Gamers on Social Networks... a Whole Goddamn Lot, Too

I recently touched on the idea of the "give it away free" business model when it comes to video games in a post about World of Goo's temporary offer of "pay what you can." While it's quite rare for traditional videogames (PC or console alike) to adopt this strategy, there is actually quite a large precedent for "play for free" videogames, especially online games.

And I'm not just talking about Text Twist or some dodgy online pool game. I'm talking about games that people play, often without even associating them with videogames. Even the most stereotypically anti-geek, mainstream, Gossip-Girl loving individual might spend hours a day fiddling around with these games.

But enough with the cheesy suspense: I'm talking about Facebook. On Thursday USA Today reported that Farmville, a game which will celebrate it's four month anniversary this October, has 56 million unique players monthly, and something like 20 million unique players daily.

Atul Bagga, a gaming analyst at market researcher Think Equity, expects the $500 million to $600 million social-gaming slice of the online market to at least double, to $1 billion, in 2010.

And where, oh where, does that money come from? After all, downloading the application and running it -- playing the game itself -- is free. The answer comes from two main streams of revenue. The first is micro-transactions. While you aren't paying a monthly subscription fee (like you would pay to play World of Warcraft, or what you pay to access Xbox Live's full services), you might, from time to time, spend a dollar here or there (on particular farming tools in Farmville, for example). The games don't necessarily nickle-and-dime you to death, because most of the experience is free. However, all that pocket change certainly adds up.

The other revenue stream comes from advertisers.

Meanwhile, advertisers are gravitating to the popular social-gaming sections of social networks to reach tens of millions of consumers.

"It's attractive real estate," says Hi5's Trigg. Hewlett-Packard, Verizon and Netflix are among major brand names running banner ads on MySpace's gaming areas.

It's unclear what, if any, portion of this goes directly to the publishers of the specified applications like Farmville (rather than just Facebook itself). However, it is more than clear that this industry is experiencing incredible growth with profit margins that could make anyone salivate.

The cleverest part of the advertising, when it comes to games like Farmville, is that it is so damn cheap. After all, the cost it takes to implement an obnoxious "Invite your Friends!!!" template is obscenely inexpensive in comparison to running something like a TV ad. You don't need a well organized campaign that sprawls across every available window. All you need is to prompt your players to invite a handful of other people, who go on to invite a handful more.

The best trick, of course, is to reward the players for doing your advertising for them. Instead of paying an agency hundreds of thousands of bucks, you pay one dedicated player 100 apples or oranges, or whatever the hell the currency is in Farmville, to get one other player on board. Maybe if they invite two friends they get a cow. Ten friends? A barn.

I'm probably showing that I definitely don't play this game to anyone who does, but the point holds true: you are paying people in fake currency to do what you would otherwise have to pay people in cold hard cash to do.

The downside to social gaming, however, is that they are like viruses. They blossom exponentially for a little while, infecting many of the people they come into contact with, dominating a population. But then people get over them (or, I don't know, die -- time to abandon the metaphor). In the terms of social gaming, they get bored. Then they move on. The same system that makes it so easy to join games like Farmville is what makes them easy to leave: they get swallowed up by the 'next big thing.'

To put it in more proper vocabularly: these games thrive on buzz, which is also the core component to their advertisment.