Why Social Gaming is a Broken Business Model

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Social gaming company Zynga used to be a titan. Lately though, the company has been having problems. Most recently Zynga laid off 15 percent of its staff, while still spending millions to acquire other companies. Social gaming is losing out on profits, mostly to mobile gaming, which Zynga is desperate to get into.

Despite the initial momentum, the social part of the business model has become a hindrance to growth. As these games were developed, a more profitable model emerged: in-game actions requiring real-time to complete. There are only two ways to beat this waiting. Users can either purchase credits, gems, coins, etc to speed along, or annoy your friends with requests to help expand the player base for the game.

Now, a large number of social and mobile game apps are offered for free, but the costs can rack up quickly. YouTube game reviewer NerdCubed highlighted the problem in a video about an iOS version of Dungeon Keeper. It only costs about $ 6.00 to buy the original Dungeon Keeper from web stores, but the iOS version is free. That is, until you’re presented with tasks that literally take days to complete. The only way to bypass this real-time roadblock is to spend hundreds of dollars.

Blogger Thomas Baekdal has been keeping tabs on this progression for years. As the wider video game industry matures, publishers have to choose between revenue streams, such as initial sales, subscriptions and microtransactions. In his analysis of the top app store games in August 2012, he found that 33 of 40 games were free, but required microtransactions.

We’ve seen how microtransactions can go wrong. These games frequently hit a wall where progress through skill was impossible and payments to a supposedly “free” game become mandatory. There’s no incentive to provide users with a good game experience, because once they hit that wall, they’re probably already hooked, and willing to spend to keep playing. It’s an addiction-based business model.

But that’s ultimately where Zynga and other similar companies are losing money, employees and customers. The experience is becoming less social, and over time, less like gaming.

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