Challenging Social Success Conventions | Shanti BERGEL

Mm, mm, mm, mm, mm. Hi, my name is Shanti Burgell. I run business development and third-party publishing for Playfish. So I'm going to talk a little bit less about secret sauce perhaps and try and tee things up for some folks later in the day who will. So I'd like to thank everybody for coming. You know, I know it's the first session of the day. Everybody's a little hungover perhaps. So, you know, you guys are the few, the proud. Congratulations. Thank you. And so also thanks to the Casual Connect folks for having me. So what I'd like to do is spend the time that we have together exploring the state, the current state of the development opportunity on social, so on Facebook specifically. So just before I start that, how many of you are game developers? Okay, about half. And how many develop social games specifically? Okay, pretty much same people. For Facebook? Okay. Mobile? Right. All right, cool. So before getting into it, I wanted to kind of rewind a little bit and kind of help everybody level set for where we are right now. So in your mind, you know, go back to— May 23rd, 2007. I'm sure you remember exactly where you were. So this is the day before Facebook launched its platform. So less about where you were physically, but just, you know, if you can dial into where you were mentally and how you thought about the games business and the kind of the business models and, you know, call it the business physics that underlie, you know, like our industry. So got it? Everybody there? Okay. So now imagine the very next day somebody comes and they pitch you a a social farming game, right? So he or she is, you know, like most likely nuts. This is a fairly ludicrous idea. So this screenshot is from about 2008, 2009, so late 2008, early 2009. So this was news back then, right? So, you know, I think it's worth remembering that, you know, social games are about 3 or 4 years old here. And around the time that Facebook opened up its platform, the free-to-play model was not widely employed here. And a large number of people, experts, agreed that it wouldn't work in the West. It was very much an Asian phenomenon. So it was, you know, had been run in Korea for years and years and had never taken off here. And so the whole idea that people would pay for virtual goods was regarded as kind of ridiculous. And that was not that long ago. And so which genres, you know, like social farming game, for example, would work in that kind of a model was a question that, you know, kind of only a crazy person would even come up with, let alone try and answer. So it turns out that another name for crazy person is entrepreneur. And early pioneers in this space tried a whole bunch of different things very quickly. So they tried different game genres, they tried different business models, and in rapid succession, all this experimentation went on until something clicked. And when it did, you know, as you can see from the numbers, it hockey-sticked and proved everybody who was in the kind of the doubting crowd wrong. So as you can see from the projections going forward, very wrong. So it turned out to be one of the most massive value creation cycles we've seen in some time. So the average American now spends more time on Facebook than on Google, Yahoo, YouTube, Microsoft, Wikipedia, and Amazon combined. And of that, 50% of the Facebook logins are to play games. So, you know, yay us, right? I mean, we created this amazing new space, right? So everybody in this room who raised their hand just a minute ago, you had a hand in building this. So that's very exciting. So it's time to start popping gold-plated champagne, right? Right? So not everyone seems to think so right now. So our market just grew from $1 billion to— it's scheduled to pop to $5 billion in the next 4 years. And yet, you know, there's a lot of kind of negativity, and there's a lot of naysaying in the space. So, you know, that's just, you know, like pricing. That's not a big— oh, well, you know, that's not good. Okay, that's pretty depressing. Huh. I wouldn't want to do that. I wouldn't want to go anywhere near that. Oh, that sounds terrible. The opportunity is closed. It's all over. You know, so the gold rush is over. Zynga's unbeatable. Acquiring users is too expensive. And, you know, it's a bubble. The window's closed. So when I hear this, you know, I kind of rewind and think back to how young this space is, and, uh, I kind of feel a bit like this guy. This is Mark Twain, who upon reading his own obituary one day in the New York Journal had this to say. And so this is kind of how I feel about when I hear people talk about our market this way. So I remember back to how wrong people were about free-to-play in general, and it kind of gives me some hope that not everyone thinks this way. And clearly, I'm not alone. Not everyone believes our market is over. So, you know, there are a— developers are still getting funded at levels that imply venture investor belief in very significant exits going forward. And, you know, this is, you know, not an isolated phenomenon. So are they wrong? I mean, is this, you know, just what's going on? Why is it that we have these two, you know, very different messages out in the marketplace? So in my opinion, you know, what's going on is that, you know, clearly the space is maturing. And, you know, there are platform aspects to this, and there are product aspects to it, and a good deal of interplay between the two. And while the global picture is pretty complex, you know, I wanted to look specifically at Facebook for a minute. So this is their growth story from the past 4 years. I think everybody's pretty familiar with this. So from the time that the platform opened up till about now, amazing growth, you know, in no small part thanks to, you know, the efforts of folks in this room and the folks at Facebook. But when a platform achieves this level of scale, you know, their focus kind of necessarily shifts from, you know, strictly user acquisition to, you know, when they're getting close to something like, you know, call it ubiquity. I mean, they're clearly not there yet, but they're a lot closer than they were, you know, 2 years ago. So something happens. They're more interested in user retention than user acquisition. And so at a platform level, you can see it. If you watched Mark Zuckerberg's latest presentation, you saw this. So this is a concept that Zuck's been talking about for 3 years now. This is the law of sharing, the whole idea that, you know, the next phase of social is all about nuancing the social graph. And they also announced that about 4 billion things are shared per day on Facebook. So the fact that they hit 750 million users was almost kind of an afterthought. It was very specifically called out as quote unquote, "not the metric to watch anymore," not the most important metric. And so this is a shift at the platform level that's happening right now. And it has implications for product. And so what this means is, in my opinion anyway, that the tactics which mapped well to the first phase of, you know, the social opportunity don't necessarily translate to the next. So the first wave of social was all about building the social graph, right? So it was, you know, marked by this massive user growth and broadcast viral channels. The second wave is going to be different. It's going to be about creating depth and meaning in the social graph. And it'll be marked by a focus on, in my opinion, user interests, activating the power of relationships, and in enabling communication and sharing in dynamic new ways. And you can see this at the platform level if you're kind of paying very close attention. So I think this is an exciting new chapter with different opportunities, spaces, and characteristics than the one that went before it. And I think that's important. Important to remember as we look at the evolution of the space. So specifically, as you look at what this means, things like cloning, for example, when you talk about creating meaning for a user base, that's not necessarily quite as an achievable thing if you're just grabbing somebody else's game and running with it. And so I think among other things, that's one of the more exciting new dynamics of the space is that as game makers, the things that, you know, like we are, just natively more in tune with, I think, are increasing in value in this ecosystem. And so, as kind of naturally happens in a maturing market, you get certain product categories that become, you know, what are called, you know, redder. So if you're familiar with the whole, you know, red ocean, blue ocean kind of way of viewing the world, you know, red ocean is, you know, a market which is very competitive, quite mature. Your only opportunity comes at the expense of someone else. So a lot of blood in the water, red ocean. And blue oceans are ones that are much more easily explored, you know, you don't have competition, you're just kind of exploring a space together in grand camaraderie. But anyway, so there are some parts of the space, no doubt, that have become somewhat red. And it's definitely the glass half empty for an independent developer. So, you know, I don't think it's necessarily saturated, but being competitive in these categories can be really resource intensive, and it pays to be aware of, or maybe even partner with, some of the larger players in the space if you want to go after those opportunities. And so anyway, that's the glass half empty. The glass half full, I think, is that there continue to be a bunch of wide open, you know, greenfield opportunities, which haven't— which are completely underexplored. The cost threshold in these spaces is lower, and the same tactics that people were using back in 2007 and 2008 still apply. By, you know, very rapid experimentation and looking for market fit in new genres. And so this is a quick plot of different game categories. Almost everybody in this room will likely disagree with how I've laid this out, but that's fine. So we can debate, you know, hardcore versus casual, you know, over a beer sometime. But the point being that along the x-axis you have audience, and then along the y you have game type. And so these coincide pretty much with the two, you know, core metrics of the social games business, DAU for audience and ARPU for, you know, mass versus niche. And the genres that index well to the first phase of the business are fairly pink. So if you look at simulation, for example, this is— think games like, you know, games like Restaurant City, games like Cityville. You know, there was an amazing amount of competition in this one box. Because it was such a good fit for the first phase of the business. But as you can see, you know, most of the other categories are kind of somewhere in between, and some of them are completely blue, which is to say green. The Playfish colors are pink and blue, so I used those, but it should be red and green. Excuse me. And so, you know, like if you look at categories like puzzle, for example, you know, there are There are, of course, a lot of people who are exploring these genres. You know, this is a quick look at some of the in-between genres and the companies that are exploring them today, but I don't think you see the same level of dominance in any of these given genres, even though people are exploring them, that you do in something like simulation. And so, you know, the experience of— take, you know, to pull one from the middle of the list in the RPG category, somebody like Funzio, who came in with Crime City, a genre that a lot of people had kind of left for dead because, you know, it seemed that, you know, Zynga had fully explored it. This was an area where there had been the entire X Wars phenomenon. You know, there was Mafia Wars and Vampire Wars and all of those other games, and yet they were able to build a, you know, a million DAU+ business after that. And so, you know, if you— you know, in a lot of ways, I think it's a flavor of 2008 all over again. So we're looking at, you know, everybody is looking for market traction in all of these different categories. So, you know, I think when we say things like Facebook is over, that's quite, you know, it's a good dramatization to sell papers, but, you know, I think it's completely off base when it comes to really giving a fair analysis of what the opportunity space looks like. So if you happened to catch the presentation from Tuesday from Sean Ryan from Facebook, you heard how they're not only seeing these types of opportunities themselves, but they're rolling out features right now that are intended to give virality to genre-specific plays. So this is just a quick, you know, poll of, you know, a list of things that are, you know, in my opinion, are completely underexplored right now. So I mean classic categories from the casual games business like inlay puzzles, hidden picture. I think there's like 2 games on Facebook that cover this genre at all. You know, you go down this list and you just kind of come to the conclusion, I think invariably, that, you know, there's a ton of stuff that you could be doing in this— on this platform. And so perhaps even more importantly than the genre poll is that, you know, whole concepts haven't been explored yet. And the whole idea of synchronous gameplay is— a couple of people have experimented with it, but due to the kind of complexity of it have kind of left it for later. No one has unlocked that opportunity yet. Stylized treatments of really classic genres also completely underexploited. So I mean, the Beautiful Joes and the Luminees and the, like, Katamari Damacy of social don't exist yet. And so I mean, if you're working on one, let me know. I do publishing for, you know, a large company. I'd love to talk to you about publishing it. But anyway, to sum up the, you know, the first, this wave of social had an amazing— you know, it was an amazing ride for those who were there at the time, but it was also, you know, a very specific set of success characteristics went along with it. And I believe that those characteristics will be different in the next phase, and that a lot of very interesting entertainment companies will be born, and I'm looking forward to working with them. That's all I have, so I'd be happy to take questions. Yeah. What does it mean when you say you're a publisher in this space? What are you doing as a publisher in this space as compared to a publisher in the retail space? Sure, sure. So the question was, what does it mean to be a publisher in this space and what are we doing? So what it means to be a publisher, you know, just in any space, I think, is there are, I think, you know, in retail, for example, retail is a scarce commodity. Increasingly on some digital platforms, content discovery has become a much harder problem than it was. So when Facebook first opened, its platform was extremely democratic, and getting customer access was an easy thing to do, quite frankly. But now, I mean, if you talk to any developer on any social platform, whether it's Facebook or a platform outside the United States, or even a mobile platform, access to the customer is a really hotly contested thing. And so that's what publishers do just in general, and that's what we're doing on Facebook, is, you know, having been in this space for, you know, some time, and having certain resources that we can bring to bear, we help third parties get access to customers. Yeah.

[Speaker:MAN] Have you released anything under this program?

[Speaker:BRADLEY] We have quietly released some stuff. We're not really, you know, being too public about it just yet, but yes, we have. Yeah.

The picture that you drew was Facebook-specific, but it doesn't necessarily put on the dimension of mobile. Do you see the experience that you're talking about where the green fields are maybe also being— having a cross-platform opportunity?

Yes, the question is, you know, what's the green greenfield opportunity on mobile? Yeah, so I think you can run a similar analysis. I haven't done it here. You're right. This is a Facebook kind of exercise. But you could easily do that. I think it looks quite different, because the maturity of that space is a bit earlier. So it's a bit younger. That said, I mean, mobile as a business is quite old. So premium mobile has very different characteristics than freemium mobile. And so if you were to look at freemium mobile specifically, I think what you would find is that a lot of people are running the playbook from the early days of Facebook and trying to see if there's any kind of commonalities in the, 'cause you see the exact same genres being explored in the exact same order. So I don't necessarily think that it's exceptionally different, currently anyway, but it's maybe somewhere between a year and 2 years behind. Oh, sorry, in the back.

Given the revelations of Xing's S-1 filing, do you see an opportunity for going where they aren't, let's say at Google+ when Google+ gets apps?

Yeah, so there's kind of a whole other dimension to this, kind of hit them where they ain't. Arguably, what I'm talking about here is also hit them where they ain't, right? So I mean, the whole greenfield idea is hit them where they ain't. But there's multiple dimensions to it, like you bring up. If Google were to open up a place for social games on Google+, then absolutely that would be a place to think about. But even before that comes to pass, if it does, there's a whole international opportunity today. So if you look outside of Facebook, there's a class of other social networks in countries all over the world, some of which are having difficulty maintaining their position vis-à-vis Facebook, but some of which are quite healthy. And there's several companies that actually make it their business to aggregate all of these opportunities and make them available to developers. And so that's one way of achieving that for sure. So I mean, off— you know, like call it off-Facebook distribution or, you know, hit them where they ain't. Absolutely, those places are there to be explored as well. And a couple of companies are seeing pretty good traction in specializing in that. So whether it's specializing in, you know, distribution across non-Facebook platforms or regional distribution on Facebook. So there's some exceptionally interesting things being done. Again, I mean, I kind of think about these as experiments seeking market traction. But they are seeing early signs of success in doing things like publishing games on Facebook for regional audiences. So they specialize in getting to know that audience and understanding what they like, and then doing, you know, like very, very specialized versions of, say, a restaurant sim for Turkey, or a, you know, a pets game for Latin America. And so there's a lot of experimentation even within established genres across geographic lines.

[FOREIGN LANGUAGE] of customers that play Zynga games and other games?

So I think that would be a question for a Zynga person. They never have.

Why would they start now?

I don't know. New Leaf is a public company. Yeah, so I don't have anything to share on that front. That's kind of more their— if they want to share that, I'd be interested as well. Yeah?

[Speaker:AUDIENCE] Do you mind putting up the slide where you have the casual, hardcore, niche, and mass?

[Speaker:ERIC SCHMIDT] This one? [Speaker:AUDIENCE] Yeah.

And then also, how is the Sims— have you launched the Sims Facebook app?

[Speaker:ERIC SCHMIDT] No, we haven't launched it.

[Speaker:AUDIENCE] But is that something that's in the pipeline for you guys?

[Speaker:ERIC SCHMIDT] We announced that at E3, yeah.

Are you excited by it?

Me? Yeah, no, I'm very excited about it. So long, long ago, I was a producer on The Sims, so I'm very excited for that.

I mean, is that going to be a genre for you guys?

I guess I'm looking up here.

Where does that fall? Simulation?

Yeah, no, that falls in the simulation category. This is the, you know, like— Do as I say, not as I do. So this is one of these situations where, you know, It is a very resource-intensive thing. And so this is definitely one of those situations. If you're an independent developer with limited resources, I wouldn't recommend something like that. But because Playfish is part of EA now, we have access to premium brands like The Sims and the kind of muscle required to support all that. But yeah, it's a simulation game. [SPEAKING CHINESE] Thank you very much. Thanks.