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A social gaming manifesto August 13, 2012

Posted by David Card in Uncategorized.
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Zynga is in turmoil. Since its IPO, its stock has cratered, attracting public exposure of company morale problems that may be more than pockets of dissent. The company reorganized senior management, leading to the departure of its COO, veteran games exec John Schappert. Its emerging mobile strategy has failed to impress.

Zynga is the biggest fish in the social gaming pond, but videogame giant Electronic Arts is right up there on the charts, along with relative newcomers like King.com and Wooga. Disney never made much of Playdom in casual games, but its “Where’s my Perry” looks like it might be an iOS franchise. With increasing competition, it’s worth understanding whether Zynga’s troubles are unique to the company, or whether it is social gaming itself that is struggling.

Is “social gaming” a misnomer?

Tadhg Kelly, a game designer blogger, is on the money when he notes that most social gaming isn’t actually very social. Many so-called social gamers are just taking a quick break of time-wasting fun without necessarily involving a human opponent or collaborator. While there are unique characteristics to the current generation of social games – callouts to friends for help, integrated status updates – many are the natural successors to the kind of casual games like “Bejeweled” that have been around as long as the web. (And had paper-based predecessors before that.) In many ways, social networks are just a new vehicle to promote and distribute casual games.

Based on GigaOM Pro’s spring 2012 survey of U.S. online adults, social gamers and casual gamers have a lot in common. Twenty-five percent of online adults are monthly users of casual games – that’s a figure that hasn’t changed much over the years. Those casual gamers tend to be middle-aged women (61 percent female) and only 14 percent of them play multiplayer games like “Worlds of Warcraft.” Survey respondents who said they played games on social networks had similar demographic and behavioral characteristics. These social gamers make up about 15 percent of online adults and also skew female (60 percent) and middle-aged. Over half (58 percent) play casual games and 13 percent play multiplayer games. Thirty-six percent of mobile phone-owning social gamers play mobile games and 38 percent of casual gamers do so.

Social gaming strategies

Today, Zynga has built a billion-dollar business off of casual games built on Facebook’s social network platform. The company is metrics-driven – perhaps to a fault – in its effort to engineer games for frequent, casual usage, viral promotion, and virtual good sales to a relatively small number of heavy users. But there’s little evidence that those heavy users are classic hardcore videogamers or players of multiuser role playing games, so expanding into those genres probably won’t scale.

Casual gaming is a mature business in the U.S. Zynga and its social games competitors should follow these principles:

  • Manage the portfolio. It’s impossible to predict hits, so like other entertainment companies (movie studios, record labels) social games companies must manage a portfolio of titles, and jump on the ones that take off. Not every hit will be a franchise for sequels and spinoffs, so the key is launching lots of titles on a regular basis, doing as much analysis of them as possible, and vigorous cross-promotion.
  • Cultivate multiple revenue streams. Zynga has mastered virtual goods, but it needs to be more aggressive on sponsorship and in-game advertising. In fact, virtual goods-bartering shows a lot of promise as a sponsorship means. Facebook has enabled game and content subscriptions. That’s worth experimentation, but subscription may appeal more to hardcore gamers.
  • Build out the platform. I’ve given Zynga perhaps more credit than it deserves for starting to build its own platform. Successfully deploying APIs for technology and promotion to third-party game studios could help smooth out the ups and downs of the hits business, but only if social games platforms can generate revenues from licensing, advertising, or promotion fees.

Mobile might be different. Judging by the survey data, there’s reason to expect a similar number of mobile gamers will be high-spending “whales.” But that’s not proven yet, and apps stores are establishing a model of low-priced games rather than virtual goods. So mobile revenue experimentation is a must.

Question of the week

How can social gaming companies transition into mobile gaming?

“Unleashed” Zynga shows steady progress July 2, 2012

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The leader in social games hosted a “Zynga Unleashed” event last week where it showed a few new games and sketched in a little more of its platform, mobile and publishing network strategies. Market reaction amounted to a dismal, collective “meh.”

It’s been less than nine months since Zynga started to hint at the strategy that would launch its next stage of growth and reduce some of its dependency on Facebook. Last October Zynga began to talk about its grand vision of “Project Z” and “Zynga Direct,” and, in fact, the company is showing steady progress in implementing that vision. Third-party developers and Zynga competitors would be wise not to discount Zynga’s momentum. Last week, Zynga discussed its:

  • zCloud infrastructure. Zynga has built its own truly scalable infrastructure that it invites third-party game studios to use, both for core technologies and cross-title promotions. Zynga teased the idea of a new API for more backend services to come.
  • “Zynga with Friends” network. The infrastructure will support multiplayer game play and social communications across Facebook, mobile and web-based games. Zynga added three new developer studios for a total of nine on its platform.
  • Mobile distribution. Not only is Zynga becoming a web-based game publisher/distributor, but it aims to do the same on mobile devices. Atari joined four other game companies in signing on.
  • New titles. Zynga expanded its own portfolio of games across a handful of genres. There weren’t any obvious blockbusters, but Zynga showed a teaser trailer for a much-enhanced Farmville 2.

Adding growth opportunities

Together, these initiatives show how Zynga is slowly but surely building out its business and adding growth opportunities. It’s still tightly wedded to Facebook for audience growth and payments infrastructure. But it has started to show traffic growth on Zynga.com. More important, Zynga is trying to ensure that it doesn’t have to count on Facebook as a mobile distribution platform. That’s a good thing, as most observers, including Facebook itself, see mobile as one of the social network’s biggest challenges.

Zynga didn’t re-invent the games business. What it did was build a billion-dollar company off of existing consumer behavior at the expense of portals (MSN and Yahoo in particular) and other game companies. There has been a stable casual games audience – middle aged and female – since the dawn of the consumer web. That same 25 percent of U.S. online adults play social or casual games regularly, according to GigaOM Pro’s Q1 consumer survey. Zynga has mastered the narrow premium piece of that market, and is well-positioned to continue to dominate the virtual goods market GigaOM Pro forecasts to reach $4.3 billion in 2016, and even use it to tap into different “currencies,” like barter and ad-viewing.

Smoothing out impact of hits

Like most entertainment businesses, social games are driven by hits. By becoming a distributor and publisher of games from other studios, Zynga can flesh out its portfolio with potential big hits. It’s nearly impossible to predict blockbusters; disciplined companies manage a portfolio and franchise the winners. Franchise-related merchandise will likely pay off better than TV spinoffs.

Zynga is actually more like a TV network than a TV studio, though the analogy of fine-tuning titles rather than depending on opening weekend blowouts is apt. Like Zynga, the big broadcast networks have “owned and operated” studios and stations, with affiliates to expand distribution. Zynga hasn’t gotten that reciprocal distribution yet. And another thing it hasn’t pulled off – that the networks excel at – is to sell advertising effectively. In fact, Zynga is actually showing on its web games some ads that were sold by Facebook – the first hint of a Facebook ad network everyone has been expecting. Right now, Zynga’s not being aggressive in building out an ad platform (richer formats, sponsorships, targeting), but it could do so, or acquire some key parts. That’s more likely than Zynga getting into gambling, with all its regulatory headaches.

Question of the week

Where are Zynga’s best growth opportunities?

GigaOM Pro at Mobilize September 2, 2011

Posted by David Card in Uncategorized.
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GigaOM’s big mobile event, Mobilize, will be coming to San Francisco on September 26th and 27th. There, industry luminaries and our analysts and writers will look at the new opportunities presented by the intersection of cloud computing and the mobile Web. Here at Pro we’re compiling an anthology of analysis on mobile topics including platforms, advertising, commerce and payments. Keep an eye out for our coverage.

While you’re at the conference, be sure to save time to meet with some of our GigaOM Pro analysts. Bob Egan, JP Finnell, Phil Hendrix, Laurie Lamberth, Chetan Sharma and others will be there. They will be doing interviews and panels onstage, and they’ll be networking between sessions. Research VP Mike Wolf and I will also be around. Track the Pro team down and ask us your toughest questions.

The Pro team will be hanging out at the GigaOM Pro booth and at the cocktail events, and we’d love to chat about GigaOM Pro or anything else on your mind. We are always looking to hear from our subscribers about how we can better supply you with the info and analysis you need to make critical business decisions. So be sure to swing by the Pro booth and say hello.

Google’s Chrome OS: Dead Before Arrival? December 13, 2010

Posted by David Card in Uncategorized.
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Last week Google showed off its progress on Chrome OS, introducing an apps store in support of it and offering up a pre-release hardware trial program (real machines won’t ship until the middle of next year). But it’s likely all for naught. Google CEO Eric Schmidt’s objective of making Chrome OS a “viable third choice” in operating systems looks doomed.

The Problem With Chrome

Right now, the hot trends in technology are social, real-time, mobile and cloud computing. Chrome OS is only optimized for one of them — its machines are true cloud clients. Schmidt even evoked the old Network Computer vision. Chrome OS computers will be highly dependent on the cloud for applications and minimally functional when disconnected. They’ll have cellular modems, but it’s not clear that existing networks can handle the network traffic demands of a cloud-centric client. Meanwhile, there’s nothing in Chrome OS or its user interface that accommodates social media or real-time information feeds.

Chrome OS also suffers from awkward positioning, both externally, to developers and potential customers, and internally within Google’s own product line-up. While it’s true that PCs serve both companies and consumers, the value of the Network Computer premise appeals only to enterprise IT managers. Its manageability and simplified functionality play best in applications like airline reservations, point of sale terminals and ATMs, or in limited-application mobile devices used in shipping and store inventory management. Yet at least for now, app stores are purely consumer offerings. The apps Google showed last week all came from media companies (New York Times, NPR, Sports Illustrated), Electronic Arts and Amazon.

Opportunities for a New OS-Based Platform

Meanwhile, Google itself says Android will be its primary tablet operating system. In fact, Google aims Android at most of the best opportunities to establish new or alternative operating systems. I’d argue that there are three product categories where Google could try to establish a new OS platform, either with Android or Chrome OS:

1) Mobile phones. Google has Android.

2) Tablets. Gesture-based tablets have all the momentum over netbooks, and are also Android targets.

3) Single-function Internet devices based on a customizable OS kernel. This category also includes The Internet of Things, with its connected gas pumps and refrigerators, that may be better served by something that looks more like a sensor than an OS. But other single-function devices include, in order of current volume:

  • TV set-top boxes. Google TV is based on Android, with a Chrome browser-based UI that shows its limitations.
  • Game consoles. The “compatible console” concept with hardware running a third-party OS has not worked so far (e.g., Sega Dreamcast with Windows CE, 3DO.)
  • E-books. Barnes & Noble’s Nook Color already runs Android.
  • Widget machines. Chumby has set the standard for “Internet viewers.” The Sony Dash is built off Chumby.
  • Dedicated social devices. Just like Chrome OS, Jolicloud uses HTML5 and a Chrome browser on top of Ubuntu Linux, but it uses Facebook Connect heavily. Handheld social devices like the TweetPeek and Sony Mylo seem to be going nowhere, while others include phones (Sidekick, Motoblur, Kin).

Those options don’t look promising for Chrome OS. They’re either tiny markets today,  already staked out by Android, or, in the case of game consoles, brutally competitive and unproven for third-party OSes. I suppose Google could fight it out with PC operating systems based on price. A Microsoft OS makes up 10 to 20 percent of cost of netbook, but Schmidt says Chrome OS devices should cost $300 to $400, about the same as netbooks. An Intel processor, solid-state storage, and an integrated cellular modem raise costs. I’m tempted to agree with Om, and suggest Google dump Chrome OS and put its muscle behind Android.

Question of the week

Should Google dump Chrome OS and put its muscle behind Android?