Feature: Social success wanted - the race is on

It is no secret that social networks and the social games developers and studios that have sprouted as a result of Facebook’s success are making more money and selling their fledgling firms for more cash than they could ever have dreamt of. Since Facebook moved to Paulo Alto in California the San Francisco area has become a hub for social and mobile games and increasingly social gambling developers, however other areas of the US and equally the rest of the world (predominantly Israel) have produced businesses such as Buffalo Studios, Blitzoo, Double Down Interactive and Slotomania with the latter two companies selling for a combined fee of close to $400m. And that is without any earn out deals kicking in.

These revenues and fees are being paid for a reason. Despite investing more in new products, talent and acquisitions Zynga, for instance, announced record annual revenues of $1.14bn, up 91% year-over-year, while social gaming analytics firm Kontagent recently reported that so far in 2012 social casino game players account for 13% of all of players on Facebook, compared to just 8% in 2011 and 6% in 2010 ““ the first time they have overtaken Farmville-style games on the world’s largest social network.

Their worth does not end there. According to Jeff Tseng, Kontagent’s chief executive, social casino games now have a higher-than-average revenue per user that is 40% higher than a typical social game with around 98m active players for social casino games out of a pool of global 780m social game participants.

M.I.A

So where have the traditional online gaming operators been while all this social activity been taking place in the last seven years? The vast majority have been concentrating their efforts on their home markets, attempting to break into other newly regulated and regulating territories and to differentiate their services in one of the toughest and most competitive e-sectors.

But the success of social games particularly in the last year, their enormous appeal, the gigantic volumes of new social gamblers and potential real-money customers, has in recent times, diverted their attention to what can only be described as a phenomenon.

As in every industry there were a handful of early adopters who either invested (Betfair) or set the standard (Betclic, Gamesys, Caesars Interactive) for others but with varying degrees of success. Then came those that embraced the Facebook generation adapting, marketing and generating a free-to-play and/or virtual credits paying audience on the 800m social network often with strong conversion rates and their eyes on a potential cash offering on Facebook in regulated markets such as the UK. Finally there are, if politely put, the ones to watch or, in harsher terms, those that have been missing in action and that have only just switched onto the fact social is an area worth exploring and investing. Bwin.party and 888, for instance, have recently said they are preparing to re-invest in social gaming with the former suggesting it is looking to acquire a business to compliment the launch of its eventual social strategy, while 888, despite writing off its Mytopia brand last year for around £20m, is known to be re-investing in social after seeing significant revenues generated in the last year.

Over the next five pages eGR examines why so few operators and large suppliers have invested in social up to now, the strategies they employed and what options are open to them going forward.

First movers in the social sector

Betfair

Betfair was one of the first operators to look beyond the Facebook platform investing $5.5m in series B funding for multiplayer social gaming operator Kabam in October 2009. Kabam’s flagship game, Kingdoms of Camelot, currently has around 400,000 monthly active users on Facebook according to AppData, and has been quick to expand beyond the social network now available on gaming sites such as Kongregate, Google+ and its own proprietary site. This wide availability has seen the number of users rocket, with various sources estimating around 15m people to be playing Kabam games online, drawing in revenues of around US$85m.

Aside from its other social gaming ventures Betfair has had a reasonable amount of success in social media using Twitter as an acquisition tool which, according to international PR manager Richard Bloch, “largely pays for itself”.

The operator has created separate personae on the social network for its poker (more than 17,000 followers), sports (more than 23,000) accounts, with the former gaining traction as much for its general musings on life as for its poker offers and promotions.

“We started the @betfairpoker account around that time we went from our own platform to Ongame and realised that a Betfair customer is different to an Ongame customer, so we needed to be more engaging,” explains Bloch. “We don’t have a USP being on a network, and have to stand out from the crowd.”

Rather than overloading followers with promotions, Betfair tries to engage them with sports-specific discussions from the @betfairsports account and more irreverent conversations and musings from @betfairpoker.

“We do try to do cross-promotion across our tweets and formulating a personality means people get accustomed to the tone,” he adds, noting that “The idea of capturing the moment and getting the brand in front of people while remaining part of a multi-product company allows us to say things through the @betfairpoker account which you won’t see from our sports account, but there’s still interaction between them.”

Betclic Everest Group

Betclic Everest was one of the first online operators to enter social gaming acquiring skill games developer MassiveBrainGames in November 2010, which was used to set up what eventually became SkillStar, Betclic’s skill games division. Originally forgoing the Facebook platform, SkillStar launched a web TV show, and has since signed a deal to broadcast its ‘N’oublions les paroles!’ game on French TV channel France 2 and online simultaneously, allowing players to play against one another across the two platforms.

Isabelle Parize, appointed head of the division after moving over from Betclic Everest ““ then Mangas Gaming ““ remained in the role for only seven months before being replaced by Marc-Antoine Garrigue, founder of MassiveBrainGames. Focusing on puzzles and memory games, as well as card games including Solitaire, FreeCell and Mahjong, rather than casual variants of gambling products, SkillStar is a massive multiplayer operator relying on player volume and advertising revenue, and has now integrated onto Facebook. However, with only around a 1,000 monthly active users according to AppData, it does not rely on the platform. Players can also win cash prizes via the web and TV. As a private operator Betclic Everest were unwilling to break out figures for SkillStar.

Caesars Interactive

Caesars’ acquisition of Israeli social games developer Playtika in May 2011 for more than $100m was one of the key starting points of the race to invest in social. At the time many were baffled as to why the US casino giant would spend such a significant sum on a 51% stake in a company with only 15 employees and that was less than a year old after being founded in late 2010. However, the success of Playtika’s core Solotomania product was such that Caesars took up the option to buy the remaining 49% stake ““ a two-year option ““ just seven months after the initial purchase.

The reasons behind the acquisition are now clear; according to AppData Slotomania currently attracts 2.1m daily active users and 7.6m monthly actives. Caesars does not break out revenue for social alone, but saw revenues from ‘other operations’ ““ including social and online ““ almost treble year-on-year to $64.7m when announcing its results for the first quarter of 2012.

Though the Playtika acquisition continues to be seen as the deal which alerted the egaming industry to the potential of social, the company’s products aside from Slotomania have suffered in comparison. Social dice game Farkle Pro currently only draws around 130,000 monthly active users as it continues to decline day after day, and a Chinese-language variant of Slotomania has been even less successful, with only 30,000 monthly actives. Coupled with this Caesars CEO Gary Loveman appeared to dismiss Playtika as being “a lot of investment “¦ not a lot of results.”

In addition, online and social currently accounts for just 2.8% of Caesars’ total net revenues of $2.27bn, making it ““ for now ““ a minor consideration in the operator’s business.

888

Acquired Mytopia for an initial US$18m in June 2010, and at the time was described as being formed “the cornerstone” of the company’s mobile and social strategy with plans to license its products via 888’s B2B arm Dragonfish.

At the time then-CEO Gigi Levy claimed the deal gave 888 “an immediate footprint in the fast-growing social gaming arena, complementing our core offering and giving us access to millions of customers,” while Guy Ben-Artzi, CEO of Real Dice, the company from which the business was purchased, said that “888 understands where the market is going.”

Just over a year later these words rang hollow, after the decision was taken to fully impair the Mytopia goodwill for a full impairment charge of $20.7m in August last year. At the time the business was seen as unprofitable and the write-down was thought to be prudent as it ridded the company of legacy issues associated with the operator. At the time then-interim CEO Brian Mattingley described the division’s failure to hit its revenue targets as “unfortunate” but stressed that it had still managed to give 888 “a foothold in a new segment.”

What a difference a few months make. Less than a year later Mattingley, now confirmed as CEO, essentially brought the business back from the dead, announcing the launch of “the next chapter” of Mytopia in April 2012. While exact figures have not been released, Mytopia’s core product Bingo Island is thought to have been drawing healthy revenues on the Facebook platform, and currently has almost 1m monthly active users on the social network.

It will also relaunch a social poker offering, Pacific Poker, which was released in beta before being shut down to resolve some glitches, and has brought out a slot offering to compliment the Bingo Island product. This remarkable turnaround has seen 888’s management have announced that they expect the business to break even in the second half of 2012.

Part two, looking at the Facebook generation and operators yet to announce their move into social, will be published tomorrow.