Why social games attract serious money

Zynga is a privately held developer of some of the most popular games for Facebook (e.g. Farmville and Mafia Wars).    Its 2010 revenue is estimated at $450 million;   Sharespost, the private market for venture-backed shares, estimates its value at  $2.97 billion (on 1 May 2010).    Playfish, another maker of popular social games for social networks (e.g. Pet Society),  was acquired by Electronic Arts in November 2009 for $275 million cash plus additional considerations.    Playdom, another social game developer, raised $43 million last November on the strength of annualised revenues of $50 million, the majority of it from sale of virtual goods.

How can a company with estimated revenues of  $450 million attract a valuation of $2.97 billion?   It’s been 10 years since we’ve seen this kind of exuberance.  

What we are seeing today with social games is the emergence of a new flavour of internet application, one that uses people’s actual social networks as a deployment platform.    The social network sites are enablers for this,  reducing friction, and increasing visibility and shareability.        

Once upon a time, people entertained themselves.    As traditional media’s share of attention decreases, this seems to be on the verge of happening again.   Wordwide, people are now spending 500 billion minutes per month on Facebook.   Traditional media companies are frightened.   Not unreasonably.   The  rush to invest in social games is based on the basic premise that if someone is losing, someone else, somewhere, must be about to win.  

The Web was, and continues to be, revolutionary.   It made it made it possible to connect, construct, share, and display new types of electronic documents.    What’s happening now, with the social media explosion,  has to do with connecting, constructing, sharing and displaying our all too human relationships.  

This is a new and improved flavour of Internet bubble, and it’s got my full attention.

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3 thoughts on “Why social games attract serious money

  1. Wow Heather. I think you have something here. A few years ago I saw the documentary “Startup.com”. It seems we have not learnt our lesson.
    Khaled

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  2. Hi Khaled – I don’t mean ‘bubble’ as an insult. But – just as before – there will be big unpriced risks. And, once again, there will be important structural changes that happen anyway. cheeers, Heather

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    • Point taken, Heather. Thanks for clarifying. The size of the “Unpriced risks”, as you call them, seem to directly proportional to the speed of market changes. As for structural changes, I think the “working from home” experiment of the last 10 years shows that human beings still need other human beings to interact with. How do you think this will temper the speed of change?

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