Just when you thought the Facebook gaming sector couldn’t get any more competitive, another report comes out saying things have tightened even further.
The company’s conclusion on established players, such as Zynga and Electronic Arts is:
A toughening landscape bodes well (relatively) for established category leaders (such as Zynga and Electronic Arts) that have built large user bases and seem to enjoy network effects.
We acknowledge that toughening competition on Facebook could constrain margins and is generally negative for the space; however, we believe that rising user acquisition costs could be relatively positive for companies like Zynga and Electronic Arts that have already built large user bases on Facebook and disproportionately benefit from network effect and, therefore, may have an advantage over the newer companies in the space.
Other takeaways from the Lazard report are:
- The competitive landscape for Facebook games seems to be getting tougher, with rising customer acquisition costs and declining virality of the platform.
- Monetization on Facebook games seems to be improving, driven by growing awareness and growing comfort level of users with spending on virtual items.
- Given the tougher competition on Facebook, companies note that they have to either find a niche market (such as female audience, hardcore gaming audience) on Facebook, or look for opportunities to expand on other platforms such as mobile.
- Opportunity for the hardcore games seems lucrative, given a meaningfully higher lifetime value and relatively limited competition in the segment.
- Social-mobile games opportunity also seems lucrative given relatively faster growth, better engagement and monetization metrics, and a relatively level playing field on social-mobile compared with Facebook.
- Discovery remains one of the biggest challenges for games on mobile devices, suggesting opportunity for a game-centric platform on mobile.
- The biggest opportunity for long-term growth is cross-platform games.