Has Facebook gaming peaked?
Research firm IHS says the boom may be over for games on Facebook
Facebook's going public in a few months and questions are being raised about the future prospects for the Facebook games that have provided so much of its revenue both directly and indirectly. IHS Media Research Insights has a new report on the subject, which states that the total number of users is stagnating, barriers to entry are rising, there's increased competition and consumers have more ways than ever to spend their time with social networks.
The basic number powering this conclusion is that the number of Facebook gamers hasn't grown in 2011. At the end of 2010, according to IHS, about 50% of Facebook's monthly active users (MAU) were gamers. By the end of 2011, the absolute number of gamers was about the same, while the percentage of Facebook MAUs that were gamers dropped to 25%. More evidence of this trend comes from Zynga, which according to IHS saw their MAUs for the fourth quarter of 2011 drop to 225 million, down from 266 million at the end of the third quarter.
"Facebook rocketed to prominence as a gaming platform in 2009 and 2010," said Steve Bailey, senior analyst for games at IHS. "However, with equal speed, the market then settled into a state of maturity in 2011, with conditions becoming markedly more challenging for game operators. While Facebook remains a worthwhile opportunity for companies able to meet these challenges, the tone of the market in 2012 will be somewhat muted compared to the optimistic outlook of the past few years."
There's widespread agreement among CEOs of social game companies that acquisition costs are rising, with costs at least doubling in 2011 per user. Social game companies seem generally positive about the industry's prospects, though, admitting that it's not getting any easier. As the industry leader, Zynga will be the canary in this particular coal mine. Any overall difficulties in Facebook's gaming audience should show up in Zynga's results, given that 93% of Zynga's revenues currently come from Facebook.
IHS cites several major problem areas for Facebook, incuding the increasing difficulty of acquisiton, the intense competition among game companies, increasingly complex games that make it more difficult to bring in and retain (and monetize) new players, and the decreasing influence of Facebook gaming on the Facebook platform. After all, when gamers were 50% of Facebook users, it was obviously important for Facebook to cater to their needs. With gamers now at 25% of their users, Facebook has that much less reason to do things to benefit gamers.
The bottom line is that the days when gold nuggets were lying in the streets waiting to be picked up are over. Game companies are now going to have to pan the rivers, or dig into the mountains for players and their gold. It's still a solid market, though, as Michael Pachter said at the recent [a]list summit in San Francisco. "I love Zynga games, and I get why they're doing them," said Pachter. "If publishers and developers can figure out a way to monetize the 98 percent of the people who don't pay, this is a great industry to work in." That leaves plenty of room for revenue growth even if the number of users doesn't grow.
From GamesIndustry.biz Recommendations by Taboola