Once-Casual Gamers Go ‘Social’

The audience for casual games appears to have bought, well, the farm.

Traditional gaming sites are bleeding users, as millions of Web gamers shift their time to social games, such as the massively popular FarmVille. That, coupled with an increasing desire among advertisers to move beyond old-school banner ads, has put the advertising market for online gaming very much in play, said analysts and buyers.

According to Nielsen Online, Yahoo Games has seen its audience plummet by 30 percent to 9.9 million unique users in January, versus 14 million users a year ago. Similarly, longstanding gaming destinations Pogo and AOL Games have each experienced 16 percent audience drops. MSN Games is down to 5.3 million unique users; four years ago it exceeded 8.4 million uniques.

This slippage is being driven by Facebook users’ devotion to FarmVille, Mafia Wars, Dragon Wars—all from social gaming pioneer Zynga— and others such as RockYou’s Zoo World.

Per research firm AppData, over 80 million have played FarmVille alone.

“For many people, Facebook is their home base,” said comScore analyst Andrew Lipsman. “It makes sense that other online utilities and functions move there.”

Plus, games are more fun when you play with your friends. “We are seeing a seismic shift happening in the quality of game play, the competitive nature that comes through the social graph,” said Chris Cunningham, CEO of Appssavvy, which sells for Zynga. Zynga declined to comment for this story.

Indeed, competing for high scores on gaming sites in relative isolation suddenly seems bland, said David Madden, evp, sales, marketing and business development for the gaming distributor/seller WildTangent. “Portals don’t evolve very quickly, and what they are offering gamers is stale,” he said. “Gamers are a communicative bunch and they go where the excitement is.”

That viral nature also provides a major business advantage. “Customer acquisition costs are so low for social games,” explained Bart Barden, director of online marketing for the game developer PopCap. “Yahoo has to buy ads to acquire users.”

So what do traditional gaming sites do? “They to have to figure out how to compete by getting more social,” said Dana Jongewaard, IGN’s executive editor of expanded audiences, who noted that some have incorporated Facebook Connect to facilitate more viral game play. Yahoo is not about to start building its own social games, but is looking to partner with developers as it tries to stem audience declines, said Yahoo Media head Jimmy Pitaro: “Social networks…are impacting a user’s time spent on other sites, including Yahoo’s,” he said. “We’re not sitting idly; We’re actively engaged in socializing our sites.”

Starting last fall, AOL Games—now Games.com—started producing more editorial on social games, rather than simply hosting games. “Instead of being afraid, we’ve really embraced them,” said editor Libe Goad, who acknowledged that advertising had taken a hit over the past year.

Casual gaming sites have been a fit for packaged goods and auto clients. They reach a large female audience and offer natural game breaks that suit banner and video ads. But that ad market is likely vulnerable, given the audience declines. “Any large-scale migration from the casual gaming paradigm is going to result in those sites seeing less ad revenue,” said eMarketer analyst Paul Verna. “So a portion of that market probably starts to go away. But I don’t think the bottom falls out.”

For one thing, many of the casual game advertisers are conservative Web spenders to begin with. “The advertising market hasn’t caught up with this,” said Appssavvy’s Cunningham. In fact, Pogo says ad revenue is up 20 percent year to date.

Companies like Zynga would seemingly stand to benefit. However, most of Zynga’s games don’t have standard ad units. Yet that’s appealing in today’s market, where brands are looking to break out of the clutter. “We are treating social games in a different way,” said Shana Kohen account group supervisor at Horizon Media. “Overall we’re trying as much as possible to get out of banner advertising. And through social there is more…we can achieve.” For example, brands can provide gamers with free virtual goods or level upgrades, in exchange for sitting through a video ad. That tactic has proven popular on both social games and MMOs (i.e. multiplayer online games—think World of Warcraft).

Heidi Browning, evp, global digital officer at UM, echoed these sentiments. But her team isn’t yanking all of its dollars off casual gaming sites yet. “Casual games are still a huge audience,” she said. “But we are trying to create new and unusual programs, and you can’t really get that on those sites.”       

Still, some are cautious about drawing major conclusions about an audience trend that has arrived so suddenly. David Cole, analyst with DFC Intelligence, is actually predicting a bounce back in revenue for casual gaming in 2010 (driven mostly by virtual goods rather than advertising). “When it comes to social games, you wonder about the legs it has,” he said.

Cole also questioned the social gaming ad model, which in many cases consists of requiring gamers to sign up for promotional offers to advance. “That starts to feel like spam. If you start to hammer consumers it gets dangerous.”

Horizon’s Kohen said that FarmVille has actually stopped taking requests for campaigns while the company reassesses its ad strategy.

Browning said that buyers have taken note of some of Zynga and other social gaming platforms’ sometimes-dicey reputations. But that won’t deter her from recommending social games to clients. “You always have to be cognizant of that,” she said. “There is a balance between risk and reward. But when you are talking about 80 million engaged users, you can’t be afraid of that.”