The effects of Facebook’s IPO on Social Gaming

  • Business | 21st May, 2012 | San Francisco, US | Facebook IPO – Video
  • After eight years, social networking powerhouse Facebook went public last week as stocks began trading on the Nasdaq. The largest ever IPO of a technology firm values the company at approximately $104 billion and leads to significant changes for the social gaming industry.

    Social Gaming on FacebookFacebook now has a responsibility to maintain revenue growth for its shareholders and ensure its stock price doesn’t diminish. The social network is setting its sights on advertising innovation, such as recent logout page ads and sponsored stories. New algorithms give hyper-targeting mechanisms for the network’s expanding user base of 900 million.

    Marketeers will be faced with a more challenging breeding ground for organic growth and many new companies will find it difficult to establish a presence on the network. Instead, larger companies will prosper by investing more advertising revenue to make a mark in the increasingly competitive environment.

    Facebook is looking to raise up to $16 billion through its IPO and fuel growth. This will be achieved through continual R&D, as well as buying up smaller companies and integrating features, such as its recent $1bn acquisition of photo sharing app Instagram. This will offer a larger and more diverse breadth of advertising opportunities.

    “A $104 billion market capitalization puts Facebook at more than 100 times its trailing earnings,” a technology analyst commented on TechCrunch, “That’s a big multiple to live up to, and it will likely need to add bold new revenue streams to justify the mammoth valuation.”

    Gaming companies that have found it difficult to justify entering the market due to unclear paths of monetisation will be further impacted by growing costs and heightened competition. Smaller developers will struggle to initiate brand presence on the network and become ripe for acquisitions. This will enable targeted games to quickly enter the market and intensify the playing field.

    Social Casino GamingGreg Borrud, CEO of social gaming firm Seismic Games, said, “The next big hit game is going to come from the independent developers. This will happen more as big guys like Zynga fall more into a role of publisher rather than developer.”

    Increasing land-based and online gaming developers look to break into the social gaming genre created in the wake of Facebook’s success.

    Casino games optimised for online casinos have proved successful, but social gaming is a different ballpark and games take on a new focus of social features and facebook credits.

    Facebook prohibits real-money wagering with no plans to change that any time soon. Instead, customers can purchase facebook credits to use within social casinos and facebook takes a 30-percent revenue share.

    Games need to be fun and engaging for players to spend their cash when there are other free-to-play options, rather than just enticed by large pay-outs and highly volatile bonus features. This opens the market to a larger demographic could change many negative views about the gambling industry that could rub off in other sectors.

    Zynga, who developed its brand through Facebook, is in a good position to develop on the back on Facebook’s growth. The company has no previous gambling experience but has captured the social gaming market, runs the world’s largest poker game and provides 12 percent of Facebook’s total revenue.

    Double Down CasinoInternational Game Technology took the lead from traditional gaming into the social space with its $500m acquisition of DoubleDown Casino in January. The social casino is IGT’s gateway to the sector on the back of a 5.1 million active user base. As its social offering now has new financial and technical resources, IGT can test the water with innovative social offerings.

    Wynn Resorts has been in talks with Zynga this year regarding a strategic partnership to capitalise on anticipated internet gaming in the US. Both companies could benefit from each other’s experience in the gaming and social markets, respectively. Shuffle Master also has ties to Zynga as its CFO is a former VP of Zynga Studios. Digital Entertainment announced plans this year to enter the social gaming market, The World Series of Poker company now runs the Caesars Casino on Facebook and MGM Resorts looks to launch its own Social Casino within the next few months.

    Facebook’s IPO will spark a new rise in social gaming apps and further entice gaming companies to exploit Facebook’s growing user-base.

    Social casinos will become more interactive and engaging, and spread new gaming concepts throughout the social network. Whether a focus on linking land-based and online gaming offerings with Facebook is looming, the world’s interest in social networking will undoubtedly expand the social gaming marketplace.

    Contact reporter Michael Robinson at
    or +44 (0) 208 144 2578. Follow @innovate_gaming on Twitter.