Two interesting articles were published today, first by Dean at VentureBeat titled Free to play games will grow, but not as fast as some believe, and the second on Gamasutra titled Farmville Sheds Another 9 Million Users in Latest Facebook Rankings. In the first article, Dean cites a report by DFC Intelligence and LiveGamer claiming that revenues from microtransactions based online games will grow, but that it is growing at a slower rate than competing research firms are suggesting. One interesting thing to note in this relatively young space, is that numbers from the 2 research firms that conduct research in this area could be SO FAR APART. Inside Network released a report that claims 2009 saw revenues of $1bn in the space, while DFC Intelligence quotes $350mm. Those numbers are 3x apart. It reminds me of when people used to go to compare Compete and Quantcast numbers to estimate site traffic. I would guess that the number is actually somewhere in between, but likely closer to Inside Network's estimates given the reported revenues of major Social Gaming players Zynga, Playdom, Playfish and Crowdstar, and their supposed breakdown of direct revenue to offer/advertising revenue (I have always been skeptical of these company-reported percentages).
In any case, the other article, the one on Gamasutra, is particularly interesting because it tracks how formerly fast-growing games are faring in this new Facebook gaming ecosystem. It is clear that most of the theme-skinned sim games have seen their brightest days (in all seriousness though I am playing Frontierville, please be my neighbor, Oregon Trail + Farmville = so much awesome), but that the two games continuing to grow are Zynga's synchronous social casino and Mindjolt's casual gaming portal. Social gaming will likely never hit the scale that games were able to achieve in 2009 by wall spamming users into creating dummy accounts that counted as MAUs (in MMOs and session based games, a majority of these MAUs are called inactive players or churned trials).
That being said, it is interesting to see the gaming industry media's focus on social games when covering the free to play space. The only other games typically mentioned by journalists & research reports are Nexon's MapleStory or SOE's Free Realms to check the kid's focused mmo/virtual world box and Battlefield Heroes or Dungeons & Dragons Online to check the core game box, without providing much context about how those games use the free to play model (what items do they sell, how does it impact game design). The numbers for these games will never match the 75mm and falling numbers of Farmville, and thus are the reason why they get 1/10 the word count allocation in these articles.
One market that is interesting to look at when considering the free to play games space is China. China breaks up the games, very literally, into 3 major categories: MMOs, Social Games, and ACGs or advanced casual games. While MMOs and social games get most of the ink in the US, the most
popular games list in China is actually populated mainly by ACGs (contrary to popular belief WoW is NOT the most popular game in China, nor has it been for a while). These games are typically less involved than MMOs due to the lack of a truly persistent world, but much more engaging than a social game because of the more advanced game mechanics and design. They target broader audiences than MMOs because they are perceived as less hardcore, but more focused gamers than the 45 year old Zynga moms that have replaced Yahoo Mahjong with Farmville. China is a particularly interesting market because games HAVE to be free to play to get audiences - a console market has never existed in the general public (console market in china is driven almost entirely by expats on modded consoles), and piracy is way too rampant to charge anything for software that exists on a shiny disc.
As such, ACGs have become the dominant category in the fastest growing Internet and online gaming market in the world. ACGs range from FPS games to racing games to Street Fighter style fighting games. And boy to players spend money in these games. Tencent (disclaimer: they are an investor in my company Riot Games) alone made nearly $1bn in virtual goods sales in their online games in 2009, which makes me question DFC Intelligence's estimate that these type of games only made $2.1bn in all of Asia in 2009 (given the virtual goods revenues of companies like Nexon, Netease, Shanda, The9, etc). This is definitely a category to keep an eye on in the US as the MMO market continues to stagnate (as PE shops and VCs continue to dump $50+mm into MMO developers looking to create WoW-killers) and as the social gaming market experiences a drive towards quality resulting in the decline of the types of games that were able to achieve massive scale and monetization in 2009 (on the backs of fb ad arbitrage and incentivized user acquisition driving meaningless signups that look good in AppData.com and on Inside Social Games but are meaningless otherwise). There are some companies doing exciting things in the ACG space and I look forward to tracking the development of this category in the US in 2010.
Hello. My name is Jason, and here you will find some thoughts on the all things digital media, but with a focus on a couple of things i love: movies, music and games. I used to be a VC at FirstMark Capital in NYC, and now lead the International Publishing efforts at online game publisher/developer Riot Games in LA. It goes without saying, but all opinions found on this site are not representative of opinions of either FirstMark Capital or Riot Games. They are my own personal random rants.