Social Games Bubble: When Will it Burst?

Social Games Bubble: When Will it Burst?

References to online social gaming have a way of putting proclaimed hardcore gamers into a bad mood, and it’s not hard to see why. Core game developers like Capcom, Square-Enix, EA and more have been opening up studios and creating teams that are tailored strictly for the development of social and mobile games. Meanwhile, independent social games studios are popping up around the landscape like daisies on the first warm day of March. Core gamers are bristling like cats who are being backed into a corner while their territory seems to shrink and shrink.

But core gamers aren’t the only ones made uneasy by the beanstalk-like growth of the social gaming market: There are still several core game developers who feel the same way. Earlier this month at the Reuters Global Technology Summit, Alexandre de Rochefort, the CEO of Gameloft, stated that the social gaming market is entrapped in a bubble, and with all the careless flinging of money that’s been going around in the social games trade, that bubble is destined to burst sooner than later.

“I am sorry, but when Zynga is worth $10 billion something is a bit strange,” he said. “If this is not a bubble, I don’t know what is.”

de Rochefort believes that the core game market needs to diversify, and that the social game market should be bypassed altogether. “Zynga has made it very clear that their typical client is a female, 40 years old, staying at home in the mid-West,” he said. “Gameloft has not sold a single game to this kind of client in the last 11 years.”

A curious statement from de Rochefort, if not a bit ignorant: Gameloft distributes games like Oregon Trail for iOS devices and the Petz series of virtual pets for Windows, casual games that, much like FarmVille, are meant to be enjoyed by male and female players of all ages.

Denis Dyack of Silicon Knights is likewise unimpressed by social games and believes the bubble will inevitably burst, though he maintains a gentler image of the audience that plays Zynga’s games.

“I’m not saying that FarmVille’s a bad game,” Dyack told IndustryGamers, “but as a gamer who’s played games all my life, I know what kinds of games I want to play. I play games every day and I’m always trying new stuff. Our golden rule is we make games that we want to play ourselves and I just look at those [social] games and those are just games I don’t want to play for whatever reason.”

“[Social gaming] is damaging traditional gaming for sure but… how it’s going to work out is anyone’s guess. The trend that I see is it’s probably going to be one of the biggest bubbles and explosions that our industry’s seen in a long time and I think when it crashes it’s going to crash very hard. I don’t think there’s an economy there.”

While Dyack doesn’t believe the social games market will splatter beyond all hopes of restoration, he does think the crazy amounts of money companies are pouring into social games acquisitions is ridiculous. “It looks very, very dangerous,” he said. “I think Zynga’s valuated more than some traditional publishers right now that have been in the industry for decades. I’m sorry, but I just don’t see it. It seems imaginary to me… it doesn’t look long term healthy to me.”

So, how about it? Will social gaming endure, or will the bubble burst and leave behind a wrecked landscape dotted with drying fields, abandoned cities, and sickly pink cows?

The social buying frenzy will almost certainly calm down somewhere within the next few years. It’s hard to believe that every month-old company that’s being snatched up and every core studio offshoot will be able to sustain a paying player base for the amount of time needed to turn a profit. At some point, core companies will realize this, and the grand social experiment will be over.

But that doesn’t mean social gaming exists in a bubble that’s doomed to pop at any moment. When we think of economic bubbles, we inevitably think of the Dot-com bubble that burst in 2000. The social game boom is not the same thing, as Nicolas Lovell explains on TechEurope:

“Unlike the dotcom era, these businesses are generating real revenues. The virtual goods business model, in which players get access to the games for free but are able to buy in-game items, is generating revenues and profits. A report published at the end of last year predicted the market for virtual goods in the U.S. alone will reach $2.1 billion in 2011, up from $1.6 billion in 2010 and $1.1 billion in 2009.”

“I was an equity analyst during the last dot-com boom,” Lovell continues, “and participated as CFO of a comparison shopping website. It’s hard to say whether current valuations are appropriate, or frothy. However, the clear evidence of consumer demand, the emergence of provable and viable business models, and the evidence that small companies exist to satisfy consumer needs—not just flip to the first available purchase—all suggest that social gaming is here to stay. Social gaming companies will be large, profitable entities for some time to come. That doesn’t look like a bubble to me.”

Lovell does admit, however, that there are indeed “some crazy valuations” out there, which makes the future look hazy overall. Still, Joe Osborne of Games.com also believes the popularity of Facebook games will endure for at least a few years longer as developers teach themselves to utilize the platform to its fullest potential.

“These companies are just getting started,” Osborne says. “Most social game developers haven’t even used Facebook to its full potential, as we’ve heard many designers cry out. Not to mention even Zynga hasn’t achieved its long-term goals like mobile dominance, and Google’s rumored social games service isn’t here yet. Until another company can effectively compete on Zynga’s level–and truly over-saturate the space–expect your favorite social games companies to be around for a long time. Well, at least until 2015, if we all make it that far.”

2015 will indeed be a telling year, as it’ll mark the end of the long-term relationship Zynga and Facebook entered in 2010. Will we still be playing FarmVille, CityVille, and whatever else Zynga has cooked up by that point (CountryVille? GalaxyVille?)? From this position, it looks likely. Despite security concerns, Facebook is as popular as ever, and Zynga’s latest venture, CityVille, became Facebook’s most popular app last winter. With rumors buzzing that Zynga’s next project will be a real-time strategy game called Empires & Allies, interest in the social gaming scene just won’t be dying down any time soon–at least, not for Zynga’s projects.

(A social real-time strategy game on Facebook? So long first-world productivity.)

About Nadia Oxford
Nadia is a freelance writer living in Toronto. She played her first game at four, decided games were awesome, and has maintained her position since. She writes for 1UP.com, Slide to Play, GamePro and other publications, and is About.com’s Guide to the Nintendo DS.

2 Comments

  1. Mathieu Nouzareth

    What bubble ? Do actually people who talk about this know what a financial bubble is ?

    Zynga’s revenues for 2010 were about $900 million and profit about $450 million. A valuation of $10 billion for a company that is making this type of profits and growth is actually very cheap indeed.

    As the head of a social game company, I am glad the dinosaurs from the traditional game industry don’t understand anything to what is happening in the industry at the moment. It means more room and time for us to grow and succeed… Folks, the era of the PC games is long gone and so is the console market.

    PS: I particularly like the Gameloft CEO comment : “Gameloft has not sold a single game to this kind of client in the last 11 years.”. I guess this is the ultimate proof of a bubble. I think we can call this man a true visionary…

  2. I believe that social gaming has been caught up in the wider and more general on going theme of the tech bubble – with daily commentaries on the likes of Facebook and Groupon.

    what scares analysts is that Zynga is so unconventional in the why it functions as a technology – its reliance on Facebook as a platform, its micropayments. Finally people really cannot believe that people spend their money on these types of games – but they simply do!

Leave a Reply