Facebook vs. Social Game Companies: The Fight For Game $$ Via Credits

Recently I’ve been hearing some low-level buzz over plans by Facebook to dip into the revenue stream of the social gaming companies feeding off its network. This follows close on the heels of Zynga’s estimated valuation of $5 billon in an article by Second Shares. I don’t have any desire to partake in rumor mongering; however, I and other former micropayments executives expected Facebook to make this move a year ago.

Why does this seem obvious? For over a year now, we’ve seen a phenomenon on Myspace and Facebook that I call the “Now what” moment. This is when you’ve found and connected with your groups and friends  in the system and now there’s nothing left to do.  I had the same experience trialing Friendster and Xanga way back when.

Enter Mobsters, Mafia Wars, and Farmville – somewhat addicting games on Myspace and Facebook. If you’ve studied these dynamics, you have seen massive friending efforts, fake account creation, and addicted users who waste every spare moment stuck in these games. These games have driven new account creation and ‘active user’ minutes on these social networks. I expect that some of the growth, especially on Facebook, is based wholly on these games, where new accounts represent fake social graphs and possibly users with multiple accounts.

What can be learned from studying trends associated with these games comes from when the ‘special items’ go on sale.  These are scarce virtual goods that help you in the game, costing 20 to 80 points of some kind, where points typically run from $0.25 to $0.50 each payable to Zynga, Playdom, or other social game operator. Those points are also ‘earnable’ by doing offers, some of which are scammy and covered here, which funnel funds to the game companies through offers providers list in scam articles.

Recently, I’ve seen 30,000 rare items sold in one day, suggesting massive payment volume or offer completion rates to cover the cost of those items. These were all transactions happening for in-game goods and services on Facebook and Myspace, and without the involvement of the social networks. In a simplified model, 30,000 items at 30 point would mean 900,000 points. At $0.25/point (low end) that suggests a possible $225,000 a day, or over $82 million – for just one game. Multiply that by three to estimate the impact of the other blockbuster games, and we’re talking serious money to Zynga – and none of it directly to Facebook. Repeat the same revenue calculations for Playdom and PlaySpan to get an idea of how big this market is on Facebook just for social games. Of course these revenue estimates are on the high-end, but if you were Facebook, wouldn’t you want a cut?

Pause and think about how much money is flowing here and how much revenue could be at stake.

While it’s natural for Facebook to want a cut, doing so is not going to be as easy as generating new revenue from partnering with EventBrite as discussed here on ReveNews. Stay tuned for my next article to expand on the complexities of tapping into the social games revenue streams.