder Denis Dyack.

"It is damaging traditional gaming for sure but... how it's going to work out is anyone's guess," he said to IndustryGamers.

"The trend that I see is it's probably going to be one of the biggest bubbles and explosions that our industry's seen in a long time and I think when it crashes it's going to crash very hard. I don't think there's an economy there."

Asked whether this includes Zynga, which is currently valued at as much as $10 billion, Dyack answered:

"I don't know about Zynga – I think that's a big micro, but I think that the amount of venture that's being poured in, in general, that's most of the video game industry investment. As far as I know right now, it's going into pure social gaming. It looks like marketing to me. It doesn't look like real gaming. And maybe it'll change, I don't know. It looks very, very dangerous.

"I think Zynga's valuated more than some traditional publishers right now that have been in the industry for decades. I'm sorry, but I just don't see it. It seems imaginary to me... it doesn't look long term healthy to me," he added.

Presented with the example of Activision, Dyack argued that many traditional publishers are sensibly reticent to become involved in the social and mobile markets.

"I think there are a lot of publishers out there that don't agree with it and they just haven't spoken about it. I don't see Nintendo going into that space, as an example. There are a lot of publishers that I don't see going into that space. And, you know, EA is one of the few that's [embraced social]," he said.

"I tried playing FarmVille, I really did, but it's not my cup of tea. And I'm not saying that FarmVille's a bad game but as a gamer who's played games all my life, I know what kinds of games I want to play. I play games every day and I'm always trying new stuff," added Dyack.

"Our golden rule is we make games that we want to play ourselves and I just look at those [social] games and those are just games I don't want to play for whatever reason. I just think that they're not a good use of my time versus quality."

28 Comments

Reilly Davis

17 0 0.0
i have to agree some of the older FB Games are now really dwindling in numbers, it seems to be the first year or so they are fine but after that they suffer in a big way, and they all seem to use simular rulesets not exploring much, and i think of all the markets the social ones should be exploring everything.

The one thing they are excellent at is promoting another product, like the recent xmen game which is basically a glorified rock paper scissors, but it is promoting the movie and the bubblegum very well.

Posted:2 years ago

#1

Nicholas Lovell
Founder

179 120 0.7
What shoddy analysis. "I don't like so it isn't going to work" is weak.

I think social gaming is in a bubble (I said so in a Wall Street Journal article). I think there might be crash. But to argue that it's going to be massive crash just because a developer doesn't like Farmville; well, that's pretty shoddy.

And as for falling Farmville, which is old, now has *only* 48m users. And the real success stories are the ones that are highly profitable on under 2m MAUs. We've just never heard of them.

Posted:2 years ago

#2

John Donnelly
Quality Assurance

314 38 0.1
Nicholas,

I think your reading too much in to this.

There are some good points you did not even comment on.
Can Zynga really be worth 10bn?
Can they make profits and become self sustaining? Right now Zynga is getting millions in venture capalist investment and for what?

Posted:2 years ago

#3
Dennis is just trying once again to get loads of publicity by being extreme. I do recall he stated a few months back that console gaming was dead and the feature was the cloud! Well guess what dennis Social gaming IS cloud gaming right now!

Does anyone really believe people are investing $400M+ into Zynga, buying Playfish or Playdom without looking at the numbers and going 'holy shit' look at the ROI these guys are getting. Social gaming is not a fad and its not new, people fail to realize that the business model of Social games has been proven for years in asia, so tell me why it would not work here in the west? especially when acquisition cost on Facebook is still relatively low compared to the general web?

Now in regard to the huge amount of investments being thrown at social reminds me of the MMO rush a few years back, so for sure there is a lot of 'stupid' money being thrown in but tell me what hot industry that does not happen to. The investment guys know they are in some senses gambling, but if they do catch the one that succeeded it does not matter anymore.

Posted:2 years ago

#4
Social & Casual games are invariably in a bubble however I think in time, there is room for all three to co exist into its natural boundaries of: social, casual and core market on a variety of multi platform formats.

The real challenge lies in knowing where to dump one's skillpoints into - to back an next gen portable format? to go AAA in a challenging core market? to turn tail and go for the easier, less riskier option with potential rewards with mobile, social and casual market which has a increasing bubble that will invariably seek its natural level?

or spread oneself thin and invest in all formats and all areas in some sort of stepwise strategy, normally reserved for gaming corporates?

Posted:2 years ago

#5

Bogdan Iuhas
Game Designer

2 0 0.0
I don't think social gaming will "crash very hard", however it will follow the natural course of every booming industry in the world. There is a steep growth curve thanks to Facebook and all the other social networks out there, and it's probably going to last long enough for all these major investments to pay off. However, just as with any major overexposed and overrated industry, it will slowly become a natural part of everyone's life and simmer down to what we see today in the console/pc gaming industry.
In my opinion, it won't be long until one of the gaming corporates takes on the ultimate challenge: creating a true cross platform title. Valve started with Portal 2, and more are sure to follow. The question is, how long will it take and how many resources are going to be poured in this risky endeavor ?

Posted:2 years ago

#6

Thomas Luecking

69 13 0.2
Since the major disappointment with Too Human I have always had the feeling that Mr. Dyack is arguing out of frustration. Silicon Knights should focus on their future IPs (if there are some) and stop suing Epic for what seems to me (as an outsider) a result of bad project management and an unfavorable licensing deal.

Edited 1 times. Last edit by Thomas Luecking on 11th May 2011 3:14pm

Posted:2 years ago

#7

Nick McCrea
Gentleman

163 185 1.1
As many others have said, I don't think anyone doubts that we're in some kind of social / casual gaming bubble. When the dot com bubble burst, and despite the craziness that went on and the disappearance of a lot of investor cash, we were still left with several behemoths that changed the tech industry - Amazon, eBay, Google etc.

I expect that the bubble will burst, but that doesn't mean we're going back to 2005 and core gamer hegemony. The big beasts of the social / casual world are probably here to stay, bust or no bust.

Posted:2 years ago

#8

Curt Sampson
Sofware Developer

564 278 0.5
I wonder about that. The first major videogame crash was in a space where, and at least partly due to the fact that, a huge number of new developers and publishers could produce games very cheaply and flood the market. That never happened again with console games in part because in succeeding generations console manufacturers changed things such that they had to approve all or most games. It didn't happen again in the PC gaming industry again either, possibly because the standards rose and it was no longer possible for a single developer to produce a game of acceptable quality cheaply.

But the current situation with "social" games is looking rather those Atari 2600 days in many ways.

Posted:2 years ago

#9
Curt, don't forget that these social games are FREE, and the only users that pay in this industry are the ones that choose to do so KNOWING what they buy. This is a paradigm shift in business models. The other crashes was due to over saturating a market where the user had to pay upfront and choose not to. The only thing that will crash this time if there even is such a thing are all the small companies trying to take a short cut in quality and log term planning to make a quick buck, once they are gone this will be a VERY thriving and profitable business as proven in ASIA for years.

Posted:2 years ago

#10

Ben Furneaux
Lead Designer

113 35 0.3
Dyack's comments do not take into account the direction the social/online games industry is trending towards, it doesn't take into account the big traditional game developers who are entering the space (such as Insomniac) and it certainly doesn't take into account the advances in technology and new engines that are aiming to reinvigorate the space.

Posted:2 years ago

#11

Diane Lagrange
Founder and Consultant

6 0 0.0
"It looks like marketing to me. It doesn't look like real gaming." When you're running a service, both are so deeply intertwined as to become inseparable.

When discussing if the social gaming bubble will crash, it's also important to define "social gaming". Most games (just like most of the internet) are impacted by social networks now, and that's not going to change. Whether investors are betting sensibly on projects and companies is another issue.

Posted:2 years ago

#12

Nic Wechter
Senior Designer

27 46 1.7
I absolutely agree that Zynga is overvalued, I think that company is going to struggle over the coming years to maintain that kind of value. Reminds me of the money being thrown around for websites pre-dotcom crash.

I don't see social games disappearing anytime soon though. While they aren't to my taste, the fact that they are getting more people into gaming can only be a good thing IMHO.

Posted:2 years ago

#13

Peter Dwyer
software engineer

24 0 0.0
I don't think social gaming will crash as such. It seems more that as larger companies like the EAs and Activisions try to get into the market, they are also attempting to change the rules. This (as they have shown already) is so that they can charge full price or at least a premium price for the games.

It is this that is being rejected by those using the social networks and app stores out there. We are simply used to paying 99c/59p for a quality piece of casual gaming. The EAs of the world then come along and try to charge 9 or more dollars/pounds for a game no better than those already out there and wonder why it doesn't even break even on production costs for them.

The companies that are succeeding in this space are now also being over valued as the larger comapnies rush to purchase them to get a slice of the pie.

Posted:2 years ago

#14
@ Nic Zynga know that Game-Villa is not going to last forever. hence if you've been watching, Zynga has been on a recent spending spree for all sorts of social and casual game developers to add to its portfolio, such that it will cover not only FB games but the multiple platforms within the Social/Casual sector. They know it too, the question is, can they actually produce a non farming quality product!

Posted:2 years ago

#15

Nicolas Godement-Berline
Co-founder

4 0 0.0
What does he mean by crash ?
Are there unreasonable flows of capital going into social gaming companies? Possibly.
Will some of that investment go to waste and some companies go bankrupt? definitely. Just like any high-tech market.
Will people stop playing social games and will that market shrink any time soon ? I highly doubt it. IMO it is a very, very fundamental change in our industry, perhaps more so than going from 2D to 3D or offline to online.

Posted:2 years ago

#16

Bill Young

6 1 0.2
"Social" is the key word here. In a few years time, you'll have trouble finding any games on any digital platform that don't incorporate the most useful and important components of what make the current "social" games hum. Will gamers be farming or building restaurants in DeadSpace? No, that's not my point...it's about chosen community, paired with publicized achievement, and various takes on the free-to-play business models that will prove pervasive. Is there currently a "bubble" with regard to what is widely defined as "social" gaming in its present state? Probably...but these games are designed to evolve and change...and i believe they will do just that in congress with consumer tastes and thresholds.

Posted:2 years ago

#17

Smruthi Pillay
Concept Artist

1 0 0.0
As any other industry the social game industry will definitely see a slow down in the hype but the industry crashing is highly unlikely.
I dont know about the finance part of social games industry but I know one thing the demographic it attracts towards it. Here's my simple layman view about this industry and why it is here to stay. While core games attract a lot of people there are hardly any people who are in their 40s playing it. Social games like Farmville is played by everyone. And it attracts older women too. I mean my mom wouldn't play Half Life but she will definitely try out Farmville or Fishville.
Also social games, especially facebook games are also played like lunch break games... I have seen so many people do that, playing a quick game while taking a break in between work. Social games really don't need that investment in a person's time... so even if people are not playing it seriously they still play it.
Well that's just my observation.

Posted:2 years ago

#18

Sergej Hvala
Games Editor

1 0 0.0
It is actually one of viable futures, however I do not deem this likely. I think there's too many people who want to play simple games that social gaming would crash. I'm a hardcore gamer myself and I have yet to see a Facebook game that's my cup of tea, so Dennis' reasoning strikes a chord with me. However I, too, think that saying "I don't like it so it will fail" is extreme. Of course, that was probably Dennis' intention, so ...

Since I'm a core gamer, I probably enjoyed Too Human more than the average person, too ... http://www.joker.si/igre.php?rubrika=35&...

Edited 1 times. Last edit by Sergej Hvala on 11th May 2011 7:16pm

Posted:2 years ago

#19

Balaji Sundaram
Chief Architect

1 0 0.0
Are social gaming companies capable of creating quality Franchises that would sustain at least few years, keep the users engaged over that time, and capable of monetizing the engaged users? At its peak Farmville had 80 million+ Monthly Active Users (MAU's) just a year back. And as of today (11-May-2011) it just has over 44 million+ MAU's. How many would still be engaged a year from now can be anyone's guess. You can put a fair value on the millions of MAU's for a particular game only after you see that scale sustained over a period of time. After all user loyalty for "Free to Play" games is very flimsy.

Even if you cannot create Franchises that can sustain over a period of time, what is the probability that a company like Zynga can reproduce a Farmville like success time and again? Entertainment industry has no history of this. If you are betting on a single company to reproduce that success time and again, it is a very risky bet.

Posted:2 years ago

#20
The other thing to consider is that rather than immediate profits, being able to establish a strong userbase is the alternate strategy that might be far more invaluable. Having a 40-80 million MAU is something alot of game companies would die of envy of to a greater/lesser degree.

Posted:2 years ago

#21

Raf Keustermans
CEO, co-founder Plumbee

29 2 0.1
Couple of thoughts:
- on the 'flimsy' user loyalty: how many users still play FIFA from last year today? I don't think it will be 50%+ like FarmVille managed to keep after 12 months. Even for other Core games I wonder what the % is that still plays 12 months after purchasing it.
- on Zynga's valuation: valuation is a function of their EBITDA (current and projected) and a multiple (that reflects growth or potential of the industry/vertical): if Zynga really did $800M in revenue & $400M in profit (which I completely believe), than the $10B valuation is totally realistic. In fact, their multiples are looking more conservative than EA's, that had 15 (!) or so consecutive loss-making quarters and still had an enterprise value of $5B+ Valuation has nothing to do with quality or philosophy, it's just about the icecold revenues, profit and growth. And the VC money is pouring in because everyon wants a piece of the pie, simple as that: Zynga can get cheap money from VCs, so they can build a war chest, build up cash reserves and acquire anyone they want or hire top talent.
- Social games crash: the industry is definitely inflated, there are too many medium-sized studios, the ecosystem can't sustain hundreds (or thousands) of studios, but it will not be a huge crash, more a correction over time. If there is a risk of a crash in the industry, it's on the console & PC side: where overall sales numbers are shrinking and production costs rising -> that looks more like a scenario for something that will end in pain & misery shortly...

Posted:2 years ago

#22

Rick Cody
PBnGames-Board Member

144 14 0.1
I think we can all agree Dennis made a good statement based on the number of comments. It got us all thinking.
Personally, I see tons of friends and family who're nightly gamers but they don't see it as such because it's online or simple to access. They aren't getting on a console. I don't see a bubble. I see it as being a newly considered market that's been there that is just now being quantified

Posted:2 years ago

#23

Gustav Nisser
Project Manager

11 0 0.0
Sure, social gaming has probably grown too quickly (as several of you mentioned, most new trends/industries/markets do) and will level out; and casual/mobile gaming is challenging game pricing - for better or for worse.

What I'm curious about is how many new gamers are created after being introduced through social or casual games? How many people picked up a core game after finding Angry Birds or Farmville fun? (n.b. there's probably a few more stepping stones in between).

If so, couldn't social and casual gaming be a massive marketing platform for the games industry to traditional non-gamers?

Either way, I hope so. That way I can look at the entire games industry as one company, where social and casual gaming are the marketing campaigns.

Posted:2 years ago

#24

Neil Young
Programmer

232 186 0.8
Quite worrying to see the "get a big use base and worry about revenue later" stuff repeated from the dot com bubble. "social games" may well crash, but as with the dot com bubble, it'll be the firms with a revenue stream that'll be left with a chair when the music stops.

Posted:2 years ago

#25

Alex Loffstadt
Community Manager

84 0 0.0
"Social Gaming", like "Crowd Sourcing" etc. are slightly faddy phrases but lets look at the meat of the business model.

The kind of games we're seeing coming from the likes of Playfish, Zynga etc. are nothing new. They're simple, engaging, and in many cases very retro. By modern standards they represent a small initial investment with the potential of a very high return. Add to this the fact that most are very easy to access, browser based and freemium so anyone can try them, means that they are potentially a safer bet than high budget, blockbuster boxed titles.

For those snubbing the games themselves as fads, the gameplay involved is as old as the hills, it's solid and proven. If you think it can't make money, speak to digital chocolate, popcap, oberon or any number of "casual" developers who have been making solid returns on this style of gaming for year.

The new aspects coming in have been the advent of advanced metrics, the communications and social functionality and different forms of monetisation. With the success of companies like Zynga there will be a rush to emulate their success, many companies will be unable to make the change, many will not understand the principles of WHY it works, and many will make mistakes. So yes we can expect a bubble, and we can expect a market correction.

Same thing happened with MMORPGs. Blizzard made a killing, everyone jumped on the bandwagon, and plenty of people fell off (Tabula Rasa, Matrix Online, Hellgate London etc. etc.). Lessons get learnt and the market changes.

Like MMOs in the early naughties, then the Wii in 2007 and now social games we are discovering that the videogames market is maturing and becoming far more accessible. There are huge opportunities, far beyond the realm of tradtional mainstream views of gamers playing FPS in their parents' basement or in a dark room.

If you want the answer as to may many traditional publishers and developers are "reticent to become involved in the social and mobile markets", in many cases it's not because they don't want to, it's the fact that they are entirely geared towards the creation of classic boxed titles. Social and Online games are services not products, requiring different development cycles, skill sets and mindsets.

A rejection of social gaming to focus on games for gamers, is to continue in the past. The creation of titles targeted at the classic game demographic of 15-35 year old single males. What Social gaming showed us is that the majority of people can and will play games, and IMO their money is as good as anybody else's. :)




Posted:2 years ago

#26

Luis Morales
Public relations

52 1 0.0
I agree with Diane.....
"It looks like marketing to me. It doesn't look like real gaming." When you're running a service, both are so deeply intertwined as to become inseparable.
But, in the long road it is just a matter of time , before that bubble bursts. We conducted a short survey on this and the results were impressive. A lot of people don't take this games serious and are not willing to trade traditional gaming over Social games. Also, on a quick note......People who initially played this games, are very likely to drop those games and rather pick a PC or console game, due to it's value as this games tend to be "simular rulesets".

Posted:2 years ago

#27

Josh Jonsson
Studying Bcomm/CompSc

7 0 0.0
I, with an equivocated and blanked statement, detest social gaming. The return of quality versus time investment is abysmal. The model is selfish and I can only hope destined to fail. The world is, this may come as a surprise, not dictated by my feelings on the subject but I can only hope that the investment capital pouring into these ventures will quickly pass on into a new venue.

Posted:2 years ago

#28

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