Inside Social Apps 2010 – Conference Wrap Up

By Rita Turkowski for M2 Research

Inside Network brought together a lively sold out crowd to Inside Social Apps 2010. This was Inside Network’s inaugural conference on the “future of app and game monetization on social platforms.” You can find all the sessions and speakers at Inside Social Apps 2010.

Logistics

Held in the UCSF Mission Bay Conference Center, an impressive line-up of speakers participated in panels throughout the day, keeping the conversation lively and interaction flowing – in style with the social theme the conference was promoting.

Kudos to Inside Network for the foresight to structure the conference this way. In the future, more mikes throughout the room for questioners would be nice. On the downside, the sold-out conference outgrew the venue and the noise and distraction from the hallway where the breaks were held (and where payment system vendors exhibited) was very distracting. This said, it was inspiring to see such a vibrant industry thriving during this recession.

Executive Summary

The conference, while lacking both Apple and Facebook speakers was nonetheless expert fueled and there is no doubt in my mind that social gaming is the killer app for web gaming and/or Web 3.0.

Overall I would say the mindshare of the panelists was on consolidation in the social apps community, both for social game companies as well as for social media “middleware” such as payment systems companies. Another major theme discussed both on the stage and off are Facebook’s new privacy settings and viral nature of both web and iPhone gaming, not necessarily mutually exclusive.

Some key take-a-ways:

Social is leading the new search:  Wall street analysts are predicting that Facebook user subscription numbers are starting to surpass even search engine usage and Facebook may very well be the next major search engine, albeit indirectly or unwittingly. See “Facebook – the World’s Dominant Media Company” for a good financial review of the metrics projected for 2010 (Facebook vs. Google).

Games generate 40% of the revenue on Facebook. Social gaming is the primary client of Facebook API usage, and the motivation for the new API changes and privacy settings; every other kind of app pales in comparison.

Even though Facebook for gaming is growing rapidly, developers at the conference were wary of the new Facebook settings, which many at the show see as hindering viral adoption.

According to Mark Pincus of Zynga, Facebook API changes are making it harder and harder for newbies and incumbents to get in the game. Every  (small to medium) change in the Facebook API makes a large imprint in the Facebook apps’ communities. The new anti-viral announcements from Facebook are a cautionary tale to developers only developing on one proprietary platform at a time.

The Asian casual/social gaming market is HOT and growing, with an eye turning West for acquisitions. Tencent in China is huge, and should be an important case study for anyone new trying to break into casual/social gaming.

Mobile is also hot and of interest to investors. So are applications for enterprise that take advantage of game play or social game play mechanics.

Conference Summary Notes

The first panel was about the future of Facebook games. Lots of good  discussion, mostly about the new security features in Facebook and the worry about the viral nature of Facebook being restrained by the new security features. Overall however, the panelists, from Playdom, CrowdStar, Zynga, Slide and LOLapps as moderated by Eric Eldon of Inside Network lead me to believe that the future of these companies is tethered to Facebook.

The second panel, Real Money for Virtual Goods was a bit more specific to the problem of managing payments on line. There was a lot of discussion about the power of Facebook dominating virtual currency with Facebook Credits – Facebook Says Credits Won’t Pay Off Soon, Adds ’Like’ Feature.

Peter Relan of CrowdStar touted his company’s use of Faceook Credits in Happy Aquarium,

for being an early example of the technology in use. CrowdStar’s Happy Aquarium was one of the first social games to use Facebook Credits as a payment platform. Useful both online and for mobile applications, Facebook credits are generally used to buy birthday cards, virtual gifts, ad virtual goods. In a Lightspeed Venture Partners blog on February 1^st in an interview of Peter Relan, it is noted that the launch of FB Credits is expected to generate a sizeable take rate for Facebook in the 30% range vs. the 5%-10% for alternative payment options.  However, CrowdStar expects that diminishing payment friction and increasing conversion rates will ultimately offset the loss in revenues to Facebook.

That said, we predict Facebook will probably be the biggest virtual goods payment system in two to three years. See this Washingon Post article for a reprint of a TechCrunch.com analysis on how Facebook Credits will change the playing field for existing virtual goods payment systems (such as Social Gold, PayPal, etc.).

Panelists agreed that for virtual goods, virtual credits seems to be working out well only in the games space, no other social apps can maximize this feature.

On a discussion on the cost of doing business on mobile, the panelists predicted that in the next 12 months we’ll see a trend in carriers cutting down their fees. Fees are negligible in Europe, but close to 33% – 40% in USA make SMS gaming mechanics unreasonable.

Several panelists predicted that applying social gaming mechanics for points to match up with off line stuff such as coupons, coffee points, etc. is probably coming soon.

Lastly, ethics issues need to be addressed such as “age fraud” (kids too young – and abusing parents credit cards for example).

Sebastien De Halleaux’s talk had a perspective that only a successful social gaming company bought out by a dominant gaming company could have. Succinctly, using some killer slides, he showed that brands & branding is growing fast and driving gaming adoption more now than independents.

He predicts that in less than two years, Facebook games will be recognizable brands. Like other speakers throughout the day, Sebastien foresees the consolidation of mid to high range companies, making it harder and harder for small companies to get in the action; if they are very very lucky, they may get acquired but becoming the next Zynga or Playfish is not very likely any longer. Most likely wearing his EA hat, he claimed the term “social game” will be short lived as all games, whether console, AAA, web based, etc. will contain a social component and we’ll see less market differentiation between the gaming market segments we see today with, with fewer channels marketing games.

After lunch we were treated to a lively keynote from Mark Pincus of Zynga.

Some key takeaways here. Social games are valued at $15B. Zynga is using Ebay / Paypal to purchase virtual currencies from other companies. Pincus thinks Facebook needs to focus more on being a portal, and support plumbing, and not try to compete with its 3rd parties. For example, Pincus is a proponent of cross application game play. As an example of such, Pincus suggested that a FarmVille player should be able to turn their grapes into wine that’s served on Restaurant City, an EA title for instance. Mark talked a lot about web persistence for social media.

More points of interest:

• apps, not web pages, are where it’s at now
• persistent navigation game can drive
• developers need to think a lot about user communication channels
• need universal and persistent social feeds
• would like to see syndicated feeds that gets published and different services could pick up what they want, when they want. I.e. – narrowcasting
• “social gaming is the killer app” of web gaming
• gifting has become the new “poke”
• more friends in your game = more game retention
• console and PC games (purchase, play, adoption) is moving down the bell curve now, moving to $0 eventually.
• Using the same analogy as console and PC games, MMO’s are curvier but flattening

The potential of social games is just taking off  – Mark says “potential” with earnest. Potential is to look like a web service, with friends yielding staying power for the games.

Mark got excited about something he calls bold beats, which is a term used to introduce a feature quickly that excites and engages your user. For example, Mafia Wars releases with a new city pack (like “Moscow” shown at the conference) every quarter to keep interest flowing and content fresh. This is an example of a bold beat.

And while metrics drive the feedback loop, user experience still needs to be analyzed constantly. Mark stressed that companies need to kill bad features quickly (or rein in those bold beats when they fail to deliver expected results).

Mark also stressed that social media gaming companies should also consider innovating on Social ROI – as in social virtual goods. For instance, they raised 3M$ for Haiti by selling virtual seeds in FarmVille.

A few facts about on line games:

• Social games are taking more time to develop with deeper game mechanics and an increasingly less viral environment
• Facebook API changes are making it harder and harder for newbies and incumbents alike to innovate or expand.

Lastly, but very importantly, there is an opportunity for making console engines games more social; this would be welcomed by users, new adopters as well as traditional gamers.

After Zynga, the Think Globally panel came where we heard mostly an Asian perspective on localization, internationalization and related challenges. Some interesting stats on user base, market cap and scope of mobile adoption in Asia can be found in Nick O’Neil’s post on SocialTimes.com that summarizes this panel perfectly. Localization and internationalization will provide good market share moving forward.

Mobile is also ripe for social gaming success and of interest to investors. Witness theKleiner Perkins Caufield & Byers iFund or instance. Themobile panel,

Monetizing Social Apps with Virtual Goods, was intriguing in that the growth of mobile (both in terms of owners/users and applications) tends to outpace non-mobile platforms. This is a market where we may see some very compelling social gaming apps in the next couple of years. Likely mobile social apps will overtake Facebook apps in the next three to five years one of the panelists predicted. Also noteworthy is that pretty much every company here opted for the free-to-play model with some panelists claiming their companies quickly made the switch from offering paid apps to free-to-play based on the growth and profitability of the virtual goods sold in the free-to-play versions.

The last panel of the day on Investment opportunities and social apps provided a grounded perspective. Panelists were mostly venture capitalists who came into the social media app industry from different perspectives, but mostly agreed on the current path and what they see coming. I was particularly intrigued by Tim Chang of Norwest Ventures,

as he had obviously done his “current-state-of-the-affairs” homework and definitely provided a sense of vision on the market. Mr. Chang is a fan of HTML5for native web graphics and AAA title games going viral, is aware that on the social gaming side viral is slowing down, while innovation and game play mechanics are maturing.

Investors talked about the growing consolidation of both game companies and payment system solutions.  There was venture capitalists’ acknowledgement of the huge growth in Asia, what the Asian companies impact might be if they start investing outside Asia, and the challenges of internationalization in general.

Closing Remarks

This first conference was insightful, informative and useful for professionals in the social media application space. It would have been more balanced to have had speakers from Facebook and Apple, maybe even Google (Android). No one represented Facebook or Apple at this conference although they were heartily discussed: Facebook for changing it’s API and security preferences consequently hindering developers from maximizing viral access and Apple for opening up access to viral features now with the Game Center in the iPhone SDK OS 4. I also recommend visiting The Facebook Developer Wiki as another good place to understand the changes Facebook announced.