The title of this post is a blatant attempt at eye-catching humor. Facebook is a great company with a lot of great intentions, and they are certainly entitled to make a buck. The platform has grown faster than anything in human history and gave birth to Zynga and other success stories. As a result Facebook has attracted a tremendous supply chain of developers, who also need to make a buck. What is now going on with the Facebook game ecosystem is either going to prove to be inspiration or a cautionary tale for any other aspiring platform.
Facebook wants to establish Facebook Credits as a frictionless payment system. This is a worthy goal and a long-term industry benefit. To achieve this, Facebook needs to be very careful about supply chain management and the lift-to-drag ratio available to developers. If there is enough lift in the Facebook game ecosystem then we can all afford to help Facebook establish Credits. And today, Digital Chocolate is a major supporter and user of Credits with these goals in mind.
Some developers have publicly voiced concerns about Credits in recent weeks. This is only problematic for Facebook in conjunction with an unfortunate continuing slide in the size of the game ecosystem: According to Appdata as of Friday, February 11, the Top 20 Facebook game publishers as measured by MAU have lost 67 million net customers in the last 30 days alone. Even the mighty Zynga has tailed off by 25 million MAU; Crowdstar, Playdom and RockYou are each down 6 million. I looked further at the top 80 companies in MAU and found this to be a systemic issue, not just a shift in relative share.
It would be a lot easier for Facebook to retain and recruit new developers if they had instead seen growth of 67 million MAU. Rather, the combination of continued market shrinkage and fears about gross margins has prompted a developer flight to mobile platforms, where there has been steadily encouraging news about device populations, micro-transactions revenue, and game industry growth. Personally, I think mobile growth is a bit overrated for 2011 and it is more important for the industry to collaborate with Facebook in finding win-win solutions. Beyond 2011, mobile is going to grow like gangbusters for developers and will embrace tablets, the hottest single category. This puts some time pressure on Facebook to get their game ecosystem back in a growth mode right now.
For any game platform to succeed in the long-run there must be a favorable lift-to-drag ratio in terms of customer acquisition cost versus monetization in lifetime customer value. Facebook has current and long-term advantages in low acquisition cost because of the social echo and how seamlessly a customer can try out a new app or game. The bigger question will be on the monetization side where Facebook is far more challenging. To be blunt, nothing on Facebook monetizes like World of Warcraft, does it? Facebook will need to address this by using both viral and promotional channels to drive trial and re-engagement. Such a strategy will make acquisition even more affordable for developers while increasing revenue through re-engagement. But in the midst of their agenda with Facebook Credits, it is mission-critical for Facebook to do this immediately and to show meaningful net growth in the ecosystem.
Facebook, we are all rooting for you and we’re here to help! We all want to make a buck.