Friday, March 19, 2010

Facebook: A lesson in Competition

The critical point I wanted to get across about social gaming (i.e. Farmville) in yesterday’s post is that these games don’t compete with our leisure time, they compete with time wasters during our work week. It’s the accessibility of such games through a browser that makes them popular because they can be played in situations where we couldn’t otherwise play a full-featured game like Team Fortress or World of Warcraft.

They don’t compete against our leisure time primarily because the gameplay doesn’t have enough depth to hold our attention or interest like other leisure activities. In other words, it beats working – but it doesn’t beat reading a book, watching your favorite TV show, or anything else that we do during our leisure time while we are not at work.

The perceived threat to full-featured games
I think the fear that social gaming will impact full-featured games stems from the idea that social gaming is more attractive to investors. At GDC, Evan Wilson clearly articulated this concern:
How important is game development when you have poor quality free social games generating these kinds of numbers?    (source)
Evan’s question addresses the scary idea that if poor quality games can generate big profits, no one will want to invest in developing better games. This is the real reason that traditional game developers and gamers fear social gaming.

Don’t be afraid
Traditional game developers and gamers need to stop being afraid and take some comfort in Laws of Competition. In the short-term, social gaming is going to see a nice influx of investment. Cheap games for big profits is going to attract money. No doubt about it.

HOWEVER, because it’s cheap, the barrier to entry is low. Right now, I could grab three of my best friends and write a game for Facebook that could be as popular as anything else currently available. And if it doesn’t take much effort to create a cheap game, you are going to see LOTS of them.

And each of these cheap and easily created games is going to be competing against the growing over-abundance of social games.

The Laws of Competition are going to require a successful social gaming company to compete by either:
  • creating lots of crappy games (most options)
  • and/or, build better games to distinguish themselves (best option)
Both of these things are going to increase development costs and raise the barrier to entry. The attractiveness of developing cheap social games for big profits is going to go away because developing such things will no longer be cheap.

This is what happens with market forces in a free market. Big markets with big profits attract lots of competition. Which, in turn, drives profits down because more people are chasing the same pool of dollars.

The point here is that while social gaming is attractive to investors right now, it’s not always going to be this attractive as competition drives down profits.

Out of 80 million Farmers, how many pay to play?
I signed up for Farmville. Played it for twenty minutes and never logged back on. I still count as a “neighbor” to people in my social network and I’m sure I count towards that 80 million player mark that Zynga claims.

I also never paid Zynga a dime to play Farmville.

Like all Free2Play games, the model depends on a small percentage of the user base to pay for it. It’s this group of ‘hardcore’ social gamers that Zynga and other social game developers are chasing.

So while it’s easy to say that such games are “mainstream” because they have 80 million accounts, the actual pool of players paying in some form to play these games could easily be smaller than the subscriber base of Warcraft.

Although, in fairness, I think one thing that is unique to social gaming is that the user isn’t always paying directly. For example, while I never paid Zynga to play Mafia Wars, I did signup for NetFlix through a link they provided and earned Reward Points. NetFlix, in turn, paid Zynga for the referral.

Of course, my decision to signup for NetFlix was not influenced by Mafia Wars in any way and was a completely independent decision. Had I not signed up through that link, I would have signed up on the NetFlix website directly.

As a marketer in real life, I question NetFlix’s approach here and will be curious to see if the trend to such referral offers continues to be accepted as social gaming matures. Marketers are still trying to figure out how to best use social networking, so expect some changes on this front.

Also, as social gaming competition grows, one area they will also be competing is for these referral dollars. For example, NetFlix might find it makes sense to offer a smaller referral fee but include more social games. The net effect is continued shrinking profits.

Better Games
The future of social gaming is not going to be with cheap throwaway games. As I wrote yesterday, these games currently don’t compete with our leisure time because the gameplay sucks. I’ll play at work, but not at home.

Cheap games are also not going to steal all the development dollars because increased competition is going to make such investment less profitable. To be successful, developers are going to have to create better and better social games.

The cheap game works right now only because the market is emerging. As it matures, we are going to see games like Sid Meir’s Civilization on Facebook which offer radically better gameplay. We might even one day see a decent MMO developed on that platform.

And yet, the pool of dollars and profit margins aren’t going to be so fantastic that we see developers ignore other markets. 

There is more money in Console games than PC games, but that didn’t kill the PC market.

And if I’m being blunt, I don’t really think the case has been made that there are more dollars to be had in social gaming than the traditional PC gaming market. Despite the 80 million Farmville users, I think “gamers” are simply willing to pay more than the “mainstream” Facebook users.

Edit: I wrote this in the comments, but I'll include it here because I think it's a solid prediction.
I think what is most likely in the MMO space is that we'll see a trend towards Facebook Plugins that complement but don't replace the actual game.

For example, Blizzard creating a Facebook plugin for WoW. The goal being to synch your real life network with your in-game network of friends.

Such a thing wouldn't mean you could play WoW at work (you would still need WoW installed), but perhaps you could check the Auction House, Guild Calendar, Guild Forum, Guild Chat, and so forth while not "in-game" but in Facebook.

We are already seeing one step in this direction with the AH app for the iPhone.


Mig said...

Eric Heimburg from AC1&2 is working on an mmo on facebook called City of Eternals. I believe it is still in Beta.

sid67 said...

That's what I'm getting at -- in order to compete, social gaming has to offer better games. So the fear that we'll just end up with crappy games is unfounded.

I think what is most likely in the MMO space is that we'll see a trend towards Facebook Plugins that complement but don't replace the actual game.

For example, Blizzard creating a Facebook plugin for WoW. The goal being to synch your real life network with your in-game network of friends.

Such a thing wouldn't mean you could play WoW at work (you would still need WoW installed), but perhaps you could check the Auction House, Guild Calendar, Guild Forum, Guild Chat, and so forth while not "in-game" but in Facebook.

We are already seeing one step in this direction with the AH app for the iPhone.

Carson 63000 said...

"these games don’t compete with our leisure time, they compete with time wasters during our work week"

So they're in direct competition with blogging! Oh noes! I better steer well clear, I'm a lazy enough blogger already!

Logan said...

but facebook users don't want "better" games... you said it yourself that the lack of depth is what makes facebook games good time-wasting activities.

more complex and "better" games are not going to be received well on facebook because "better" games don't fit with the way facebook games are primarily used... they're too complex and require too much thought to be a good time-waster.

i think you WILL see better, more complex, more depth, BROWSER based games... but the success of these games will have very little to do with facebook. (i'm tempted to argue that they'd be better off on their own, or with Steam.)

to be successful on facebook you have to appeal to exactly the type of player you're describing, players that want a short time-waster for when they're bored at work... "good" games don't appeal to this type of demographic.

basically, when it comes to facebook, an increase in the quality of a game does NOT necessarily correlate with the amount of money it will make.

high quality games are NOT what appeals to the average facebook user... so in reality, the higher the quality, the more you shrink your possible customer base.

and the smaller that customer base becomes, the more you have to charge in order to make a profit (not to mention that a "good" game is probably going to cost more to create in the first place).. and nobody who is interested in a "good" game is going to pay for it on facebook, they'd rather pay for it (and would probably be willing to pay a lot more for it) on a platform like Steam.

basically the only successful facebook specific games you're going to see are going to be games that follow in the same vein as what we already have, and these games are NOT going to be "good" games, because good games are more complex than what facebook users want... i predict that you WILL see successful, "good" browser games, but they will be successful based on their value as a "real" game, their success won't be because of facebook.

i do totally agree that we'll see more integration between "real" games and facebook though... but i don't think we'll ever see any successful "real" games that are totally contained within facebook.

i mean how many people play Chess on facebook? chess is basically the epitome of a "good" game... yet nobody plays it on facebook... there's a reason for this... facebook users don't WANT it... and they will never pay for it, or anything else that resembles a "good" game.

sid67 said...

but facebook users don't want "better" games... you said it yourself that the lack of depth is what makes facebook games good time-wasting activities.

Wrong. I never said lack of depth is the reason these games function as time-wasting activities.

I said they don't provide enough depth for them to compete for my leisure time. That's markedly different.

As a separate issue, these games are more accessible because of the browser nature of the gameplay.

That's the reason these games are successful as time-wasters. Not because of the lack of depth, but because they are very accessible.

And while I agree that browser games don't have to be exclusive to Facebook, the social networking component makes it the a very compelling platform for gamers and devs.

We are already seeing the trend towards better Facebook games. A few months ago, the best games on Facebook was about as graphical as the original SimCity (circa 1988) and had less gameplay.

Now, we are seeing ports of stand-alone games like MyTribe and Desktop Defender. And soon, we'll see games like Civilization designed for the platform.

Full featured quality? No. Increasingly better? Yes.

And that trend is going to continue as the social gaming market matures. Possibly even to the point where it DOES compete for my leisure time.

And would that be a bad thing? If the gameplay was high enough quality that you would WANT to play it during your leisure hours, how is that a bad thing for gaming?

The driving force here is competition. Big profits with low barriers is always going to attract lots of competitors.

Logan said...

"And that trend is going to continue as the social gaming market matures. Possibly even to the point where it DOES compete for my leisure time."

and where is the incentive for this? there is nothing about the facebook demographic that indicates that they want more complex and "better" games... what makes you think that facebook users WANT better games? where is this incentive for better games coming from? maybe the facebook users ARE giving some indication but i'm just not seeing it.

lets take something simple that could do well on facebook like a tower defense game... what is going to make a tower defense game successful on facebook? if you were designing a tower defense game for facebook users, what things would you focus on?

if it were me, i'd focus on simplicity, rewarding players for every tiny little pointless thing possible, and making it easy to show off to your friends that you're better than them.

the depth and complexity of the game mean absolutely nothing to facebook users, they don't care about gameplay... all they want is to be rewarded and feel like they're making some sort of progress (however pointless it is).

lets take 2 tower defense games, 1 with deep, complex, interesting gameplay... and one with shallow, easy, "accessible" gameplay... which one do you think is going to make more money on facebook?

GAMEPLAY doesn't matter to facebook users, a game with better gameplay isn't going to get any more attention than similar games unless it's also accompanied by better/more rewards, or a better system to show off your "skills" to your friends... the gameplay is immaterial to facebook users.. good gameplay doesn't lead to better sales...

simple gameplay with a ton of rewards, and easy to show off "skills"... is what makes a facebook game successful... gameplay is completely unnecessary... so again i ask, where is the incentive to bring "good" games to facebook?

sid67 said...

and where is the incentive for this?

I don't think you fully understand the nature of competition.

If something is cheap and easy to produce but yields big profits, this attracts others who also want to reap big rewards for little investment.

As more people start competing, YOU need to do SOMETHING to differentiate yourself from everyone else.

A developer who takes your approach (continues to make crappy games) would have to compete by offering a lower price or through volume (lots of crappy games).

However, that's not the only approach, nor has history told us it's the most successful.

Other developers will compete by offering a BETTER game in order to differentiate themselves from the plethora of other games. And, as I said, this is already occurring.

Your whole theory that Facebook users are only interested in rewards is a bit silly and narrow-minded.

All people appreciate better quality and more funs thing to do.

Zynga-like tactics work at the moment because this is an emerging market. Over time, you are going to see competition force better options.

It's not unreasonable to think that even a FPS game might even make it to that platform at some point.

Logan said...

you're absolutely right about competition, but competition only comes into play when you're making something that is desirable to consumers.

if your product is not desirable, then all the competition in the world isn't going to amount to anything.

i don't think i've said it here, but on a different blog i said that the competition will be in which games can offer the most compelling rewards, and best system for showing off to your friends... these are the competitive advantages of facebook games, and this is where you'll see innovation and where competition will produce better products... but those products will be better in how they reward players, and how those players can show off... they won't necessarily be better in terms of "real" gameplay.

even Raph Koster seems to agree with me on this, here are some quotes that stand out from one of his recent articles -

"No, social games won’t turn into core games. This is one of the misconceptions that AAA developers often have as they try to establish themselves in the market. It is absolutely true that social games are going to grow more sophisticated over time. But they will do so by growing further along the direction they have already been going."

... "In many ways, the features that were seen as oddest or least “gamer-like” in the worldy MMOs are going to be among core features in the social games: housebuilding, shopkeeping, farming, dancing, dress-up, even hairdressing."

if you don't believe me, maybe Raph can help change your mind.

my view on reward systems might be narrow minded, but it's true.

facebook users have grown accustomed to the reward structure of current facebook games (and they ENJOY it) like farmville and mafia wars... so in order for a game to be successful with the facebook user, the game MUST have a strong reward structure in order to COMPETE with other offerings on the platform.

the stronger the reward structure, the lower the value of the actual GAMEPLAY because now players are focusing on (and enjoying) the rewards, instead of the gameplay.

the gameplay in farmville is just a barrier that needs to be overcome to get the reward at the end... the gameplay loses all meaning when the purpose of the gameplay shifts from "having fun playing the game" to "having fun getting rewarded for playing the game"

it's like Hecker's Nightmare... the more you focus on rewards, the less the gameplay actually means... and since facebook games are successful based almost solely on their ability to reward, then there is no incentive to create better GAMEPLAY, there is only incentive to create better reward systems, because that's what facebook users are interested in.

i hope that makes sense... basically the competition won't be for better "games", it will be for better "reward systems"

sid67 said...

I can buy into Raph's idea that 'core gameplay' features in social games will be intrinsically different than 'core gameplay' in full-featured games. It makes a lot of sense and I agree with it.

However, I don't buy into the idea that the reward system IS the core gameplay.

A reward system is simply a reinforcer or stimulus that induces a player to continue to play.

It's independent of the quality, focus or nature of the game itself.

Are rewards important to social gaming? Of course. But they are important to MMOs and we aren't doomsaying the future of MMOs because they offer reward systems.

In other words, the flaw in your logic is that you can't have a reward system and compelling and engaging gameplay. The two ideas are not mutually exclusive.

Additionally, there isn't anything stopping social games from adopting other payment models. As long as Facebook got it's cut, I'm sure they'd be perfectly content if a dev wanted to make premium features subscription-based.

Logan said...

personally, the way i tell the difference between a good game and a bad game is by asking myself, "if there was no reason to play this game, would i still play it?"

if you take out the rewards, the peer pressure from friends, the prestige, all of the extraneous stuff so that you're just left with the GAMEPLAY... then, and only then can you truly judge the "goodness" of a game.

maybe i'm wrong and there is a better way to judge a game... but this seems to work pretty well for me personally, and i think a lot of game designers would agree.

the problem is that facebook games rely on all the extraneous crap in order to turn a profit... if you take out all the extraneous crap, all your left with is basically

facebook's biggest asset IS the extraneous crap... so no developer in their right mind is going to focus on the actual gameplay, when the extraneous crap is where the money is at.

i'm not saying you won't see good games COME to facebook, but you won't see good games designed specifically FOR facebook.

also, by my above technique of differentiating between good games and bad, today's MMOs would most definitely NOT be considered good games.

lasly, you're right that the existence of a solid reward system AND solid gameplay are not mutually exclusive... but a good reward system can cover up a poor gameplay system... so the more focus on reward systems, the less the incentive to focus on good gameplay... case and point, Farmville.

if farmville had better gameplay, it wouldn't bring in very many more users, because the reward system simply overpowers the gameplay... people wouldn't even notice the better gameplay because the game is already so much about the rewards... by the same token, you could make the gameplay even worse, and you wouldn't lose very many subscribers because the gameplay is already just a pointless grind to get to the rewards.

besides, if you asked a farmville player what changes they'd like to see to "improve gameplay" they'd probably say something like... fewer clicks, make it easier, make it more automated so i don't have to log in at certain times, make progress quicker, etc:... none of these suggestions are actually to IMPROVE gameplay, they're to get gameplay over with quicker so that i can get to the reward faster.

when your playerbase is making suggestions to SKIP GAMEPLAY AND GET RIGHT TO THE REWARDS, then it's obvious where their priorities lie... it's obvious they don't actual care about gameplay... so why would you focus on improving gameplay when the customer is focused on the rewards?

i guess what i'm trying to say is that it's not possible for GAMEPLAY to stand on its own on a platform like facebook (otherwise Chess would be the most popular game on facebook)... but it is possible for a reward system to prop up lame (or nonexistent) gameplay on facebook... so why focus on gameplay when it's more profitable to focus on progress/rewards systems?

Logan said...

I've been beating this drum for the past week or so, and i think i finally figured out the best way to explain the whole facebook games issue.

i'm going to post this comment on various forums and blogs i've been following where this topic has come up. so don't be suprised if you see this exact comment somewhere else on the web... this is a fairly long post so bear with me.

the key issue that a lot of pro-facebook individuals are overlooking is the fact that facebook games are INFERIOR goods, therefor the common thinking that an increase in quality leads to an increased demand is simply not true. inferior goods behave the exact opposite.

In consumer theory, an inferior good is "a good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed. Normal goods are those for which consumers' demand increases when their income increases."

lets use an inferior good that most people can relate to, Ramen Noodles. i love Ramen Noodles, as a college student i can't tell you how awesome Ramen Noodles are... but, as soon as i start making enough money to afford something better, i'll gladly never taste another Ramen Noodle again.

Like Ramen Noodles, facebook games are only going to be consumed when we can't afford anything better (in this case the cost is time and energy). so we're only going to play facebook games when we don't have enough time or energy to do something better... as soon as we have more time and energy available to us, we will stop playing facebook games and move on to other "better" games. (just like how we only purchase Ramen when we can't afford something better, and as soon as we can afford something better, we stop buying Ramen.)

it's the same as if you went to a store and there was the regular old Ramen, and sitting next to it on the shelf was a New and Improved Ramen... regular Ramen is 15 cents a package, while the New Ramen is 25 cents a package... which one are you going to buy?

well the fact that you're in the market for Ramen means that the most important thing to you is COST (lowest time and energy investment).. so you're going to buy the cheapest product, quality doesn't matter to you. (otherwise you would have headed for the steaks instead of the ramen)

quality games require a time and energy investment not found in facebook games... and it's this lack of investment that makes facebook games appealing... as soon as you cross that threshold into a "good" game, then the cost (time and energy) required to participate in the "good" game becomes too high, and the demand for that game will drop off... because once a game becomes "good" then it is a NORMAL good, and facebook users cannot afford normal goods... they don't have enough time or energy.

Logan said...

facebook games are inferior goods... "good" games are normal goods. facebook users WANT inferior goods because it suits their playstyle and it's all they can afford... normal goods will not perform as well because facebook users simply cannot afford them... it's like trying to sell a steak to a poor person who only makes $1 a week, he can either buy an extremely tiny steak that would last him less than a day, and he'd go hungry the other 6... or he can buy a week's supply of ramen... which would you choose?

i'm not saying you won't see good games on facebook, but good games won't benefit anything by being on facebook.

besides, would you really rather log into facebook to play civilization? and deal with all the extra crap that facebook brings? or would you rather play the game like normal, but have an app that connects the game and facebook?

personally i'd rather have the regular game, and then an app that automatically searches my facebook for friends that also have the game, and then adds them to my in-game friends list. then i can easily interact with my friends in-game, but i don't have to deal with all the ads, spam, random messages, that i'd have to put up with if the whole game was played through facebook. also an app could be like the PSN app that shows what you download from PSN in your facebook feed.. so in this way you could easily share your accomplishments in-game with your facebook friends, without all the intrusive facebook stuff... i see more benefits in keeping the game and facebook at arm's length, than you could get by tightly integrating them.

do you really want your civilization gaming to be interrupted by random friends telling you about the awesome party they went to last night? do you really want pop ups notifying you of all the farmville gifts you just got intruding on your gameplay? do you really want ads in the sidebar distracting you from your gaming? or even worse, ads IN the game itself?

all of the above things are what make facebook games successful. these things are fine when you're playing something with little to no gameplay, like Farmville, but when the gameplay becomes more engaging and more interesting, and requires more of your attention, like Civilization, are you really going to put up with all this extra crap distracting you from the "good" gameplay.

basically what i'm trying to say is that facebook is a platform for inferior goods, not normal goods... so the thinking that higher quality leads to higher demand, which is generally true for normal goods.. is not true for inferior goods and therefor facebook.

i hope this makes sense, it's the best explanation i could come up with.

- Logan