Nearly a month ago, we first reported that gaming giant EA (ERTS) was looking to acquire large social game developer Playfish. Today, the deal was made official: EA is acquiring Playfish for USD $275 million in cash plus up to USD $125 million more in earnouts and equity retention bonuses.
We just spoke with Playfish COO Sebastien de Halleux about the deal, the future of virtual goods monetization in social games, and what the acquisition means for the industry. To read the full interview, head over to Inside Social Games.
This is by far the largest acquisition of a leading Facebook Platform developer to date, and a symbolically very different one than the early ones we saw in 2007, like Extended Info and Favorite Peeps. Today, EA is acquiring a leading developer of games as a service that is monetizing through virtual goods for up to USD $400 million.
What can Facebook developers learn from the Playfish case?
1. High quality social games monetizing through virtual goods are creating sustainable value. “This is the biggest validation this industry has had, and I can guarantee you this transaction would not have happened if there was not some sustainable value,” de Halleux says. “EA’s acquisition validates this space, and shows how big this is about to become. Now, this is going to grow on a really massive scale… This will become a multi-billion industry over the next couple of years.”
2. Don’t confuse long term value with short-term revenue maximization. “Value is easily confused with maximum revenue in the short term. We want to create the most valuable IP over time,” de Halleux says. “We want to create the Star Wars of social games, or whatever franchise you can think of.”
3. Expect increased marketing spend from a suddenly-much-richer competitor. “EA gives us more resources to grow right now – more marketing budget to reach new users in new ways,” de Halleux says. “Over the longer term this is the best way to secure the dominant position that we’ve been aiming for.” That could mean more marketing dollars coming Facebook’s way.
4. Be conservative on what offers you run. “We have been using offers very conservatively because we believe advertisers have a role to play in social game monetization,” de Halleux says. The “vast majority” of Playfish revenues come from direct transactions with end users. “Some people call it the most conservative view, we call it the most long term view around high quality offers… The bottom line here is that we are trying to create high quality products, and the ultimate test of quality is do users want to pay for the product.”