The Attraction of Social Gaming

Credit: jelene

Run a farm. Join a Mafia family. Become a vampire, play poker, or open a restaurant.

Seems like you can do just about anything you want in the vast universe of social gaming.

Social gaming, those simulated games populating social networking sites such as Facebook and MySpace, are everywhere, and their popularity is growing every day. Despite their critics who liken developers to virtual scam artists, social gaming startups are becoming immensely attractive to angel investors seeking new frontiers.

Growing Audience

What’s compelling about social gaming is these aren’t just adolescent boys addicted to Grand Theft Auto. Social games are designed for the casual user, people who want to fritter away a few hours playing with friend. That opens up the window for unlimited growth. According to VentureBeat, social gaming is attracting a new and much more far-flung demographic than traditional video games: Women, older users and people who don’t consider themselves gamers.

And they grow fast, spreading like wild fire, racking up new users almost overnight.

Farmville launched on a Friday, and by Monday had 500,000 users. Playfish was able to get 5 million players to join its Restaurant City game in just 5 weeks. Zynga says more than 25 million people are now playing Mafia Wars, its game of crime families and mob warfare – that’s more than the population of Texas.

Zynga, which along with Playdom and Playfish comprise the Big 3 of social gaming. Launched 3 years ago this winter, the company boasts 50 million regular users and is profitable – some reports estimate it could turn US $100 million in revenue this year. Zynga has raised US $40 million and Playdom just got US $43 million in its first round.

Devil in Disguise?

But it’s not all fun and games, some say. Critics charge these social gaming outfits, especially the larger ones, amount to little more than elaborate scams aimed at getting users to cash in on “free” virtual goodies. A typical scam asks users to fill out a survey — in exchange for virtual currency to purchase make-believe geegaws and a surprise subscription fee tacked onto their cell phone bill.

Angel Backing

Social games still represent just a tiny segment of the US$50 billion international video gaming. But it’s a very successful segment: Social gaming is adding employees, adding users, and turning a profit. It’s an industry that’s not just surviving, but thriving in a difficult tech landscape.

Jeff Bezos apparently sees the opportunities. He’s pumped money into social gaming startups, including an undisclosed amount to Social Gaming Network and US $3 million to Kongregate through his personal investment vehicle.

The Right Mix

Social gaming may just be the right mix for some angels. “They’re really good at using the right mix of ingredients … not just for profitability, but for growing your user base,” says Tim Chang, principal at Norwest Venture Partners. Viral marketing and cross-promotion aid in driving traffic – and profitability.

Ultimately, social gaming offers more exit strategies than the traditional video game industry – the sphere of interest is so much larger. Earlier this week, in fact, there was a grand exit when Electronic Arts snapped up Playfish for a reported US $400 million.

That alone might be enough to sow your seeds in FarmVille.