If we borrow our desires from others and this is a cause of conflict, as an influential French philosopher has argued, then social gaming is a great forum to imitate in.
The explosive success of social gaming to be an industry worth more than $1bn in just a few years has led to the acquisition of Playdom and Playfish, two of the top five companies, in less than year.
Media group Walt Disney’s agreement in July to buy Playdom for $563.2m, plus a potential $200m earn-out, came after console games group Electronic Art’s $300m, plus $100m in potential earn-out, purchase of Playfish late last year.
Disney’s offer was also made just weeks after its corporate venturing group, Steamboat Ventures, had joined Playdom’s $76m series A round consortium. This extended A round valued Playdom at about $345m, according to analysts at NextUp Research.
The premium to acquire Playdom above the venture round valuation reflected Disney’s strategic interest in Playdom. Robert Iger, executive president of Disney, said: "This acquisition furthers our strategy of allocating capital to high-growth businesses that can benefit from our many characters, stories and brands, delivering them in a creatively compelling way to a new generation of fans on the platforms they prefer."
By acquiring Playdom, Disney will boost its digital gaming portfolio and provide consumers with new ways to interact with the company on social networks, such as Facebook and MySpace. Steve Wadsworth, president of Disney Interactive Media Group, the business unit which has acquired Playdom, in an interview with news provider PaidContent.org, said: "This category [social games] is growing at a rate that is in a lot of ways unprecedented."
Data provider AppData said the top five social games companies had about 440 million customers, dominated by Zynga with 246 million active users each month (MAU). Playdom, formerly known as You Plus when it was founded in 2008, was ranked fourth by AppData with 43.9 million MAU. The latest MAU for Playdom was an increase from 28 million in December and more than double the number 18 months earlier, although the number of daily users has increased by a far slower rate.
John Ball, founder and managing director of Steamboat, said: "Historically, the major media companies have developed premium content, delivering it to consumers in relatively narrow windows.
"The power is increasingly moving to the consumer, allowing time-shifting and a huge selection of platforms, applications and devices on which to view the content when and where it is wanted. Accordingly, media companies must understand consumer tastes in greater depth and deliver the content in the right format at a fair price."
Facebook has grown to 500 million users and is regarded as a platform for the delivery of media content, but one of its most popular features is its social games, developed quickly by start-up companies. However, large media groups have regarded gaming as a core business and the next stage of social games will be branded games, executives said.
Playdom had previously identified the growing demand for branded games. The $76m in its series A round had helped finance nine acquisitions in eight months, including Merscom, which had developed more than 250 online and social games for third parties with nationally recognised brands, including Sea World, Purina, National Geographic and NBC Universal, for the previous 16 years.
John Pleasants, chief executive of Playdom, and after the acquisition expected to be an executive vicepresident in the Disney Interactive Media Group, in an interview with news provider VentureBeats, said it was already partnering Disney’s ESPN sports channel to produce social games. But he added that social media brands would move into traditional areas over the next 18 months.
Pleasants, the former chief operating officer at Electronic Arts, told VentureBeats: "You will see TV shows, movies or small webisodes spawning out of social games. It makes sense to leverage a brand that is loved by tens of millions of people.
"The three things that are driving this are the combination of social, gaming [and] the introduction of the live service. These [games] are changed every day. And everything we make is free to play. Those three tent poles are changing everything in interactive entertainment.
"The games of the past three years have been about virality. The games of the next three years will be about engagement and retention."
Social gaming industry revenues are estimated to be more than $1bn last year, compared with more than $50bn for console games, but the sector is seen as a disruptive model because of its lower cost of production, higher returns and real time.
The source of revenues for Playdom is primarily direct payments by gamers. In an earlier interview with Atul Bagga, gaming analyst at ThinkEquity, published by Jeremy Liew, venture capitalist at Lightspeed, one of Playdom’s series A investors, Pleasants said: "We are primarily a virtual goods model. People acquire items in order to accelerate in a game or to unlock new parts of the game and limited edition items.
"That represents 90% of our revenue. Between 5% and 10% of our revenue [of more than $50m last year] comes from advertising. A vast majority of our revenue comes from direct payment. We want to have direct billing relationships with all our customers."
This information offers Disney direct links with consumers that in social network Facebook are evenly split between men and women and across all age groups, albeit with a focus on the 18 to 35 demographic.
Tim Chang, a principal at Norwest, another series A investor in Playdom, in an interview with Dow Jones, said Playdom had successfully focused on the different elements to make successful social games.
He said: "First is a mix of marketing, advertising and promotion within social networks. Second is cross-promotion across games (to have players in one game join another game owned by the same company). Third is the inherent virality in the games."
Playdom’s initial team of co-founders had a games and advertising analysis background.
Rick Thompson, Playdom’s chairman, angel investor and a co-founder, was previously a co-founder of online advertising services company Adify and mobile music network Flycast.
He linked up with Dan Yue, the first employee at Adify and a semi-professional poker player, who became Playdom’s initial chief executive where one of its first games was Poker Palace.
The other two co-founders, Chengwen (Chris) Wang and Ling Xiao, had both previously been developers at search engine group Google and this initial team put in place an analytics platform to create, test and improve games quickly based on customer feedback.
Playdom had initially developed games for Facebook before switching to MySpace and then concentrating again on Facebook as it achieved consistent and high numbers of active users of its social networking platform.
After Disney’s acquisition agreement, Playdom said Facebook’s virtual currency, called Credits, for online games would be used exclusively across all its games for the next five years.
Pleasants has previously described Facebook as western countries’ equivalent of Asian games rooms, a space where people congregate to play online games.
Fact box – Playdom
Key people:
Rick Thompson, co-founder and chairman;
John Pleasants, chief executive Playdom (to be an executive vice-president of the Disney Interactive Media Group and general manager of Playdom);
Dan Yue, co-founder and chief product officer;
Chengwen (Chris) Wang, co-founder;
Ling Xiao, co-founder and vice-president of engineering;
Christa Quarles, chief financial officer;
Brad Serwin, general counsel;
David Sobeski, chief technical officer;
Paul LaFontaine, senior vice-president;
Steve Meretzky, vice-president of game design
Funding
Date Round Size ($m) Investors
November 2009 A1 43 New Enterprise Associates, Lightspeed Venture Partners, Norwest Venture Partners, Rick Thompson
July 2010 A2 33 Steamboat Ventures, Bessemer Venture Partners, New World Ventures
Date daily active users monthly active play rate (%)
(DAU, million) users (MAU, million)
March 2009 5.2 21.8 23.9
September 2010 5.4 43.9 12.3
Source: Playdom and AppData
Applications by Playdom
Name MAU DAU
Market Street 8,521,086 987,639
Social City 6,809,537 711,374
Sorority Life 4,363,382 563,577
Bola 3,847,809 468,154
Wild Ones 3,816,728 525,778
Source: AppData, August 25, 2010