The End of Social Gaming As We Know It?

Author: Jeremy Seth Davis
Published: March 19, 2010 at 9:10 am
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It’s no secret that social gaming companies are scrambling to attract and retain talented game developers. So when the social gaming giant Playdom bought a $5 million stake in MetroGames – just weeks after its purchase of Offbeat Creations, another social gaming company – it was surprising to see the deal being billed as an attempt to develop games already in MetroGames’ pipeline.

The acquisition appeared at first glance to be part of Playdom’s strategy of purchasing smaller gaming companies in order to gain talented developers. The San Francisco company has been actively pursuing game developers as the industry experiences consolidation, making three acquisitions since raising $43 million in venture funding in November.

The flurry of buyers tripping over each other to snatch up social network gaming companies is interesting. Most of the interest comes from larger gaming competitors buying scrappier developers. In the past month alone, social game developer Strategic Design Network acquired the gaming payment company Payout Hub, hi5 purchased Big Six, and Zynga agreed to acquire Serious Business.

The social gaming sector has seen impressive growth over the past year. Zynga, the industry leader, reportedly has about $250 million in annual revenue and successfully raised $180 million in funding from Digital Sky Technologies, the Russian investment firm that bought a $200 million stake in Facebook in May 2009.

One of the first venture firms to enter the space was Lightspeed Venture Partners, which invested $4 million in Serious Business in April 2008. Last month, Lightspeed Venture managing director Jeremy Liew told me, “It’s not very often that you see companies that achieve tens to hundreds of millions in revenue, and profitable revenue growth.”

But the gaming industry is a temperamental beast, as gamers historically have a nasty habit of dropping their current favorite for the next flavor of the hour. The social gaming distribution model has made it even easier for consumers to quickly switch from one hit to the next.

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Article Author: Jeremy Seth Davis

Jeremy Seth Davis is a freelance journalist, reporting on finance, business and technology. His writing has appeared in The New York Daily News, The Financial Times’ Mergermarket.com, Investment Dealer’s Digest, and Women’s Wear Daily. …

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