IHS INC. 
By Facebook's days as a boomtown for game operators appear to have come to an end, with the total number of users stagnating amid rising barriers to entry, increasing competition and an intensifying fight for consumer mindshare with other social networking activities, according to a new I HS Screen Digest Media Research Insight report from information and analysis provider IHS (NYSE: IHS).
Following fast growth during the previous two years, the number of Facebook gamers languished in 2011. At the end of 2010, about 50 percent of Facebook's monthly active users (MAUs) were gamers. At the end of 2011, the absolute quantity of gamers changed little, and the percentage of Facebook MAUs that were gamers slipped to just 25 percent.
MAUs for perennial Facebook game leader Zynga actually declined during the fourth quarter of 2011 to 225 million, down from 266 million at the end of the third quarter, as presented in the figure below.
"Facebook rocketed to prominence as a gaming platform in 2009 and 2010," said Steve Bailey, senior analyst for games at IHS. "However, with equal speed, the market then settled into a state of maturity in 2011, with conditions becoming markedly more challenging for game operators. While Facebook remains a worthwhile opportunity for companies able to meet these challenges, the tone of the market in 2012 will be somewhat muted compared to the optimistic outlook of the past few years."
Used Users
There are several reasons why Facebook gaming will
encounter challenges this year.
First, the task of acquiring users has become more difficult.
With more operators vying for attention and user expectations rising, the cost of acquiring users is growing. Viral channels for finding users aren't as abundant as they were before, so it has become necessary to engage in cross-promotional networks or direct advertising.
Expenditures for these activities are putting pressure on the lifetime value of users, so there's now far greater incentive to improve retention and monetization capabilities. Along with the increase in marketing costs for purchasing users, there's also a development overhead to consider: As with any maturing video game marketplace, production values will also need to step up a notch.
Otherwise engaged
The second challenge for Facebook gaming is intense
competition, which means that user engagement is under
pressure. As seen in 2011, there's been a trend away
from the most accessible game genres and toward play styles
that require greater player commitment or skill, in return
for deeper senses of engagement.
These have been typified by slow yet steady increases in the presence and quality of strategy, action and traditional/casino games.
Such a progression is crucial in order to match the experience requirements of players.
Not so Special
A final challenge is Facebook's status as a
non-specialist games platform.
As well as competing with other game operators, companies competing in the Facebook environment must jostle for user attention across a landscape of non-gaming functionality. The play styles of social network gaming have evolved in such a manner as can be best slotted in and out of a wide spectrum of priorities for Facebook users.
As of December, for instance, about one-quarter of Facebook's monthly active users were gamers.
That's much less voting power than what audiences and publishers have been able to command on specialist game platforms.
Facebook needs to implement changes to provide enhancements for its entire user base. Even if the company has to inhibit its role as a game platform, the ultimate priority is obvious. This already happened in early 2010, when viral channels for user acquisition were dampened in order to silence the flood of near-spam that game apps were broadcasting into user activity streams.
And the introduction of Facebook Credits as the compulsory payment platform has placed further pressure on revenues. Events such as these serve as reminders of the vulnerabilities that companies are exposed to when operating under the wider agenda that non-specialist platforms pursue.
The Honeymoon's Over
There's copious opportunity in shifting Facebook gaming
to complementary devices or markets.
Smartphones are regarded as a viable conduit for growth, although this area is already occupied with established content and competition.
There are also strong prospects for growth in Asia's online gaming market. However, this territory is crowded with entrenched competition and game-seasoned consumers. To gain footholds in this market, game providers must enter partnerships with major operators.
While opportunity is certainly available in smartphones and in Asia, social networking game providers will not be able to recreate the intoxicating ski-ramp growth they enjoyed during Facebook gaming's heyday.
For companies that stick with the social network, the challenge will be to create and maintain games that successfully encourage deeper involvement. If they can do this, the rewards will translate into improved retention and rising monetization of users.
Undoubtedly, Facebook will remain a powerful player within the gaming landscape, but it's now part of an emerging multichannel, cross-platform approach to connected gaming. Facebook has implemented multiple minor initiatives to improve the platform for game operators, along with some major ones, such as its mobile-app software development kit (SDK) in late 2011. The social networking site will continue to make improvements throughout 2012, but the aforementioned issues are unlikely to be fully dispelled.
Despite these challenges, even small independent game teams with compelling offerings can still find traction, but there will be a greater onus on them to find publishing partners to help overcome the hurdles that have arisen.
Learn more about this topic with a new IHS Screen Digest report, entitled: " Facebook Gaming 2011 Market Monitor."
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