Social gaming is clearly becoming the story of 2009. It seems that users everywhere are flocking to social games on Facebook and MySpace to burn countless hours of gameplay. Social gaming is big business, and the leader of this emerging industry so far is Zynga – publishers of Farmville, Mafia Wars and Fishville. Today, Zynga announced it has surpassed its 100 millionth member and is rumored to be valued over $1 billion. Not bad for the 2 year old gaming startup.
The San Francisco-based company has become the biggest developer on Facebook and the undisputed leader of the emerging social games market. What’s even more remarkable is the speed of growth for the newest games. For example Cafe World, launched in September, has grown to over 9 million daily active uses. That means in a given day, 9 million users will log into the game. Fishville, launched earlier this month, already has 6 million daily active users.
This spectacular growth has definitely made an impact on Wall Street as well. Specifically, Terry Schallich, head of capital markets at Pacific Crest Securities, a technology-focused investment bank told Bloomberg that “If the IPO [for Zynga] were timed to price around mid-2010 or later, our expectation would be for a billion dollar or greater valuation.” A billion dollar valuation for a company only 2 years old – sounds like 1999 all over again.
Can the social gaming industry “re-open” the IPO market for technology companies? Many analysts are now starting to believe it could. “It is a real business and has huge momentum,” said Todd Greenwald, a games and Internet analyst at Signal Hill Capital Group LLC in Baltimore. “There would definitely be an appetite” for a Zynga initial public offering.
This growing wave of social games has produced some pretty compelling business models. Low expense structures, mass distribution platforms and rapid product deployments have combined to create a new disruptive technology market. And, unlike most of the companies of the 1999 internet bubble, social games actually make healthy profit margins as well via virtual currency. “With the popularity of virtual goods today, we are in the early stages of a new economy that could grow and shape the future of the Web.” says Mark Pincus, CEO and founder of Zynga.
Where does this take us now? We can expect a number of venture capital investments into the sector and probably an IPO or two in the coming months. In addition, you can expect the acquisition trend to continue as traditional gaming companies try to stay competitive, like EA’s recent deal for PlayFish.
In the end, this trend illustrates our inherent need for social interaction. This need combined with the reach and distribution capabilities of social networking platforms have created a unique environment for entrepreneurs to create social applications. Gaming is just the first mega success.
What do you think will be the next wave of social applications?
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I personally believe that self empowerment is learning how to fish and that dependency is all about being handed a fish to stay alive.
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