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Can a socnet survive without games? Google’s secret investment in Zynga suggest not

By on July 12, 2010

According to TechCrunch, Google has secretly invested $100 million in Zynga. (Congratulations to Michael Arrington for that scoop.)

TechCrunch says:

“The investment was made by Google itself, not Google Ventures, say our sources, and it’s a highly strategic deal.

Zynga will be the cornerstone of a new Google Games to launch later this year, say multiple sources. Not only will Zynga’s games give Google Games a solid base of social games to build on, but it will also give Google the beginning of a true social graph as users log into Google to play the games.

And I wouldn’t be surprised to see PayPal being replaced with Google Checkout as the primary payment option. Zynga is supposedly PayPal’s biggest single customer, and Google is always looking for ways to make Google Checkout relevant.”

This is more evidence that games are to social networks what free email was to portals during the dot com boom. To explain that better, let’s go back to first principles.

The growth of a social network

Most social networks move from early adoption to a mass market before petering out in a damp squib of shoulder shrugging from users. Early social networks such as Friendster and Friends Reunited blazed the trail for social networks, but offered little beyond the voyeuristic delights of seeing what people you didn’t like at school were doing now, and hoping that you were doing better than them.

After the schadenfreude passed, users realised that there was a reason why they didn’t stay in touch with the people they didn’t like, and moved on.

The same issue hit portals during the dot com boom. There were lots of portals competing on undifferentiated search (before Google) and content. Then they hit on a brainwave.

Offer people free email.

I was an equity research analyst helping investors understand the Internet sector back then, and I spent a lot of time explaining to bemused investors why offering a corporate -style service for free to consumers was good business:

  • Frequency: email is something that you use every day. Portals were spending marketing money persuading people to come back every day, but they would check their email without needing to see an ad
  • Loyalty: Moving an email account is a chore. You have to tell everyone your new address and maintain both for a while.

In short, free email offered “stickiness” to portals desperate for differentiation.

Games are the new email

At the start of 2009, Facebook faced the risk that it had passed its moment of zeitgeist. Certainly amongst my friends (I know – this is analysis by anecdote, but still), it was petering out.

Then it opened up its platform to developers and some companies built games. (Note: Facebook didn’t know that games were going to be big – they just let entrepreneurs experiment on their platform. Another example of open triumphing over closed).

Games turned out to be Facebook’s free email. As I’ve argued before, the emergence of games on Facebook provided a reason for some Facebook users to come back every day, possibly several times a day.

And each time they came back, they might update a status, comment on a photo, tag a friend…

Facebook provided the platform and the social graph. But games provided the stickiness for a critical mass of people that stopped Facebook petering into irrelevancy.

So what next?

On the one hand, anyone building a social graph knows now that games are key. If you own a platform, you want to make game-makers a vital part of your ecosystem.

On the other, Facebook has realised that while games are hugely attractive to a portion of their audience, the viral hooks and in-stream notifications are annoying to a much larger group. So they’ve canned the virality of their platform (of course, it helps that companies then have to spend lots of money buying Facebook ads).

So we could either see game developers moving en masse to Google (if it offers clever, cost-effective viral mechanics when it launches its games platform), or the cost of acquiring customers on Facebook declining in the face of the increasing competition.

Either way, the role of games as a critical component of a successful social network has been comprehensively proven.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: