Are Social Games Being Defriended?

by Parks Associates | Jul. 27, 2012

Zynga's stocks are taking a beating since releasing its earnings a couple of days ago. Facebook shares plunged to new lows today. Do these events mean that more trouble is on the way for the social gaming industry?

We are still optimistic about the long-term evolution of the industry:

- Facebook's growth may have slowed down but the social network is now close to 1 billion monthly active users (up 29% year over year).
- New consumer segments continue to be attracted to social networks and to social gaming. Younger generations - tweens, in particular - who have grown up with virtual items, will have more spending power as they grow older.
- Social games will capture a growing share of the existing casual gaming market. It may well be argued that almost every casual game in the future will have at least some social components in its gameplay (i.e., publishing high scores or competing asynchronously with friends or strangers).
- Smartphones and tablets are the future platform for social games. As penetration of these devices increases, so will the number of gamers.
- A larger number of users will buy virtual items. Improved game design and higher user familiarity with microtransactions will strongly increase monetization and ROI.
- Traditional publishers like Electronic Arts are using their industry experience and their brand to create social games that appeal to more traditional gaming audiences, which may be more likely to spend money on virtual items.

The industry is certainly going through changes and maturation, and is likely to start looking more like the traditional gaming industry. Zynga is suddenly not the only player in town and has to deal with a more "challenging" market than in the past. But overall social games remain a growing part of the online gaming world.

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