Yesterday I spent a day at CasualConnect in Seattle, one of the largest casual gaming conferences in North-America and took away some interesting thoughts on where social gaming is headed:

• Social gaming is about to go mainstream as big media / entertainment companies are entering the arena and game principles are being integrated in more and more sites and products (“gamification”) – the sector is probably not yet over-hyped but it definitely does not feel far away.
• Differentiation matters more than ever: as the space becomes more and more crowded, games developers need to think harder about how they can differentiate in the long run. Focusing on just one vertical and trying to dominate this (like our portfolio company Fitbrains for brain fitness games) is most likely the most viable strategy. New entrants might otherwise not get enough traction with the most likely exit option left being a talent acquisition.
• Scale matters and Zynga has perfected their “build and run” process – take an interesting gaming concept (and often copying existing ones), apply the Zynga playbook, optimize aggressively. The combination of speed, ruthless metrics focus, significant market share (probably around 60-70% on Facebook that helps drive traffic between properties) and a large capital base makes Zynga a formidable competitor for everybody.
• Quality will increasingly determine success: given the reduced virality on Facebook, the quality of the games seems to matter more going forward.
• Multi-platform: game developers will have to produce targeted experiences for all the key platforms (web, Facebook, iPhone / iPad) to maximize their reach and limit the dependence from one single platform. With Facebook still representing the large majority of the revenues for most of the social game developers, diversification to other platforms is high on the list.
• Better understanding and targeting of users: while a lot of games were built for anybody and everybody in the past, approaches need to get more granular going forward with game design starting by defining a specific audience for the game.
• The biggest potential for the social gaming vertical is an increased monetization: currently, only 1-2% (RockYou mentioned however already 3-4%) of all gamers pay for virtual goods so there is some significant upside in improving this number to 10-15%.

Social games continue to be an exciting space – it is definitely not early days anymore but it feels that there is some good potential left for game developers that pursue a focused approach.

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