Social Gaming Market Getting More Expensive For Developers

This blog originally appeared on the Betable blog. 

In a sign of the changing times, three of the top four social casino market leaders last quarter were traditional gambling firms according to research released last week by the gaming analysts at Eilers Research.

Caesars, which entered the social gaming space through its $80m acquisition of Playtika, now is the market leader with an a 18.6% combined Facebook and mobile market share, Eilers Research’s quarterly report said. Zynga, the former number one, now has a 15% share. Slot giants IGT, owner of Double Down Casino, and WMS were in third and fourth position respectively, with 14% and 6% shares of the market.

Adam Krejcik, Managing Director at Eilers Research, told the Betable Blog that the presence of these big gambling companies is only helping to make the space more expensive for social game developers.

“The cost-per-instal in social gaming is only going up. As bigger companies have entered the market and revenue opportunities improved, the pricing has increased. This is certainly true in social casino, where the entrance of gambling companies has made the space more competitive. Competition has improved content and price points, but in tandem there is now a higher CPI,” he said.

“Once the CPI hits the $8-$10 level, that is likely to start causing a lot of problems. Most big social casino games are not profitable until revenue hits $15-20m, and the vast majority of that is spent on CPI and marketing to drive growth in the game.”

Mobile remains a somewhat more fragmented in terms of market share. In mobile, Big Fish Casino continues to the market-leading app with a market share of around 14% according to Eilers Research. But even in mobile social casino, traditional gambling companies are making inroads.

“From nothing a couple of quarters ago, mobile is up to 25% of revenue for these companies’ social gaming businesses. It is very quickly becoming an integral part of their business,”Krejcik said.

In an increasingly competitive landscape, finding new ways to monetize is only becoming more important for the future of social gaming ecosystem on mobile or web platforms. When cost-per-acquisition rise out of proportion with increases in revenue-per-player, there is a structural issue throughout the industry.

This is one major reason why so many social game developers are exploring real-money games, which generate much higher revenue-per-player. While CPA is on a different level, every customer you acquire is a paying player. You don’t need 20 million users to have a profitable game, or make substantial revenue.

32Red is a small traditional online casino operator in the UK, which offers both web and mobile gambling games. They only have 40,000 active customers (measured as those who bet in the last year). Those customers generated revenue of £32m ($48m) in 2012. By contrast, in 2012 Zynga’s 9.2 billion daily active social casino players generated $195.1m in revenue. It would take just 160,000 32Red customers to generate the same level of revenue as Zynga’s billions of players do.  And bear in mind that 32Red is a small, traditional gambling company, working with games which have been offered to players in the same form for hundreds of years and have no social hooks to increase engagement or retention. In other words, there is room for improvement.

Even on a basic level, what is more economically viable; a customer that cost $100 to acquire and generates $500 in revenue, or a customer that cost $8-10 to acquire and generates $25-30 (averages for social games in 2012) in revenue? With economics like that, it is no surprise that social game developers, large and small, are exploring real-money games.

Already, anecdotally, this blog has even heard of some instances where social game developers have paid as much as $15-20 per customer. As the economics of social games market change, expect to see more developers look for better ways to monetize.