Don’t LOL: Social Ads Rev Up Revenue

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ADOTAS EXCLUSIVE — Headlines of doom and gloom continue to forecast that social media will never produce the piles of money that marketers have dreamed of.

Social Media – Part 1

– An article from e-consultancy.com claims, “There’s bad news — Web 2.0 fails to produce cash. Then there’s worse news — that isn’t likely to change anytime soon.”

– eMarketer has lowered it’s online advertising projections for social media by 10% in 2011 from 2.7 Billion to 2.4 billion and worse yet, has estimated that social media ad spending has stopped growing and will reach its peak in 2009, at 6% of global interactive spending.

– This fiscal year, MySpace expects to fall 10% short of its billion dollar ad revenue projections. And they are projected to produce about 50% of all social media ad spending.

So where’s the good news?

If you’ve recently given Mom a parking ticket (Parking Wars), thrown sheep at friend (SuperPoke!), added co-worker Bob to your Werewolf Army (WereWolves), taken your ghost-car out for a spin (Ghost Racer), or bought rights to own your boss (Friends For Sale!), you’re ahead of the game. Social gaming on sites like Facebook, MySpace, Bebo and others has emerged as a sector that is not only engaging millions of users daily, but is proving to be very lucrative for developers and advertising networks alike.

These social games, or apps as they’re called in the biz, allow users to send each other virtual gifts, like an order of dim sum (Dim Sum), compete in racing or puzzle games (Scrabulous) or measure each other’s respective intelligence (Who Has The Biggest Brain?). These games combine the social elements of connection, competition and then recognition, as top scores are posted on friend only leader-boards or global leader-boards. It’s simple, according to Dwayne Lafleur, General Manager of Social Advertising for Cubics (AdKnowledge),

“Everyone wants to beat their friends at something and have everyone else they know, hear about it.”

And unlike traditional multiplayer online games, users do not have to be online at the same time. These asynchronous games provide a certain sort of “time-lapse” competition where you can race against a recorded version of your friend’s race (Ghost Racer) recorded the previous night at three in the morning.

Traffic and page views are huge!

According to DeveloperAnalytics.com, some of the hottest applications on Facebook have more than two million unique Daily Active Users (DAUs – the most commonly used metric).

1. Super Wall (Application) 2,521,807 (DAUs) RockYou! (Developer)

2. FunWall (Application) 2,381,118 (DAUs) Slide, Inc. (Developer)

3. Top Friends (Application) 1,748,901 (DAUs) Slide, Inc. (Developer)

4. Bumper Sticker (Application) 1,445,335 (DAUs)

5. Owned ! (Application) 848,756 (DAUs) Coolapps.com (Developer)
(As of June 12th, 2008)

(DeveloperAnalytics.com is a fantastic tool for anyone looking to learn more about the industry.)

The most popular applications have been installed by more than 30 million people. (That represents the size of 10% of the entire population of the U.S.)

So how did this gaming revolution begin?

History – Social Gaming 1.0

The major impetus of this gaming revolution was created by Facebook when they opened up the source code to the application platform about a year ago. Developers flocked to Facebook and applications – many games — were developed by the thousands. The early games spread in an extremely viral environment; when the platform was first opened, a Facebook user could invite all of their friends to download an app with one click, creating a tsunami of virally driven installs. It’s now limited to up to ten invites per game. A popular game can still garner hundreds of thousands of installs in a short time period, but nothing compared to the speed at which early apps spread.
Jayant Agarwalla, developer of Scrabulous, a Scrabble like game that has been downloaded more than 4 million times, compared the Facebook gaming platform to a raw diamond that has been tweaked and polished by “thousands of developers who have launched a myriad of applications and have brought out the brilliance in the diamond.”

In a separate approach, MySpace has limited the viral nature by which games are spread, but it’s expected that social gaming on MySpace will continue to ramp up as rules loosen, making it easier to invite friends to join a game. Although starting slower, MySpace is expected to catch up eventually.

The VCs come a knockin’

As you might expect, venture capitalists are pouring money into the social gaming marketplace. Game developer and network RockYou recently raised $35 Million in a Series C funding round. Widget maker and application developer, Slide, snagged an even larger $50 Million in funding. A month ago Social Gaming Network (SGN), which provides ads to over 5,000 applications, received $15 million in funding.

There is even a VC firm, Altura Ventures , which claims to the first Facebook-only VC.

For a venture capitalist, the social gaming market is almost irresistible because of the combination of huge, viral traffic, low development costs, and the proliferation of advertising companies who are becoming better and better at monetizing social media.

So who’s making money?

It’s a good time to be a game developer.

While the advertising networks and bigger game development firms won’t release any revenue numbers, they all claim to be growing quickly and cashing in on the industry’s growth. We were, though, able to get some confirmation on how much an individual developer can actually make.

Lafleur from Cubics (AdKnowledge), Siqi Chen, Founder of Serious Business, (creater of Friends For Sale!) and Charles Yong, Founder of DeveloperAnalystics.com, all confirmed that there are individual developers out there making more than a million a year, often from just one application. Many developers are making $10,000 to $20,000 per day.

Many of the bigger advertising networks like Social Gaming Network, Cubics, Social Media, RockYou and $uperRewards aren’t yet willing to provide concrete numbers. It’s estimated, though, that these companies are also cashing in to the tune of several hundred thousands of dollars profit each month, and even many more times that figure for some of the biggest companies. Obviously profits are lower for those expanding quickly and building for the future, but they will be positioned to become even more successful.

This is significant money, but most of it is not publically reported. In fact, I was told that if I published these numbers, 99% of readers would laugh at them and the 1% who are in the know, wouldn’t admit to them.

So how are these revenues generated?

Stay tuned for Part 2 on Social Media.

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