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Social Gaming

Social Gaming

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Published by Casino Marketeer
Over the last six months, growth in social gaming has exceeded our expectations (DAU for the top five developers up 5x during this period), which has rendered our original market size estimates conservative. We estimate the current market size for social gaming at about $60 million per month and expect it to grow at approximately 45% CAGR over the next three years to reach $2 billion by 2012, driven by a combination of strong growth in usage and improving monetization.
Over the last six months, growth in social gaming has exceeded our expectations (DAU for the top five developers up 5x during this period), which has rendered our original market size estimates conservative. We estimate the current market size for social gaming at about $60 million per month and expect it to grow at approximately 45% CAGR over the next three years to reach $2 billion by 2012, driven by a combination of strong growth in usage and improving monetization.

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Published by: Casino Marketeer on Oct 16, 2009
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04/14/2011

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Please see analyst certification (Reg. AC) and other important disclosures on page 5 of this report.
Think Entertainment: Gaming
Social Gaming: Revising Our Market Size EstimateTo Reflect Rapid Growth
THINK SUMMARY:
Over the last six months, growth in social gaming has exceeded ouexpectations (DAU for the top five developers up 5x during this period), whichhas rendered our original market size estimates conservative. We estimate thecurrent market size for social gaming at about $60 million per month andexpect it to grow at approximately 45% CAGR over the next three years toreach $2 billion by 2012, driven by a combination of strong growth in usageand improving monetization.
KEY POINTS:
Usage of social games has taken off much stronger than we expected(please see our report, "The Emergence Of Games As A Service" publishedon May 4, 2009). Daily Active Users (DAU) for the top 10 social gamingcompanies has increased more than 5x over the last six months, driven bythe viral nature of these games, aggressive marketing campaigns by a fewgaming companies, and emergence of a few new genres of games, mostnotably Farm and Aquarium games.The popularity of gaming on social networks is evident from the fact that 20of the top 25 applications on Facebook are games (as measured by Monthly Active Users or MAU; source: Developer Analytics), compared with 16 of thetop 50 applications six months ago (as measured by MAU; source:Facebook). We believe that the usage (as measured by MAU) is even moreskewed toward games now compared with six months ago.Our conversations with a number of social gaming companies suggest thatthe monetization curve is concentrated to the large players—with only about3-5% of the active users directly paying for the games. The ARPU curve for the direct paying users seems to resemble any other free-to-play onlinegame, i.e., heavily concentrated on the top users. Looking ahead, we believethat there may be some room for improvement in the conversion rate (fromactive users to active paying users) driven by availability/increasingpopularity of newer payment methods (e.g., Facebook credits, more prepaidcards, and mobile payments).• We are seeing a pick up in indirect pay, i.e., users paying for the virtualcurrency by opting for advertisers' offers (lead generation for marketers suchas Netflix, Blockbuster, etc.) or taking online surveys. We estimate that theconversion rate could be slightly better for indirect paying users—at about4-5% (versus 3-5% for direct paying users) albeit with relatively lower ARPU.• All in all, we estimate the current social gaming market size to beapproximately $60 million per month (run market of $720 million per year)and expect the market to grow at about 45% CAGR to reach $2 billion withinthe next three years.
Reason for Report:Industry Update
Atul Bagga
415-249-6362, abagga@thinkequity.com
October 16, 2009
Industry Report
 
Page 2
 
October 16, 2009
Industry Report
 
Over the last six months, growth in social gaming has exceeded our expectations, which could render ouroriginal market size estimates conservative. We estimate the current market size for social gaming at about $60million per month and expect it to grow at approximately 45% CAGR over the next three years to reach $2 billionby 2012, driven by a combination of strong growth in usage as well as improving monetization.Social Gaming Growth Has Far Exceeded Our Expectations:
Usage of the social games has taken off much strongerthan we expected. Daily Active Users for the top 10 social gaming companies has gone up more than 5x over the last sixmonths, driven by the viral nature of these games, aggressive marketing campaigns by a few gaming companies, andemergence of a few new genres of games, most notably Farm and Aquarium games.
Exhibit 1: Daily Active Users (Million)
Oct-09May-09
Zynga47.16.7 Playfish12.14.7 Slashkey5.81.8 Crowdstar4.00.2 PopoCap Games2.80.6 TwoFishes Interactive2.10.2 TallTree Games2.1- Playdom1.90.4 Rawr! Games1.8- Serious Business1.20.4 Five Minutes1.0- 
Total81.915.0 
Source: Developer Analytics
Exhibit 2: Monthly Active Users (Million)
Oct-09Jan-09
Zynga148.621.5 Playfish56.919.2 Playdom12.71.0 
Total218.241.7 
Source: AppData.com/InsideSocialGames.com
 
Page 3
 
October 16, 2009
Industry Report
 
Games Are Now By Far The Biggest Category Of Applications On Facebook:
The popularity of gaming on socialnetwork is evident from the fact that 20 of the top 25 applications on Facebook are games (as measured by MonthlyActive Users or MAU; source: Developer Analytics), compared with 16 of the top 50 applications six months ago (asmeasured by MAU; source: Facebook). We believe that the usage (as measured by MAU) is now even more skewedtoward games compared with six months ago.
Exhibit 3: Top Games On Facebook – Now And Six Months Ago
GameDeveloperMAURankOct-09Apr-09Oct-09Apr-09
FarmVilleZynga59.0NM1NMMafia WarsZynga25.99.539  Pet SocietyPlayfish19.910.658  YoVilleZynga19.55.3618  Farm TownSlashkey18.7NM7NMTexas HoldEm PokerZynga18.212.387  Restaurant CityPlayfish16.6NM9NMCafé WorldZynga15.9NM10NMMindJolt GamesMindJolt14.93.21131  Happy AquariumCrowdStar12.4NM12NMRoller Coaster KingdomZynga8.9NM15NMFish WorldTallTree Games8.4NM16NMBejeweled BlitzPopCap Games8.3NM17NMCountry StoryPlayfish7.8NM18NMFARKLEViral7.6NM19NMBarn BuddyTheBroth6.6NM20NMMy FishbowlTwoFishes Interactiv5.2NM21NM(Lil) Farm LifeGreenpatch Inc5.2NM22NMHappy FarmElex4.0NM23NMAnimal ParadiseRekoo3.5NM24NMGeo ChallengePlayfish1.44.022125  Word ChallengePlayfish3.63.511329  Who Has The Biggest BrainPlayfish2.73.519129  Bowling BuddiesZynga1.83.716733  Street RacingZynga2.02.79136  Vampire WarsZynga3.82.65039  KidnapContext Optional1.02.519242  Friends For SaleSerious Business6.62.23744  Mob WarsMob Wars1.72.19045  Poker PalaceTrevor Smith1.61.914446  Minigolf PlayPlayfish0.91.931348 
Source: Developer Analytics (as on 10/15/09) and Facebook (as on 04/21/09)
Not Surprisingly, Conversion Rate (From Active Playing To Active Paying Users) Remains Pretty Small; WeExpect Some Improvement With Availability/Increasing Popularity Of Newer Payment Methods:
Our conversationswith a number of social gaming companies suggest that the monetization curve is concentrated to the large players—withonly about 3-5% of the active users directly paying for the games. The ARPU curve for the direct paying users seems toresemble any other free-to-play online game, i.e., heavily concentrated on the top users. Looking ahead, we believe thatthere may be some room for improvement in the conversion rate (from active users to active paying users) driven byavailability/increasing popularity of newer payment methods (e.g., Facebook credits, more prepaid cards, mobilepayments).

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