Traditional game developers hate Facebook games and derisively call them a maths equation.
That’s because Facebook games are the first large scale example of games as a service with a free to play component (the biggest MMO’s are a service but have a fixed monthly subscription).
The maths equation is basic direct marketing: If your customer lifetime value is $1 (based on conversion rates and ARPU), then you can spend up to about 30 cents to acquire a user, depending on your costs and your desired profit margin.
Zynga won on Facebook with the business equivalent of blitzing on every play: they spent every penny they ever made to buy more and more traffic. They spent the whole dollar.
My understanding is that margins are razor thin and buying traffic is a requirement, especially for continuing the growth curve. Losing 30% of revenue to the Facebook credits tax could quickly cost developers a lot of traffic or a lot of money, or even both.
And it’s not just Zynga. Under all the games on OMGPOP sits a similar platform to the Facebook platform and numerous Facebook game companies have come calling asking if we could power their games off of Facebook, on a destination site as well. From our experience, here are the biggest challenges and opportunities Zynga or anyone else faces in building a stand alone web-based game service.
- Buying traffic is way more expensive on the open Web. Free to play Chinese MMO’s and MMO’s like World of Warcraft have massive lifetime values. They own almost every game related keyword on Google and they can pay way more to acquire a user than will ever be feasible with a casual game like FarmVille.
- You need a full time separate platform team focusing on sign up, friend affinities and all the social and registration component that Facebook currently takes care off. Users have no friends when they come to the site and they are publishing all their level ups and gifts right back to the same social network that you just ran away from.
- You need to generate your own daily behaviour and routines. Facebook is the daily routine. Game makers just piggy back on that. Going to a destination URL for a specific game or family of games is much more difficult to do and requires more than just game mechanics to drive repeat usage.
All these things are doable, they just take a different organizational structure and a longer time period.
But there are real benefits:
- You own your user. You own the email, the communications and no one can take that away or make a change.
- You have more flexibility in interface design and creating an original user experience (as opposed to all Facebook games which basically look the same). Hence you have a greater chance of building a brand which has longer lasting value.
- No doubt retention and the number of days or months a user spends on your site grows significantly (and that is a key component of LTV). This is especially true as you have less competition from other game companies (whereas I see multiple games on Facebook vying for my attention).
As a short term bet for Zynga, moving away from Facebook will no doubt be crushing — although it will certainly come in stages. As a long term bet, it will build greater value. All the money it has raised is about to come in handy.
Dan Porter is CEO of games site OMGPOP. He is also an investor in songkick, producteev, linguabyte and socialflow. You can follow him on twitter at @tfadp and find him at www.danporter.org