In Hot Social Gaming Market, CrowdStar Considers Options

CrowdStar has been building games and other applications on Facebook since 2008, but it exploded last fall with hit game Happy Aquarium, and it has since launched two followups that have done well in their own rights, Happy Pets and Happy Island. As of today, it has 10.3 million daily active users, the second most out of any developer behind Zynga’s 67.1 million. The result is that potential acquirers and investors are looking very closely at the company.

We’ve been hearing rumors about investors trying to get in for a few weeks, but Bloomberg recently reported some key details of what the company might be looking at — a potential acquisition by Microsoft, according to two sources. Or, the company may stay independent via a private equity investment (probably a big round), says one of the sources; the valuation is $200 million, says another.

We have a few more details to add from sources, although we can’t confirm Microsoft, a potential private equity investment, or the valuation. Given the many of interested parties circling the company, there are also a range of rumored names and numbers floating around, and none are easy to confirm. One of our sources says that CrowdStar signed a letter of intent with a potential acquirer as recently as last week.

Sources have also raised questions about the company’s demographics, and its long-term viability — do its users make it money? Facebook is popular around the world, but certain markets, like the US, monetize especially through the virtual goods business model used by CrowdStar and most other social gaming companies.

So we asked executive chairman Peter Relan where the company is at. Most people who play Happy Aquarium and Happy Pets are female, he says, but men are the majority on Happy Island. About 60% of the audience speaks English, and within that segment US is the biggest, versus the rest in other languages; out of all demographics, older women bring in the most revenue in female friendly games. To learn more about consumer purchasing patters of virtual goods in social games, see our recent report, Inside Virtual Goods: The Future of Social Gaming 2010.

That description sounds pretty normal for a social gaming company with millions of Facebook users. It is also notable for using Facebook’s virtual currency, Credits, much more than any other big company. Its games now exclusively use Credits, and the result, as Relan tells us, is that his company has had to figure out how to best implement Credits. There’s been some question about how profitable Credits can be, as we covered in detail on Inside Facebook yesterday. Facebook takes a 30% cut and implementing it requires developers to refigure portions of their games. “Once you get over the hump [of figuring it out],” he explains, “it’s great, and just as profitable” as other options.

Regardless of what the company decides to do, it has already doubled in headcount from last year and is planning to expand it further in 2010, according to Relan, while still aiming to be the “leanest and most profitable company in social gaming.”

Note: Relan and other social gaming executives will be speaking at our Inside Social Apps 2010 event on April 20th in San Francisco, where we’ll be covering the future of monetization and investment opportunities in social gaming.