Investing in Facebook: Rob Winkler of 5th Planet Games

This week, Inside Facebook asks people who have built businesses on the Facebook platform why they believe in the company. These are the people that are truly invested in Facebook, whether or not they bought stock.

For the final part of our series, we spoke to Rob Winkler, co-founder and CEO of 5th Planet Games, which makes Dawn of the Dragons, Legacy of a Thousand Suns and Clash of the Dragons. Winkler’s history with Facebook, like that of many game developers, is a bit different than other companies’ experiences. While 5th Planet is on track to make over $10 million in annual revenue this year largely because of the social network, Winkler has seen the landscape shift to become very difficult for game developers to sustain a business by being on Facebook alone. He’s hopeful but not quite confident that will change.

Seeing the potential of Facebook

Winkler started to understand the potential for building a business on Facebook before he even had an account. In 2009, his wife was on the site, but he and his friends weren’t.

“She used it to gossip and talk to old friends from high school and spam her friends’ Walls with hugs and kisses or whatever else,” Winkler says. “None of that was even remotely interesting to me.”

What was interesting was the idea of making a game. Winkler had been going to several gaming conferences that all repeatedly talked about developing on the Facebook platform. Even though the social network was home to more casual games than the one Winkler and his friends had envisioned building, they couldn’t ignore the the growing user base. Plus, Facebook could play a key role in the community aspect of gaming.

“The social features that are core to Facebook’s existence are really good for games,” Winkler says. “A strong social network is exactly what you want for a game.”

Winkler also realized there might be a lot of people like him and his friends who weren’t being served yet on Facebook.

Developing a business idea

Winkler and his friends who played World of Warcraft together had always talked about making their own game one day. Although they initially wanted to make a browser-based massively multiplayer game, that turned out to be unrealistic.

“If we were going to realize our dream of making a game, we needed to go where the users were,” Winkler says.

In January 2010, the team officially shifted toward developing a text-based social game called Dawn of the Dragons. Winkler says when the game launched on Facebook in May that year, it made $20,000 in the first month.

“We were like, ‘wow, we can actually make a living making video games,’” he says.

The team put most of the money back into “laser-targeted advertising” to acquire users who returned regularly and monetized well. After two months, 5th Planet was making an average of more than $26 per paying user. The team soon got to work on more games.

Confidence in Facebook

In 2010, Facebook made some debilitating changes for game developers by eliminating game stories from News Feed, removing notifications and making app requests less obvious on the home page. Developers began to rely more and more on ads to acquire new users. But with competition from developers and brand advertisers driving up bid prices, the cost of user acquisition doubled for many games. Facebook also now takes a 30 percent cut of virtual goods revenues via Facebook Credits transactions, which it didn’t when 5th Planet and most other developers got started on the platform.

As such, 5th Planet has added its titles on games site Kongregate. Although it maintains its games on Facebook, the developer hasn’t bought advertising on the social network in nearly a year.

“I would love to grow 10x on Facebook, but it doesn’t add up right now,” Winkler says.

He recognizes the social network is taking some steps to improve games discovery and he’s seen a noticeable uptick in monthly active users since Facebook began showing new feed stories and sidebar modules for games. They aren’t very engaged or well-monetized users by any means, but Winkler says it’s a start. He also calls the App Center “a big step in the right direction.”

At the end of the day, Winkler says, Facebook has all the users and continues to drive the majority of 5th Planet’s revenues so he’s hopeful the platform can be mutually beneficial for Facebook and third-party developers.

Future of Facebook

Winkler says its still quite possible for indie developers to reach a niche audience on Facebook and make a living off games, but he doesn’t believe we’ll see any new Zyngas emerge. And all developers will be looking to diversify beyond Facebook.

“The ship has sailed on anyone putting all their eggs in one basket,” he says.

Winkler does have an idea for how Facebook might be able to make developers more invested in its platform. He’d like to see developers that generate a certain amount of revenue get a credit toward Facebook advertising.

“It’d be a way to reward me for making a financially successful game,” he says. “And it’s an incentive to keep me on Facebook. [As opposed to] now I’m spending my time looking to international markets.”

He also thinks it’s likely that Facebook will do to other apps what it did to games by reducing virality and taking a cut of revenue. But as long as there are users on Facebook, there will be developers going after them there.

“We’ll take our lumps and say ‘thank you, may I have another?’” Winker says.

Read Part 1 with Clara Shih of Hearsay Social
Read Part 2 with John Corpus of Milyoni
Read Part 3 with Hussein Fazal of AdParlor
Read Part 4 with Rick Marini of BranchOut