Posted by: BayAreaComRE | April 5, 2010

Tracking the Trends: Is Social Gaming the Next Big Thing? Ask Steve Jobs…

Apple’s prodigious release of the iPad, selling over 300,000 devices in the first day, inspired us to look at the footprint of the gaming industry in the Bay Area. Every time you hear “there’s an app for that”, there is likely a Bay Area-based company making millions of dollars. These companies appear all over the digital world, and most importantly for us, absorb square feet here in the Bay Area. We believe social media companies, including social gaming, have buoyed our economy during this recession. Silicon Valley and San Francisco have been the epicenter for technological revolutions, and our coverage called “Tracking the Trends” attempts to unfold the economic and technological phenomenon of social media.

Apple may sell 40 million iPads by 2012, according iSuppli, and 7.1 million this year. According to a study by Chetan Sharma Consulting, mobile app downloads should jump from 7 billion in 2009 to almost 50 billion in 2012. By this time, the market will be worth 17.5 billion dollars, the study predicts, despite the expected lower price of mobile apps, which should drop from the current average of 2 dollars per app to 1.5 dollars in 2012. Check out the coverage on Mashable.

Let’s pick out a few top developers of virtual goods in the Bay Area. Zynga (San Francisco), Playfish – Electronic Arts (San Francisco), Playdom (Mountain View, San Francisco), Facebook (Palo Alto), RockYou! (Redwood Shores), Slide (San Francisco)and Crowdstar (Burlingame). These companies are in demand or already occupy  close to a quarter million square feet in the Bay Area, not to mention their many offices outside our region.

Justin Smith and Charles Hudson wrote a report on virtual goods called The Future of Social Gaming 2010 and they say “2009 will be remembered as the year that casual gaming stormed social platforms and changed the way millions of people socialized with friends online. With an up-to-$400 million acquisition of Playfish by Electronic Arts, hundreds of millions of dollars in venture investments, and some of the highest engagement numbers that online entertainment has ever seen, social games are now impacting businesses across the media landscape. It’s become clear that there are substantial opportunities for social game developers with virtual goods revenue models, but the market is still evolving rapidly.”

The industry continually evolves and companies are developing business models that generate more revenue and increase profit margins. With considerable market share to capture in comparison to other media, and as Internet users and social networking users amass, the social gaming industry will continue on an aggressive growth plane.

The platform generates revenue through social gaming with PayPal, Facebook’s new beta currency system, iTunes and advertising. Pauline Malcolm-John, director of East Coast sales for Slide noted that it’s no longer just entertainment brands expanding onto social platforms, including packaged goods companies such as Nestle. “More and more advertisers are gravitating to the social media space,” she said. But she acknowledged that Slide and other companies have to help demystify the process of advertising on social networks and applications. “We as an industry have to develop more uniform measurements or success metrics to make it much easier for advertisers,” she said. – Mark Walsh The Social Media-Gaming Connection.

GP Bullhound is an investment banking firm providing advice on mergers & acquisitions and institutional capital-raising to emerging growth companies in the technology sector, and we Scribd their in-depth report on social gaming. They see the industry consolidating into a few large companies. We have seen this trend occur throughout the technology industry with the production of semi-conductor computer chips, digital networking platforms, search engines and now social gaming. See their chart of the competitive landscape for social gaming, all of which have a strong presence in the Bay Area.

Here is an excerpt from their report on industry consolidation. “In the upcoming years, we anticipate the social gaming industry to undergo significant consolidation.  Already, we have seen traditional gaming companies address social gaming needs through acquisitions, as evidenced by EA’s acquisition of Playfish.  Additionally, we have seen social gaming companies acquire other social gaming companies to achieve rapid growth, recruit developer talent, obtain notable game titles, or gain experience in other platforms (Facebook, Myspace, iPhone).”

“On a broader horizon, we expect industry consolidation within the social gaming industry to mirror the consolidation that previously occurred in today’s traditional gaming marketplace.  Ultimately, we anticipate the social gaming sector will be dominated by a select group of leading players, similar to the current broader gaming sector.” At the end of their report, they feature descriptions of the major players in the industry, which we found very comprehensive.

Over 3,000 apps have already been developed for the iPad at launch (in addition to the 100,000 plus from the iPhone that already are integrated into the platform), and likely more just as we write this article. The first day topped industry experts’ expectations by 200-300%.  See the coverage by the San Jose Mercury News.

We do not see this industry phasing out. In a story by Inside Social Games, “leading Silicon Valley venture capital firm Kleiner Perkins Caulfield & Byers is putting $100 million towards funding developers building for Apple’s forthcoming iPad device through their iFund. This comes on top of the $100 million it has already put in to companies building for the App Store iPhone/iPod touch.

Sectors the firm will focus on include mobile healthcare initiatives, personalized media, mobile education and mobile commerce — and mobile gaming — partner John Doerr says. The iFund has already put money in to familiar developer names like Booyah, Cooliris, Gogii, InMobi, Ngmoco, Pinger, Shazam, Shopkick, and Zynga.” Check out the full article!

As the economy continues to make slow strides towards growth, it’s exciting to uncover a driver that could lend to green-shoots throughout the economy. The App market has created a true breeding ground for innovation. Sole developers to teams of 10 to large companies are rolling out App after App, and as the competition increases and companies realize the potential upside, proof of concept will transform into full-scale business models. We’ll continue to monitor the trends and keep you updated on this exciting topic.


  1. […] Market Reports San Francisco Office Oakland / East Bay Office Oakland / East Bay Industrial San Francisco Peninsula Office San Francisco Peninsula Industrial Silicon Valley Office Silicon Valley Industrial Global Market Reports Top posts from last quarter Why San Francisco’s Tech Surge is NOT the BOOM (and why that’s a good thing)Education: BOMA Standards, Square Feet Measurements and Class DesignationsTracking the Trends: Is Social Gaming the Next Big Thing? Ask Steve Jobs… […]

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