Inside Facebook

Zynga Game Network, one of the largest social gaming developers and networks, is announcing this morning that it has closed a whopping $29 million Series B financing round, on top of an already large $10 million Series A round it raised just six months ago. The round is led by Kleiner Perkins Caufield & Byers and Institutional Venture Partners, and includes funding from previous investors Union Square Ventures, Foundry Group and Avalon Ventures.

As part of the investment, Bing Gordon, who recently left EA for KP, will take an active director role in building the company. Gordon, who was the co-founder and former chief creative officer of Electronic Arts, joins LinkedIn chairman Reid Hoffman, Brad Feld of Foundry Group, and CEO Mark Pincus on the board.

In addition Zynga is announcing the acquisition of Facebook application YoVille, which it claims is the “largest virtual world game” on social networks. YoVille’s rapid growth to 150,000 daily active users has caught the attention of many Facebook application developers recently, and it joins a number of other top (and formerly independent) Facebook game developers that have joined the Zynga fold.

What are Zynga’s plans for its $39 million war chest? “We are doubling down on social gaming, raising the production quality and scaling the infrastructure,” says Pincus. Apparently, Zynga plans to spend a lot more than most small developers have spent creating the first generation of social games.

“Mark and the talented team at Zynga have the same kind of vibrant energy we had in the early, industry-defining years of EA,” says Gordon in a statement.  “But their designs, technologies and approaches are all new, and are further broadening the reach and promise of interactive entertainment.”

Hasbro and EA announced today that the two companies will soon launch an official version of Scrabble on Facebook. Interestingly, their press release makes no mention of Scrabulous, although it does mention “the current interest in Scrabble for social networking”.

So will the creators of Scrabulous (the Agarwalla brothers) be quaking in their boots that everyone will migrate away to the official game? Probably not. For one, there is already an official version of Scrabble on Facebook for users outside North America (licensed by Mattel, the owners of Scrabble outside of the US and Canada, and produced by RealNetworks). It currently has less than 6,000 daily active users, compared to Scrabulous with just over 450,000. This version has been out since late March and has shown little growth since then.

Now there will be two official versions of Scrabble on Facebook, with Hasbro owning the rights in North America, and Mattel in the rest of the world. Try to play a game of the new EA Scrabble in the US with someone in the UK (e.g. me) and you won’t be able. Somehow, I just can’t see how making the game “official” is going to take traffic away from the well-established Scrabulous.

This is one of the clearest examples of how older, bigger companies are struggling to meet the needs of social media. Scrabble’s geographical licensing issues currently seem to be hurting the companies involved more than the consumers. The length of time it has taken EA to develop the official Scrabble shows that older companies are not set up to operate as quickly as independent Facebook application and game developers. And as Jeremiah Owyang has previously written, brands are often risk-averse and too slow-moving to capitalize on the current social media opportunity.

We’ll see if the launch of the official versions of Scrabble cause Scrabulous’s earlier legal issues to re-emerge. If EA’s version flounders as RealNetworks’ has, it would not be too surprising if one day we were to log on to Scrabulous and be redirected to one of the official, geographically hobbled versions of one of our favourite board games.

Playfish is one of the most exciting companies you haven’t heard of. Founded just last year, the company has already opened studios in Europe, Asia, and (soon) North America, and is the developer of 3 of the top 10 games on Facebook today.

We spent some time with Kristian Segerstråle, CEO of Playfish, to learn more about his vision for the company, the emerging “social gaming” space, and how social networks compare to other gaming platforms.

>> Read the entire interview at Inside Social Games

Selected excerpt:

What lessons have you learned so far?

Designing social games is totally different than designing video games for other platforms. On the surface they look quite similar, but actually you have to think about them quite differently. When you design a game on a standalone platform, you try to draw players in quickly and keep them motivated over time. You do things like visual and audio rewards and achievements, and give ways for people who are into it to keep going. But when you design for social platforms, you do those things in the beginning because you want to get players started in the game, but then you want to get the users to take a step out of the game and use it as a way to communicate with friends.

In addition, the sheer amount of user feedback you get allows you to, in a sense, outsource a part of your design. You have the luxury to update your game, you can listen to your users and give them what they want. It creates a great emotional relationship between a publisher and a player.

How do you see risks in developing for the Facebook platform?

If you compare the rules of publishing on Facebook to the rules of publishing on any other platform (like cell phones), you’re talking about orders of magnitudes of difference. On mobile platforms, you have to get approved, certified, sometimes there are age ratings, and typically you even pay a share of your income to the platform holder. Compared to that kind of environment, Facebook is an amazing place to publish games. It’s a great thing to see them take their role of managing the platform seriously. The more consumers want to hang out on social networks the better it is for us in the long run… if social networks don’t moderate the environment, consumers will.

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We’re here at the Social Gaming Summit at UCSF Mission Bay in San Francisco. A fantastic, big crowd is on hand for today’s event - probably close to 400 people from game and social network companies.

The first session this afternoon is “Asynchronous Games on Social Networks,” including:

» Siqi Chen - Founder, Serious Business (Friends for Sale)
» Blake Commagere - Founder and VP Engineering, Mogad
» Shervin Pishevar - CEO, Social Gaming Network
» Mike Sego - Developer, (fluff)Friends
» Andrew Chung - Principal, Lightspeed Venture Partners (moderator)

>> Read the live notes at Inside Social Games

We’re here at the 1:50pm session and this panel is covering the growing social gaming space. The panel:

• Justin Smith, InsideFacebook.com & Watercooler
• Siqi Chen, CEO of Serious Business
• Andrew Trader, Co-founder, Zynga Game Networks
• Robert Balahura, President at J2Play Ltd.
• TJ Murphy, Co-founder, SGN

Justin: A lot of the conversations around social games have come from Facebook developers that are tracking the charts and seeing how games are engaging a lot of users. What is your definition of a social game?

Siqi: A social game is something that leverages traditional game play dynamics. A social game is one in which interacting with your friends is a core piece of the game itself.

Justin: How do you see social games as being different from web games?

TJ: One difference we see is that having users’ friends on hand adds a lot more to your application than we thought at first. Traditional web games have been very single player or anonymous oriented. What the social element adds is a context and incentive to really move on in the game.

Andrew: For us, social gaming is about connection. Its about offering users a way to connect with their friends in ways in which users don’t regularly make time to do. People are on social networks and are spending time on these networks and our games allow those users to use that time to connect with their friends.

Justin: Do you see potential for social games to reach individuals that wouldn’t otherwise play web games?

Andrew: A lot of the social networks haven’t had a way for users to interact adequately. In some of our apps we’ve borrowed some great examples of turn based elements from Scrabulous that often appeal to the more casual player.

Justin: On your poker application, what proportion of users are playing with friends versus playing with random users?

Andrew: We’ve found that users make poker buddies, but we also make it easy for users to play with their friends. The actual proportions are very app specific though.

Robert: The interesting thing about what makes a game social is that users’ social identities are a core part of the gaming experience. Additionally, if you don’ have to sign up for a site you might just load up a game and have a try. The key piece of the entire environment is that all your friends will travel with you.

Justin: There are game destinations that already have social elements built in. What value do you see long term in social networks as game platforms?

Robert: We look as social networks themselves not as individual platforms but rather the social web in total is the platform. Our mandate is to help the existing game industry move their business to the social web. When you use our technology your game is immediately available across multiple social sites. We see this space as one of the platforms that we will take advantage of to help move the entire industry over.

TJ: As you connect the platforms together it is interesting to see that people create social structures once they are in the game already, something we call the gaming graph.

Justin: How do you evaluate the success of your social games?

Siqi: There is not a single metric. We don’t yet have a value for the lifetime of a user. The number we really care about is engagement which can ultimately inform you of the life span of your app. Average page views per visit is increasingly an important metric as well.

TJ: Some games lend themselves to players that will come in every day briefly that will have a long lifetime as a user, and in other cases there are shorter life time users that spend on average much more time on site.

Andrew: In the short term we are going to feel some pain from the upcoming Facebook profile changes. We do believe in the long run the changes will be great for the app economy. We measure engagement by time on site. For poker we average about 16-17 minutes on site. That is much more of our emphasis these days than on simply user acquisition.

Justin: Where do you see the space going in terms of revenue, as different strategies focus on virtual goods, sponsorships, or banner ads?

Siqi: I had this theory a year ago that display ad revenues were going to go up. Its obvious to me now that intent is everything. Making money through display ads is probably not going to be a good long term solution. One way we are monetizing is through virtual gift sponsorships.

TJ: In the games context virtual goods is the up and coming business model that shows the most promise. We will be careful to adapt as the space changes and we are definitely not putting our eggs all in one basket.

Justin: What percentage of your revenues are from virtual goods?

Andrew: Every app is different, and we break them down by heavy, medium, and light engagement. There is no virtual bullet. We’ve built a sustainable monetization model with the poker app around CPI because we can incentive it. My advice is to test everything because one app may work differently than another

Robert: We are testing more of a developer for developer model. We are more business to business in this regard with licensing etc.

Justin: How much are you guys investing in tweaking the different variables within your game economies?

Siqi: Virtual economies are a very complicated topic. We spend a lot of time looking at tax rates, velocity of money etc. The price of goods tends to never go down so what happens is that we have to regularly inflate our currency.

Andrew: Linden Labs is a great example as on on Second Life you see a positive correlation between how much users spend and engagement.

TJ: Its a very complicated topic. Even people in the traditional games world are trying to solve this problem. There is no overhead with selling virtual goods but I recommend you tread lightly.

Justin: A lot of Facebook app developers attempt to create virtual currency economies, but this is one area where the social networking community has a lot to learn from the gaming community.

TJ: there are a lot of big players out there that have a lot of money. The worry is that they will come in with multi million dollar budgets and try to put it on Facebok. We as developers and business people have found out through experience the things that have worked on Facebook. It will be interesting to see as we move forward what happens when the traditional games guys move into the social networks.

Siqi: Overall the body of knowledge that traditional game developers have far exceeds our own experience.

Andrew: I hope the traditional game developers enter the space as that will help drive growth, awareness and usage for social games which I think will translate to a larger mass market. This boils down to a traditional mass market opportunity for the traditional game industry.

Justin: How would you characterize the different social networks and distribution networks that you’ve built for individual developers?

TJ: Given the way Facebook has been changing things and the way we’ve seen Myspace restrict the viral channels it is a different environment for for new developers coming into the space. You can create a good game but success is not going to happen over night. Focus on gameplay and make games that are really fun and engaging. On the back end you are going to need some help to get the process jump started.

Andrew: It depends. For example, if you have a great idea for a profile to profile game: launch it on Myspace. Although Fb has restricted a lot of its viral channels there are ways to gain distribution and explore your content to the Facebook user base without having to pay for installs.

Q: Do you think that as the social gaming industry matures that derivative products will help engagement?

TJ: I think the social gaming market lends itself really well to that. Having a game context and a social context as well really enables the virtual goods stuff to really take off.

This Thursday, InterPlay: The Business of Games on the Social Web is happening at the Kabuki Theatre in San Francisco. I’m moderating the opening panel, Social Games Everywhere: Methods for Distribution and Development.

A fantastic group is lined up, including:

• Martin Green, VP of Biz Dev, Meebo
• Jim Greer, CEO and Co-founder, Kongregate
• Mark Pincus, CEO and Founder, Zynga
• Shervin Pishevar, CEO and Co-founder, SGN

The panel will focus on key questions surrounding distribution and monetization for game developers on social networking platforms like Facebook, MySpace, Bebo, Hi5, and Orkut.

For more, check out Inside Social Games. Look forward to seeing you there!

With over 4,500 games from over 1,700 developers, Kongregate has been helping Flash game developers and players meet for over two year - and it’s about to extend its reach into Facebook. Starting this week, Kongregate will launch the first of several Kongregate games ported to the Facebook Platform.

Inside Social Games sat down with Kongregate CEO Jim Greer yesterday to learn more about Kongregate’s plans for bringing its games to Facebook and other social networks.

>> Read the full interview at Inside Social Games