Facebook’s Social Games Are Declining, Report Says

Developers have flocked to social games where players use real money to buy digital goods, but the once booming market may soon decline if developers can’t find new ways of keeping players hooked, states a report from IHS Screen Digest Media Research.

It states the number of users is stagnating due to “rising barriers to entry, increasing competition and an intensifying fight for consumer mindshare with other social networking activities…”

The social games market grew heavily for the last two years, and according to IHS, by 2010 nearly half of Facebook’s monthly active users were gamers. Yet this number dropped to just half that by the end of 2011.

Facebook’s social games proved that the “freemium” model can work. This means developers make their games free to play, yet allow players to buy in-game items using real money.

This started an avalanche, and as big-budget developers hopped onboard, the bar raised and overall profits dropped.

Steve Baily, senior analyst for games at IHS, says this doesn’t mean social games are coming to an end. Rather, the boom is coming to an end as the market flattens out.

“Facebook rocketed to prominence as a gaming platform in 2009 and 2010,” Bailey said in a press release. “However, with equal speed, the market then settled into a state of maturity in 2011, with conditions becoming markedly more challenging for game operators.”

“While Facebook remains a worthwhile opportunity for companies able to meet these challenges, the tone of the market in 2012 will be somewhat muted compared to the optimistic outlook of the past few years,” he said.

Even Zynga, the leader of the pack in social games, is showing some loss. According to IHS, their active monthly users fell from 266 million in the third quarter to 225 million in the fourth quarter.

Zynga itself paints a different picture. The company’s founder and CEO Mark Pincus said, “2011 was another milestone year for Zynga’s mission of connecting the world through games. We are seeing social games and more broadly play become one of the most popular pastimes on web and mobile,” according to a press release.

Yet despite the optimism, the new year could be a tough one for Facebook gaming.

One of the main reasons is that getting new users is harder than it was two years ago—a factor tied to higher expectations from social games, rising costs, and market saturation, according to IHS.

Demand is changing quite a bit also, since current gamers are getting better at whatever games they’re playing. The want for quick reward and simple gameplay is now shifting to “play styles that require greater player commitment or skill, in return for deeper senses of engagement,” states the IHS.

Social gamers want better quality games that give them a challenge.

What this all comes down to is that mediocrity is failing, and developers will need to work harder if they want to stay relevant.

Yet, what could also happen, which IHS recommends, is that developers can start leveraging the 25 percent of active users they bring Facebook each month, and convince the social network to give them more weight.

“Facebook needs to implement changes to provide enhancements for its entire user base,” states the IHS. It used 2010’s poor features in Facebook as an example, “when viral channels for user acquisition were dampened in order to silence the flood of near-spam that game apps were broadcasting into user activity streams.”

Facebook has already made some changes in favor of social games, however, including its mobile-app software kit in 2011.

The IHS states that developers could try moving to other markets, such as smartphones, and notes that despite competition, there is still an opening for small independent developers. Yet “social networking game providers will not be able to recreate the intoxicating ski-ramp growth they enjoyed during Facebook gaming’s heyday.”

“For companies that stick with the social network, the challenge will be to create and maintain games that successfully encourage deeper involvement. If they can do this, the rewards will translate into improved retention and rising monetization of users,” it states.