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The Growth of Social Games

The Growth of Social Games

Ahn Shin-Hyun

May 27, 2011

Transcript

Welcome to our video program. I'm Shin-Hyun Ahn from the Industry and Strategy Department I.

On May 2, the Wall Street Journal forecast that Facebook, which recently passed 600 million users, will be valued at US$100 billion in 2012 when it goes public. This figure puts Facebook second after Google, the highest valued company in the IT world, at US$200 billion. Reflecting its heightened status, businesses that use Facebook as a platform are experiencing mushrooming growth, with social games showing one of the strongest performances.

Social games harness social media as a platform and marry the exchange and relationships of social media with the challenges and achievement found in games. Most are casual games that mass audiences can easily learn and enjoy. Among the new crop of social games are Facebook-based games like “FarmVille,” “Social City” and “Bejeweled Blitz.” Gamers already number more than 250 million users, and in contrast to previous games, social gaming enjoys widespread popularity among women, young children, and middle aged users, in addition to the traditional demographic of young male gamers. Market research firm Parks Associates estimated that revenues from the social gaming market can grow to up to five times the current level, from US$1 billion in 2010 to US$5 billion in 2015.

The superstar of this new market is undoubtedly Zynga. Zynga was founded in 2007 by Mark Pincus, after a series of stalled startups, to provide customers with a new form of entertainment. In July of its first year, Zynga launched a Facebook-based game called FarmVille. Realized as a Flash game on the web, FarmVille is easy to play. Users can grow plants with their friends and constructing buildings by leveraging the resources they earn from selling crops, planting trees, and enlarging their farms. In addition to FarmVille, Zynga released popular games like Mafia Wars, and FrontierVille, and in December 2010, it introduced CityVille, which exceeded 100 million players in just one month.

Crops, trees, buildings, and clothes sold in the games account for 95% of Zynga's US$850 million revenue. Now valued at US$8 billion, Zynga outpaced Apple and Microsoft to rank as the most innovative company in gaming by Fast Company.

So, how did Zynga's products become so popular in only four years?

First is the unique nature of social media-based services: they cost less for development. Social media's large and readily accessible user base and pre-existing API cuts development and launching costs significantly, ameliorating the risks caused by the high cost of conventional gaming development.

Second is its target market. Zynga aimed at the mass market, instead of the niche market of hardcore gaming fans. To cater to all types of users, it designed an easy to play, fast and interesting game. FarmVille is mainly about sowing, harvesting and purchasing and exchanging items all with mouse clicks. Zynga also leveraged the characteristics of social networks by allowing users to play with their Facebook buddies and post their achievements online. By doing so, it raised the efficacy of the game and attracted users through word-of-mouth.

Third is Zynga's emphasis on data analytics. Zynga never hesitates when investing its best human resources and budget to collect and analyze large amounts of data on the responses and preferences of its players. It then updates results continuously to create a better experience for users.

The emphasis on data analytics is based on what Zynga calls its “3Rs,” which refer to “reach,” “retention,” and “revenue.” Zynga believes it can reap revenues when it reaches customers and retain them.

Recently, a phenomenon called “gamification” is spreading. This refers to the adoption of social gaming, including accumulation of points and collaboration with friends, in areas like health care, online shopping, and broadcasting. In addition, more companies are harnessing games when building management strategies, as well as in employee training.

Cisco employees, for example, can become a CEO of the company and manage it in the company game myPlanNet. Sun Microsystems also distributes the puzzle game Shadow Specters to its employees, who can enjoy the game and learn corporate values at the same time.

Using social games can be effective in raising interest and attracting customers in the early stages of a business. More importantly, however, companies should make ceaseless efforts to avoid alienating their base. If they hastily pursue immediate profits in the service industry, they will soon be shedding customers. They need to make efforts and set means to learn customers' thoughts first.

Thank you for watching. I'm Shin-Hyun Ahn.

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