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Is It Too Late for Smaller Developers on Facebook?

December 19, 2012 Article Start Previous Page 3 of 3
 

Competing with the "800lb gorillas"

One of the largest competitive advantages top developers such as Zynga have over smaller developers is their network effects; their ability to cross-promote new games to their existing base of players without cost. Their market position provides an unlevel playing field to market new games to players, which cannot easily be replicated.

The following chart provides insights into just how powerful the network effects for Zynga really are. While Zynga's games are showing challenges in sustaining audiences at the same peak levels over time as attained previously, their ability to launch a title and gain traction within the critical first 30 days remains a formidable competitive advantage.


Engagement is calculated as daily active users divided by monthly active users with the resulting figure multiplied by 30 to provide an estimated monthly average.

Zynga's enormous pre-existing audience provides them with network effects that give each game they produce a significant head start over the competition.

Given Facebook gaming requires a critical mass audience for profitability and the competitive advantage held by larger developers, how can smaller developers compete? To quote Harvard Business Professor and strategy guru Michael Porter, "the worst error in strategy is to compete with rivals on the same dimensions."

To that end, a core activity of smaller studios should be to analyze their competition and look for areas to differentiate and create a unique position. By doing this we can gain a sense for their market strategy, their target audiences, what products are most successful for them and which products are most engaging to users.

This process should involve monitoring not just the most successful developers but also the up-and-comers in the space.

Understanding audience size benchmarks

Freemium is the dominant business model for Facebook games, which requires a critical mass audience to become economically viable. While it is easy to look towards the Top 10 game lists and get caught up in the sheer scale for the top performing games, this information is less relevant to smaller developers and new entrants. The following table outlines the monthly active users required by a game to make it into a respective benchmark as of October 2012:

Benchmark

Monthly Active Users

Top 1 percent apps

3,807,000

Top 5 percent apps

540,000

Top 10 percent apps

200,000

Top 25 percent apps

30,000

Top 50 percent apps

4,000

As we can see, the numbers fall off quickly at lower benchmarks. We can also see the majority of games struggle for profitability. To break into the top 10 in games overall requires an audience of 15,700,000 MAUs (at time of writing), which demonstrates the difficulty of becoming an elite game on Facebook. What this information does give us is more useful inputs for financial models and more realistic expectations. It also can serve as a way for developers to benchmark their own progress against the majority.

Conclusion

Without question, Facebook is a fiercely competitive environment. Standing out, or for that matter, even getting discovered is no easy task. However, the trend towards an increasingly diverse games market is ultimately good for smaller developers, as it becomes harder for the top developers to maintain their position across a growing variety of game niches.

Nonetheless, small developers are at a distinct disadvantage to the big game development studios when it comes to a critical component of success on Facebook: user acquisition. Whereas Zynga can count on millions of instant users within days of releasing a title, small-time developers need to fight just to get a fraction of a percent of that. So, to succeed, smaller developers should focus on three core activities.

Monitor the market to spot trends

In order for smaller developers to take advantage of these changing market conditions, they need to keep their finger on the pulse of the market at all times; just making the "best" games often isn't enough anymore. Rather, there's a need to augment development efforts with market analysis to uncover what types of games have unmet demand. By doing this, smaller developers can take advantage of a key competitive advantage they have over larger players: their ability to move and react quickly to trends.

Concentrate on retention

Smaller developers can give themselves a leg up by concentrating on user retention -- it's easier to keep an existing user than to acquire a new one. Retaining users obviously requires delivering quality gaming experiences but it's also a factor of stickiness -- how much the game's mechanics keep players coming back for more -- as well as how many alternatives there are in the game's particular niche.

Target genres that monetize at higher rates

Smaller developers need to concentrate on making the most of their audience. Positioning is one critical component of this: not all genres of games are created equal. For instance, gambling and casino themed social games drive significantly higher average revenue per user (ARPU) than many other types of social games. According to a recent report by Morgan Stanley, gambling and casino type games have an ARPU of around $9 per user compared to $5 across all social games.


Article Start Previous Page 3 of 3

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Comments


Tamar Curry
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One more way to make your game successful: Make. It. Fun.

Ramin Shokrizade
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The barrier to entry has always been low on Facebook, because the production qualities have always been low. Production quality has not changed all that much over the last four years. What has changed is the cost to market your product on FB. This was what made it so easy for Zynga to get in and expand in their early years. Now that FB charges appropriately for marketing in their space, and there is abundant competition lured in by Zynga's success prior to that time, getting your product under the nose of consumers is quite the challenge on FB. Zynga still has a huge advantage here with their market share but seems unable (at least so far) to take advantage of this with higher quality product offerings that would be difficult for the competition to replicate.

There is still great room for growth on FB, primarily because the quality of what is on FB now is still so low that existing products are vulnerable to competition from a good design. That growth is not likely to come from small fish, however, as replicating existing products and business models on FB will not gather the attention of consumers. Making a unique and high quality offering will not be cheap, though can still be done for a fraction of what a typical "AAA" product can cost to bring to market. Some big fish, such as EA, have attempted to enter the space with bigger budgets, but have failed due to employing derivative game designs and outdated business models.

Logan Foster
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One massive problem with Facebook gaming that is a huge barrier is what the 800lbs Gorillas are willing to pay to acquire users. Over the past year we saw a lot of the big names on this platform crush their competition simply because they were willing to come in and pay large sums of cash to buy premium advertising to entice users into their games, so much so that they drove a lot of small and mid-sized players off of the Facebook platform (FYI this is a problem that we are now seeing on mobile as these same large players try to push their way onto that platform and pay updwards of $8 for click thru install for advertising).

Yes you can always succeed by making a great product, but IMO the foundation of Facebook (and mobile) with discoverability is so flawed that the market is closing, not opening, to developers to succeed with their creative game ideas.

Bisse Mayrakoira
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First time I hear anyone refer to cow clickers as "simulation".

Isn't there room for well-crafted experiences which make their money from selling actual content instead of pay-to-win or pay-to-remove-frustration - "games on Facebook" instead of "Facebook games"? Design optimized for non-whales? Short games which people come back to replay and recommend to friends because they liked it so much, instead of forced "retention"?

Serge Versille
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There is actually a company called pretty simple games that has made a great game in the hidden object genre, with everything coming together very well: story, art, gameplay, and tech (almost no loading times, and no sharing screens clutter). It's come out about a month ago and they're getting close to 200k DAUs, with an exponential rate of growth. They didn't do any ads at this point, but instead focused on delivering quality so that the new players would come back and in time invite their friends. Here's a more in-depth look: http://www.rudebaguette.com/2012/12/20/explosive-growth-for-fb-ga
me-criminal-case-without-ads/

Bruno Xavier
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I'm look at another chart right now where out of the top 20 games, 11 are zynga's shits.
This article can't really convince me there is a place for niche games on facebook.


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