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Is the Facebook Gaming Model Dead for Advertisers?

Is the Facebook Gaming Model Dead for Advertisers?

In 2008, the gaming space on Facebook was on a user binge. Simple, highly engaging games built their business model on micro-transactions for premium rewards, and around extensive in-game brand advertising – the digital equivalent of cross promotion. Users liked to play, and acquiring a large user base seemed to make financial sense. It looked like positive ROI and big-time investment were well on their way.

During this time, the Facebook ad inventory was relatively limited. That is, there weren’t many ads available and demand was high. Because there were so many users on Facebook and not enough ads, a dollar in ad expenditure could net you a lot of impressions and plenty of clicks for relatively little cost. Moreover, with wall posts and news feed sharing, one acquired user could net you an extra two for free. As a result, Facebook ad spending was cheap – so cheap that the revenue from paying users made it ROI positive.

Large players like Zynga emerged, and prominent casual gaming companies like Bigpoint and Miniclip began to take note. Simple point-click games, built around small tasks and in-game rewards, amassed tons of players. The Internet had become more than “a garage sale, a bookstore, a search engine, and a portal,” as Zynga-cofounder Mark Pincus told The New York Times.

Investment no-brainer

Ever-increasing engagement, large numbers of users, and the low cost of acquiring new users meant that these companies were soon raising Silicon Valley money. Investors and ad buyers alike wanted a piece of the very lucrative pie. Zynga, for one, raised $40M over three rounds. After all, it made perfect sense to invest. It also made perfect sense to run some expensive co-branding campaigns.

Yet today, for all its previous success, the Facebook gaming model is now suffering what can only be termed a nasty hangover. In recent years the industry has seen a dwindling user base, lower engagement, and decreased returning traffic. As engagement declined and user acquisition slowed, the model’s profit margin eroded. As bidding on Facebook ads became more expensive, the ability to gain free users eroded.

Previous articles have tackled why and how the events of 2009-2011 unfolded the way they did. When the limelight moves away, revenue doesn’t just decrease proportionally – it takes a tumble. Premium media budgets and large ad spending from brands go to the players that glow with Internet success. Top Nike campaign dollars will go to ESPN, and Delta Airlines will buy ad space on CNN. It’s how it goes. Precious ad dollars slowly leave you when you’re down. And you’re forced to reinvent yourself, your engagement model, and your user base.

Could mobile be the saviour?

The state of casual gaming isn’t all bad news. This model was built on good engaging products and easy user acquisition. A lot of games are tapping into viral concepts, such as Facebook’s single sign on to draw in players’ friends. They are also building on mobile contacts to draw in the next viral base. Where wall sharing once served as the strongest acquisition tool for game marketers, mobile phones’ address books – synced with Facebook friend lists – are now gaining momentum. Remember DrawSomething last summer? Or songPOP this past fall? Once again there is a cheaper way to organically (virally) gain new users via acquired users. Facebook ads are tapping into new gaming spaces. This means that ad spending is once again lowered to levels where small developers can now reinvent the space, just like Zynga did back in 2008.

Despite what you may have heard, we shouldn’t rule out Zynga – just as we shouldn’t rule out Facebook gaming. After all, we all still want to play. Zynga is a company that strives to conquer frontiers, as shown by their recent expansion into TV. With enough ingenuity, social gaming companies have the ability to constantly reinvent themselves and branch out into new and engaging verticals. Yes, making the “user acquisition” part work for game marketers is tricky. But now more than ever is the time to innovate new means of tapping into new spaces, where a dollar in user acquisition is again enough to rake in a profit.

Tal Gurevich

Tal Gurevich

Tal Gurevich, Director of Account Management, leads Conduit’s account management and qualif

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