With the growth of social games, virtual goods market also grooved. In this post, we will analyze the growth of virtual goods between 2007 and 2009.To look the past of virtual goods, in 2007, Facebook updates were making it very hard to develop and spread the applications on the platform. Invitation limitations were definitely reduced the chance of low quality apps to spread virally and it didn’t allow high quality apps enough channel access to improve. Moreover, after the application e-mail template change, which moved the link disabling getting further application news via e-mail at the top instead of bottom like it currently was, leaded higher unsubscription rates.
In 2007 and early 2008, Facebook was focused on redesigning various elements of the Facebook Platform and profile, and according to Justin Smith, this was because Facebook was concerned that the user experience problems being created by some applications would negatively impact the health and viability of the platform as a whole.
In late 2008, many social games on the platform, made players to play more to get more points and as a result to gain more and more virtual goods. Eric Eldon states that, the point’s concept is where the revenue part comes in for most games where players can get special benefits like a virtual pistol or a virtual bag of cash by earning special “favor points” and using them to get “favors”. Players could buy favor points directly, using web payment service PayPal, mobile payment service Zong, and a variety of others. Or they could earn them. The way of earning favor points is through taking offer-based advertising — essentially, coupons, contests, surveys, software downloads and many other options.
One of the biggest social game developers, Playdom, have earned up to $10M in Q4 2008. Playdom’s revenue was all generated through sales of virtual goods and currency in the company’s portfolio of games on Facebook, MySpace, and other networks. Major titles include Mobsters, Poker Palace, and Bloodlines. Playdom Chairman Rick Thompson states that the revenue mix right now is divided half-and-half between ad offers and direct sales, up from only 30% direct sales revenue about six months ago.
Coming to 2009, it was the year when first virtual goods-based business models have been developed. As the Facebook Platform economy has matured over the last two and a half years, it’s become clear that virtual goods have become the predominant source of revenue for application developers.
During the Q4 of 2009, Facebook made some big changes in the platform. According to Kim-Mai Cutler from VentureBeat, these were majorly related to the games:
- Notifications have gone away
- Requests to join games are shuffled into the inbox
- More aggressively police applications that don’t comply with the company’s policies like applying those standards to all games and randomly checking ones of a certain user size for compliance
- There is a new applications dashboard and a games dashboard. The dashboards have ‘counters’ that show when it’s time to take an action inside a game.
- Applications have to get direct access to users’ e-mail addresses instead of relying on Facebook as an intermediary
Besides, Eric von Coelln says that Facebook has become the broadest distribution platform ever for games. Almost every top application on Facebook is a game, users are joining Facebook in some parts of the world, like Taiwan, mostly to play games and users are subtly being coerced to add strangers as friends to advance in games in order to unlock new levels and items, often without going through the cumbersome process of protecting their personal profile information from these strangers.
To analyze the revenues of social game developers, some numbers would make sense. “I think it’s a $250 million to $300 million market in 2009, at least” says Anu Shukla, chief executive of Offerpal. “There are some big players and there are some smaller players growing very fast.” Super Rewards chief executive Jason Bailey says that the $300 million number is conservative, and believes platform revenue is headed to half a billion dollars this year. Besides, according to the report by Inside Facebook from April 2009, payment providers have been seeing around a 35 percent increase in both number of transactions and number of dollars in the Q1 of 2009.
Moreover, Inside Virtual Goods reports that the U.S. virtual goods market is poised to clear $1 billion in revenues in 2009, more than doubling from a year earlier.
When we look at the top Facebook applications, the majority of these apps and games are monetizing through a free to play virtual goods model. While not all Facebook applications are going the virtual goods route, it’s clear that social networking applications and games are becoming an increasingly important category for digital goods transactions and as Facebook’s growth continues, things are only looking better and better in 2010. We will analyze the recent updates and changes in virtual goods market in the next part of this blog post. Keep in touch!
Gamester
