Social Gaming Plunge Levels Off In june

The negative impact on social gaming providers from Faceboo’s changes in notifications and requests imposed in March finally seemed to have slowed in June, with total monthly active users (MAUs) of the top 10 game developers dropping by a little over 1% from May levels to 415mm in June month-to-date, after falling 9% in May.

We were very interested to read Mark Zuckerberg’s thoughts on the changes in a recent interview on Inside Facebook where he said that:

“There are two ways that apps get usage that really define the character of the application. One way is viral distribution – spreading to new people. The other is re-engagement. Early on, the viral strength was so much, but there were really no channels for re-engagement. So people were using viral channels to reengage people, and you basically had apps that were growing very quickly, and their best way to get a good user count was to get new users and churn through them. That really optimizes for apps that are very viral instead of apps that are high quality and that people want to reengage. So we intentionally weakened the viral channels recently, and intentionally strengthened re-engagement with emails, so that there will be better apps. It’s going to be a long process, but I think it’s going reasonably well.

One of the things we did recently was re-balance around games. A lot of users like playing games, but a lot of users just hate games, and that made it a big challenge, because people who like playing games wanted to post updates about their farm or frontier or whatever to their stream. They want all their friends to see their updates, and they want to get all their friends’ updates, but people who don’t care about games want no updates. So we did some re-balancing so that if you aren’t a game player you’re getting less updates.”

As a result of this “re-balancing,” since reaching their peak in mid-April, as the Facebook changes were being implemented, total MAUs have fallen over 11%, with virtually every developer seeing a significant fall off:

This large drop off comes amid the emergence of several new hits for the social gaming providers.  Most notable, Zynga’s Treasure Island was the fastest growing game in the history of Facebook, reaching over 20 million MAUs in just three weeks.  However, the entire life cycle of games appears to be compressing, as Treasure Isle peaked just seven weeks after its introduction, and over the subsequent six weeks, Treasure Island has lost over 20% of its MAUs, including a 2mm MAU loss just last week.

Treasure Island hasn’t been Zynga’s only new hit.  More recent, Zynga introduced Frontierville, which has already surpassed 11 million MAUs after just three weeks, but these new hits haven’t come close to offsetting the losses among all the other Zynga games:

It’s interesting to note that the game with the best staying power is Texas Hold’ Em, a classic poker game that was likely the easiest for Zynga to build, and is the most basic of all of Zynga’s games.

The social gaming providers are hopefully finally at the point where things will level off from the Facebook changes, such that growth can begin anew.  We’ll keep you posted.

Lou Kerner owns 50% of this social media site, SecondShares.com, and owns shares of Facebook (private company) and is employed by Wedbush Securities (www.wedbush.com). Wedbush Securities is a registered broker-dealer and member NYSE/FINRA/SIPC. Wedbush Securities makes a market in the publicly-traded securities mentioned herein and its Equity Research Department provides research coverage of Electronic Arts. The information is neither intended to be a complete record or analysis nor a solicitation of an offer to buy or sell any security mentioned herein. This information is obtained from internal and external sources, which is believed to be reliable; however, no guarantee of its accuracy can be made. Additional information is available upon request.

Playdom Announces Expansion In Europe

Playdom has raised $43 million to date and made six acquisitions, including Acclaim Games, and has just announced their intentions to expand into Europe. They plan to create localized versions of their game titles such as Mobsters, Tiki Resorts and Big City Life in French, Italian, German and Spanish by the end of this year.

The first game to be localized is Bola, the 41st most popular application on Facebook according to analytics firm AppData. In aggregate, Playdom has more than 38 million monthly active users (MAU) and is headquarters down the street from Google in Mountain View, with studios in Francisco, Calif.; Seattle, Wash.; Eugene, Ore.; Chapel Hill, NC; Buenos Aires, Argentina and in South Asia.

Zynga has 50 games with over 8 games with 1 million or more daily active users (DAU) and 11 ames with 1 million or more MAU. By comparison, Playdom only has 22 games and 1 game with 1 million or more DAU and 9 games with 1 million or more MAU. So putting an emphasis on European and international users may be the right strategy to grow their reach and compete with Zynga.

Here’s an interesting point, in the last 29 days Zynga lost 7 million DAU according to AppData, which is more than 8x the size of Playdom’s total DAU. So the question is, how much of an impact can this expansion into Europe really have for Playdom?  We’ll see.

Zynga’s Losing Streak Continues

Zynga’s total Monthly Active Users (MAUs) declined last week for a third straight week, and the pace of MAU decline continued to accelerate, with a total decline of 5.9 million MAUs, or 2.4% of Zynga’s massive total user base, which now stands at 238 million.  The MAU loss grew from the previous week’s drop of 4.2 million MAUs, and the loss of 3.1 million users the week ending May 1st.  Treasure Island remained the only major Zynga title to add users last week, although the 900,000 net adds was modest compared to the 6.7 million it added week just three weeks ago.     With 238mm MAUs, Zynga is now down over 5% from peak MAU levels reached mid-April.

Farmville, Zynga’s biggest game, was also Zynga’s biggest MAU loser last week, declining by 2.3mm MAUs last week, to stand at 75.5mm, and is now down by 7.7 million MAUs, or 9%, from its peak in early April.   However, Fishville is Zynga’s biggest decliner in terms of numbers of MAUs lost from its peak MAU count, having dropped by 9.6 million MAUs, or 37% from its peak of 26.2 million MAUs reached last December.   While Treasure Island still growing, Zynga’s seven other major titles are all below their peak MAU counts.  The chart below highlights the MAU decline from peak levels of Zynga’s major hits other than Treasure Island:

It’s critical to recognize that MAU declines are not unique to Zynga, as every major game developer but Mindjolt lost MAUs last week.  In addition, every one of the 11 major Facebook game developers we follow is off from their peak MAU levels reached over the last few months.  The MAU loss from peak levels range from Playdom’s modest 1.7% drop (due to the recent growth of Big City Life) to Mindjolt’s staggering 37% drop.  In fact the average MAU loss of 11% of the top 11 developers from peak levels is more than twice Zynga’s 5.2% total MAU decline from its peak.  As a result, Zynga has continued to grow its MAU market share of the top 11 developers, reaching a very impressive all time high of 53.5% this week, or 238 million of the total MAUs of 445mm of the top 11 game developers.   While the seven Zynga games highlighted above have lost a combined 31 million MAUs from their peak, Treasure Island has added over 27 million MAUs in the past six weeks.

We believe there are multiple factors driving the MAU declines being experienced by every major Facebook game developer.  There are seasonal factors, as people go outside more in spring than winter.  We estimate that Facebook’s gaming notification and gift request changes have impacted MAUs significantly more than the weather.  We also believe that new/smaller developers are taking an increasing share of new MAUs, with last week rapid growers including Family Feud by iWin (up 900,000 MAUs last week), Kingdom of Camelot from Watercooler (up 500,000) and Nightclub City by Nightclub City (up 400,000).    Finally, there appears to be some game fatigue occurring as well, as social games don’t yet engender the long term loyalty experienced by hard core games like World of Warcraft.

Current declines notwithstanding, we continue to believe that social gaming is emerging as the next major force in gaming.  However, we also recognize the social gaming industry remains in the early stages of its evolution, and the success of today’s leading social gaming companies like Zynga, EA, Playdom and CrowdStar will depend on their ability to evolve in this dynamic environment and provide gamers with ever evolving gaming experiences.  We also continue to believe that Zynga’s massive scale and the resulting inherent marketing advantages, positions Zynga to continue to drive new mega hits like Treasure Island and remain the dominant player in the social gaming industry.



User Loss Accelerates For Zynga

After losing 3.1mm Monthly Active Users (MAUs) across its vast Facebook gaming empire two week ago, Zynga’s MAU decline accelerated last week with the loss of 4.2mm more MAUs.

While Treasure Isle continued its growth, the growth curve flattened significantly, adding 1.6mm MAUs last week after gaining an average of 6.6mm the previous three weeks.  Every other major Zynga title lost users last week, with Farmville (-600k), Texas Hold ‘Em (-600k), CafeWorld (-700k), Mafia Wars (-300k) Fishville (-600k) and YoVille (-500k) combining to lose over 3.8mm MAUs.  On a positive note, the losses from the six losing major titles decelerated from the previous week, when they combined for a total loss of 6.5mm MAUs.  The weekly loss totaled 1.7% of Zynga’s total MAUs, which now stands at 244mm, still dwarfing its competitors, the next ten which combine to total only 215mm total MAUs.

The second straight week of MAU losses comes on the heels of reports that Zynga is readying for a major battle with Facebook given the rise of Facebook Credits and its 30% fee structure, as well as Facebook’s elimination of notifications and Facebook’s pending Gift Request changes.  While Facebook’s changes in communications cuts down on the noise in users newsfeed, the elimination of the free communications/advertising is forcing the gaming companies to increase their advertising to drive usage.  As a result of these changes, Zynga appears increasingly focused on lessening its dependence on the Facebook platform.

While Zynga MAU loss accelerated last week, every other major developer but Playdom (which added a modest 300k MAUs last week) also lost MAUs last week, and Zynga’s share of the total MAUs of the top 11 game developers actually increased last week from 53.1% to 53.2%.  So if Zynga’s players aren’t leaving Zynga for the other major gaming providers, where are they going?

The lost gamers are either doing other things than playing games on Facebook, like taking advantage of better weather in the seasonally slower spring and summer months for gaming, or playing the games of smaller developers.   Among the many risks we highlighted in our original Zynga report was the risk of “branded” games coming to Facebook that come with a built in audience given the strength of the brand.  Case in point is the recent rise of the Family Feud game introduced in to the Facebook ecosystem just two months ago.  Family Feud grew its MAUs base by 700k last week to pass 4mm total MAUs.   While Family Feud doesn’t appear poised to enter the pantheon of top 10 Facebook games, where 17mm MAUs is required, the deluge of new gaming companies introducing games on the Facebook platform, including those with branded games, are likely to be increasingly meaningful in the Facebook gaming ecosystem.  All that said, we always caution readers to not read too much in to the weekly gyrations of MAUs, but rather use them as context over longer periods to divine the trends that will be meaningful in the long run.