The Resurgence of Gaming On the Open Social Standard

By Guest Comment

[Editor’s note: In the post below, entrepreneur and consultant Sean Ryan explains why he believes the Open Social developer standard is due for big growth this year. Although we expect that not all of our readers will agree with his points, we think they are worth consideration.]

OpenSocial is a set of social networking interfaces (APIs) created by a group originally led by Google and MySpace, but supported by a coalition of large sites in response to the growing power of the Facebook platform standard (FBML). Launched with great fanfare in late 2007, but adopted primarily by MySpace (and Orkut in Brazil), the standard languished for the next 2 years, although the community continued to evolve it until the 1.0 version was recently released in Q1, 2010.

Why did it languish? Primarily because every developer in the world was focused solely on Facebook as the best publisher platform and because the other social networks (SNS) didn’t fully understand how lucrative online gaming was, and it too long for OpenSocial standard to evolve, at least until the last 6 months. I consult with various SNS about their gaming strategies, as well as with a variety of game developers, so I see it from both angles, and what we now see in the marketplace in 2010 is a growing focus on OpenSocial, with a massive surge in adoption of the OS platform coming this year.

Why? The first reason is that it has become abundantly clear to anyone not living in a cave that social gaming is the only truly profitable feature of a social network. And even better, it drives higher user engagement, not just revenue, since users return repeatedly to the site and often contact friends in order to get them to participate in games. Since the Facebook FBML set of APIs is fully owned by Facebook, the top player in social network services, it is a significant danger for Facebook competitors to adopt that standard, especially as Facebook becomes a tougher place to do business for everyone. Therefore, social networks with any IQ points are rapidly throwing away their home-built proprietary standards in order to adopt OpenSocial so they can roll out a compelling gaming solution.

The second reason is that to everyone’s apparent surprise, Facebook has finally become a much tougher place to do business for game developers – in fact it almost resembles a traditional retail environment these days. There is an oversupply of content, Facebook is levying a 30% “tax” with Facebook Credits, and with significantly reduced virality due to platform changes, most developers are spending at least another 30% of revenue on advertising on Facebook, all of which is significantly reducing margins. This is all obviously great news for Facebook, but it means the gravy train of “free traffic and great virality” is over, making the site a much more difficult place for mid-sized and small developers, even though the core site features and massive traffic are still the best on the planet. Therefore, smart developers are again looking for Facebook alternatives.

So what should Facebook competitors do? Given that gaming is immensely profitable and that Facebook is starting to be less hospitable to many developers, it’s becoming clear that all social networks should launch OpenSocial-compliant containers, striking deals with a select set of developers to feature their games in return for a relatively big revenue share. However, these smaller social sites must become an attractive destination for content developers, even though they have less traffic than Facebook. The key is that the OS container must be fully OpenSocial compliant so that developers can easily port their applications to a wide set of smaller sites with almost no work – if it takes a lot of work for each site, then the return on investment won’t be worth it to the developer, and the site will struggle to attract strong enough games. Now that there is an agreed upon 1.0 OS standard, all sites should move to adopt it in order to make the developer experience more consistent. I also don’t recommend that the SNS offer a big open platform since it’s really hard to manage thousands of games and their developers without a huge staff – instead, feature a smaller set of games which pay a revenue split in return for the promotion/placement, and then market the hell out of them – the success of Tagged and MyYearbook in following this more focused approach are great examples of this approach and they continue to expand their offerings.

In addition, I realize everyone loves to hate MySpace, but it has significantly improved its product and its developer relations. At Meez, for example, we now have almost 500,000 active users after 6 weeks on MySpace, which was helped significantly by our promotional deal with them, as well as having a great app — so MySpace has again become viable as a good partner. Finally, there are numerous other social networks who will launch gaming solutions in 2010, all working closely with a small set of developers, but they are often still looking for more content partnerships.

What should social game developers with less than 100 employees do? For developers outside of the big 5-10, you really need to give up the FB dream – you’re not going to be Zynga or Playdom or Crowd Star. As of today, out of the top 20 games on Facebook, the almost all of them are from 4 developers, with a few remaining outliers, primarily veteran games like Farm Town or single games from massive app providers like Rock You – we’re not seeing big breakthrough game start-ups any more because the easy phase is over. The numbers I’m hearing from many talented, but smaller developers are simply horrific in many cases, with customer lifetime values less than $.50 and actual customer lifetimes being less than 30 days – it’s especially tough now that the Facebook advertising cost-per-click (CPC) rate has gone up in many cases to above $.50, so the customer acquisition versus revenue calculus just doesn’t work anymore.

I’d strongly recommend producing a great OpenSocial version of your game and trying to strike deals with a set of SNS not named Facebook – there are lots of them around the world with 10 million or more monthly unique users, many of whom are going to adopt the social games that are put in front of them if they’re good games and if they can play them with their core friends on those smaller networks. There is a theory going around that gaming works best on Facebook because it uses real world profiles, but the data from the other social networks shows that tight relationships can form with only online profiles, so that won’t be an issue with gaming. The revenue share idea seems expensive on the surface, but given the resulting increased promotion and reduced competition from other similar games on these sites, it’s absolutely worth it, especially versus the increased costs and worsening odds on the Facebook platform.

Facebook is still a world class developer and user platform – but no one can pretend that the landscape hasn’t changed in the past tw years. Smart developers and Facebook competitors are moving quickly to launch robust OpenSocial gaming solutions to drive their businesses – otherwise they will just continue to be demolished by Facebook, as we’re seeing in many cases around the world.

Sean Ryan is the chairman of virtual world service Meez and founder of pre-paid card services provider Zeus Research. He also consults with companies using social gaming and virtual goods, although none are referenced in this article.