Social games attract tens of millions of players on Facebook and other networks, but compared with traditional PC and console-based games, they make a lot less money, a challenge impeding the genre’s growth. While millions of “hardcore” gamers willingly pay $60 per title and $15 in monthly subscriptions for an MMO like World of Warcraft, the average monthly revenue per user for even the biggest social games is estimated to be $1 to $2. When it comes to getting consumers excited enough to pull out their wallets, old-school game makers still have the advantage. Which is why I was so intrigued by news that social gaming giant Zynga recently hired veteran game developer Brian Reynolds as the company’s chief designer. Reynolds, lead designer on classic best-sellers Rise of Nations, Sid Meier’s Alpha Centauri, and an installment of Age of Empires (one of Om’s personal favorites), is widely admired by gamers for making challenging and complex strategy titles like those. It’s also quite a leap for him, going to Zynga’s casual gaming world of titles like Texas Hold ‘Em and Fashion Wars. Then again, for social games to generate more sustained enthusiasm from players (and consequently, earn more revenue) it will probably take someone of Reynolds’ caliber to lead the way.

However, don’t expect Reynolds to create social game versions of Alpha Centauri and other hardcore titles he’s known for. “Trying to take a traditional game and ‘port it’ to the social gaming space would be a big mistake,” as he put it to me via email from his summer vacation retreat on Canada’s Tar Island. His goal instead is to take Zynga’s current model, and incrementally make existing games more fun.

A common problem with current social games, Reynolds said, is that they don’t make players’ choices interesting over time, instead “burying the player in tedious repetitive clicking.” The challenge is improving the games’ progression curve, so players get steadily increasing rewards (points, virtual money and items) to encourage continued play. He believes simply refining this would instantly make social games more fun to play.

As for social games that already are fun, Reynolds cites Mafia Wars, which he admires for its depth and variety of interaction, and its ability to foster play among a broad range of acquaintances. (That was crystallized best when his much older aunt, also a Mafia Wars player, posted: “Hi Brian – Thanks for the energy packs, I love you!” on his Facebook wall.) Another favorite, Scramble, helped reconnect him with an old game industry friend — who subsequently helped get him his job at Zynga.

In any case, he notes it’s become increasingly difficult to make games like Alpha Centauri anywhere. “Working in the traditional industry has started to feel like each year the lake drops another foot, at least for someone like me,” he said. “Traditional games cost more and more money to make, and at the same time it’s harder to actually get the money.”

Unsurprisingly, other industry figures from publishers like Electronic Arts and Blizzard Entertainment have also migrated to social gaming. “I have no doubt that traditional games will continue to be made and that some will do well,” Reynolds told me, “but there’s no doubt that there’s a lot more growth in the social network area (and related areas like casual gaming), and I think we’ll see that trend continue for quite a while.”

Photo courtesy Zynga.

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Investors poured $237 million into virtual world-related startups and payment systems last quarter alone, according to a report released today by industry trade show producer Engage Digital, signaling venture capitalists’ continued enthusiasm in the market. (Nearly $600 million in funding went into this sector for all of last year.) And ask the average tech-savvy person to name a major virtual world, chances are they’ll mention World of Warcraft or Second Life. Both MMOs certainly get the lion’s share of media attention; according to Nielsen Games, they often generate the most total monthly player minutes among all PC-installed worlds. However, as the recent investment news suggests, WoW and Second Life are only part of the story; neither world is truly representative of the MMO sector, nor reflective of where the larger virtual world industry is growing.

Why? In the case of Warcraft, its continued, unprecedented growth in subscribers suggests it’s a category killer in its particular sub-genre of virtual world, the subscription-driven, 3-D fantasy MMORPG. Subsequent rivals in that space have fallen far short of WoW’s 12 million subscriber base; most of the major game publishers are now focusing their energies on non-fantasy MMOs like Star Wars: The Old Republic, or experimenting with non-subscriber worlds, like Free Realms, largely leaving WoW alone in its own sub-genre. In the case of Second Life, while it’s earning tremendous revenue, its user base of some 750,000 monthly uniques makes it a midsized world at best, behind some dozen or so MMOs with regular users in the millions. Second Life’s particular sub-genre, a 3-D, dynamically user-created virtual world, has yet to attract any major competitor.

Meanwhile, numerous other virtual worlds are more popular than Second Life or even World of Warcraft, successfully operating on different platforms and revenue models, targeting various demographics. Consider, for example Zynga’s YoVille, an MMO that can be played only on MySpace or Facebook. Web-based and cartoonish, it’s not 3D and immersive like Second Life or WoW, but a virtual world all the same, offering users a simulated contiguous space with real-time interaction via avatars. It’s also tremendously popular: Just 14 months after its May 2008 launch, it now counts 8.5 million monthly active users on Facebook alone. But perhaps the most surprising thing isn’t its size; it’s that other MMOs, such as Maple Story and Habbo, are even larger. World of Warcraft and Second Life may be the most visible makes in the display window, but don’t forget the many other high-performance models on the show floor.

Wagner James Au is the author of The Making of Second Life (HarperCollins) and a member of the GigaOM Analyst Network. His complete discussion on trends and opportunities in the virtual world industry is now available on GigaOM Pro: “Virtual Worlds: Trends and Opportunities” (subscription required).

Trademarks courtesy Linden Lab and Blizzard Entertainment.

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Google’s Chrome OS has added a very interesting wrinkle to the future of online gaming. As we reported back in May, Google reportedly plans to fully integrate O3D, the company’s rich 3D graphics plug-in, into the Chrome browser by the end of this year. That gives Google a platform for game development that’d be a seamless part of its OS when it’s released next year. A number of developers are already creating games for O3D; for instance, here’s a demo for Infinite Journey (a screenshot of which is on the left), a visually engaging, Mario-style title showcased at the recent Google I/O conference. If consumers embrace netbooks pre-installed with Google OS, I think we’re likely to see O3D become an increasingly popular platform for games — at the expense of Windows-based PC games and web-based games powered by Flash.

But what do game industry insiders make of Chrome OS? I just reached out via email to several leading CEOs; here’s a sampling of their takes:

Jim Greer, CEO of casual game portal Kongregate: “I think it will have an immediate effect on the booming netbook market, and a slower one on gaming. PC game developers always need to make sure that their games work on a very broad variety of machines, so they won’t be able to target the Google OS specifically. Having said that, the more netbooks there are out there, the more attractive web game development will be.”

Raph Koster, CEO of web-based virtual world Metaplace: “A 3D engine plug-in, perhaps, could have impact. But bear in mind, it’d have to be pre-installed or have a very compelling killer app. And even then, that only drives adoption on the Chrome OS, not necessarily in the larger browser world. And no, [the Chrome OS announcement] doesn’t change our strategy at all. Another platform, another device, yay. I would be very surprised if the Chrome OS doesn’t run Flash, which would mean we would run on it out of the box.”

Steve Hoffman, CEO of web-on-MMO startup RocketOn: “The Chrome OS seems like just another flavor of Linux to me. Even with the Chrome OS and O3D combined, I don’t see gamers gravitating towards Google’s new OS. Hardcore gamers and virtual world enthusiasts will always choose the very best system to play on, which for the time being is a Mac, Windows PC, or console, depending on the game. For the more casual crowd, I don’t think this will win them over. The primary obstacle is that Google has to get the carriers to subsidize netbooks so they are free with a long-term subscription.

“Also, Google isn’t a hardware company like Apple, so they’ll never pull off a beautifully integrated product like the iPhone. This was made clear by the lackluster Android launch. Google will also face stiff competition in this area from a variety of Linux and Windows netbooks, which will work just fine with Firefox or IE…Maybe, if Google sticks it out, it can gradually gain a dedicated following around Chrome OS in combination with Google’s apps and services, and some of those users may take advantage of gaming on this new platform, but this is way off in the future.”

Infinite Journey image courtesy Large Animal.

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Tags: chrome, google

WoWPals is a new location-based service for World of Warcraft players who want to connect with other WoW fans, be they from halfway around the globe or right down the street. A spinoff of Israel-based company GamersFlux, the service extracts data from the World of Warcraft Armory web site, a searchable database of game content and players, and connects it to WoWPals users’ real-world location info. (It’s also integrated with Twitter, so WoWPals can keep each other updated via Tweets.) Moreover, it adds World of Warcraft to the growing list of services and applications with location-based functionality.

And it’s not only a nice community-building feature for WoW fanatics; joining up with fellow gamers in their geographic region can give die-hard players a low latency advantage. WoWPals co-founder Nadav Har Tzvi told me via email that the company plans to earn revenue from an upcoming premium account service; it’s also developing integration to display geo-targeted ads. With the recent introduction of TweetCraft, a Twitter client that runs within World of Warcraft, WoWPals is yet another service that connects the West’s largest MMORPG to the outside world. (Compatibility with the iPhone and other mobiles coming soon, Har Tzvi added.)

Image courtesy WoWPals.

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Tags: Blizzard, location-based service, world of warcraft, WoWpals

The Social Gaming Summit kicked off in San Francisco today, bringing together developers, investors and bigwigs from social networks like Facebook and MySpace. Below are four of my favorite takeaways gleaned from the first few sessions:

Facebook Social Games Migrating Off Facebook In the opening talk, Justin Smith, founder and editor of Inside Facebook and Inside Social Games, pointed out that Facebook Connect was making social games increasingly playable outside of Facebook — on the web, via the iPhone, and most recently, via Xbox 360. This trend is so pronounced, Smith predicted that two years from now the majority of Facebook games will be playable outside of the social networking site.

Twitter Gains First Monetized Social Game Much like Om did in a post earlier today, Smith also noted the emergence of social games played via Twitter messaging, especially quizzes (and the somewhat controversial SpyMaster). Helping solidify this trend, this morning Super Rewards announced it’s partnered with the Twitter-driven roleplaying game 140 Mafia, making it the first title on the microblogging network to be monetized. (Similar to OfferPal, Super Rewards offers virtual currency to social games and MMOs, which customers can purchase with cash, or get as a bonus by signing up with an advertising partner.)

MySpace Social Games’ ARPU Higher Than Facebook Games Smith said that in speaking with numerous developers, he’s learned that notwithstanding Facebook’s greater popularity in the U.S., MySpace games still earn better average revenue per user (or ARPU) than Facebook games. Smith’s stats: A popular Facebook title earns 30-40 cents in ARPU a month, while popular MySpace games earn 50- 70 cents. (The genre’s very biggest titles earn $1-$2.)

Secrets to Social Gaming Success But how do these games attract so many players? In a panel discussion, Zynga CEO Mark Pincus outlined the three elements he thinks are necessary in order for titles to become successful: 1) They make players feel like they’re playing with their real friends, 2) They offer ways for players to express their personality, and 3) They reward players for being part of a sustained experience. (Hence his games’ emphasis on collecting virtual items.)

Social games are also successful due to broader societal trends. By way of example, Playfish CEO Sebastien de Halleux noted how in one title, players seemed to spend more money on virtual Christmas trees than on real ones — because, according to the players, with their friends scattered around the world, far more of them would see a virtual tree than they would a real one. Pincus said game-based activity like this was an investment of what he called “social capital,” a means of maintaining contact with our growing network of friends and acquaintances. If the industry further emphasized this advantage in future games, Pincus argued with charming bullishness, social gaming could become as pervasive as social networks themselves.

Disclosure: GigaOM is a media partner of the Summit.

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Twitter got an interesting tech support call from a highly unique customer today: The Obama Administration, via the U.S. State department, which reportedly asked the microblogging service to delay a system upgrade in order to maintain the tsunami of history-making tweets about and emanating from Iran via Twitter’s #iranelection topic in the wake of the country’s highly disputed presidential election. It’s unclear if high-ranking members of President Obama’s team were directly involved in this Twitter request; given that this is by far the country’s most Web 2.0-centric Administration, however, it’s possible they were. (Last April, the State Department included Twitter co-founder Jack Dorsey in a sponsored delegation of technology executives to neighboring Iraq, in order to show, among other applications, a spokesman explained, how “new technologies can be used to build local capacity, foster greater transparency and accountability, build upon anti-corruption efforts.”)

In any case, it’s fascinating to contrast this behind-the-scenes activity with the official statements coming from the White House. President Obama’s first public statement on the Iran turmoil yesterday was muted and highly cautious, taking pains (in light of historic U.S. interference in Iran) to emphasize that his Adminstration respects Iranian sovereignty and self-rule. (Critics have instead urged him to condemn Iran’s repressive tactics.) At the same time, however, his State Department is actively working with the central conduit of protest against Iran’s government: Twitter. As the President put it yesterday, “[W]e do believe that the Iranian people and their voices should be heard and respected.”

Image courtesy of Wired’s Danger Room.

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Tags: iran, Twitter

We’re playing more online games than ever before, but we’re paying less for them, interactive marketing firm Future Ads said today. Of the 8,000 online casual gamers surveyed by the company this spring, 61 percent reported gaming more than last year, while nearly 80 percent of those who also own a video game console said they’ve been making “significant” spending cuts in console-related purchases due to their cost. (Separately, NPD reported a drastic dip in May 2009 video game sales, down 23 percent from the same month last year.)

These results are bad news for game developers that still depend on traditional retail sales or monthly subscriptions (especially during this recession). At the same time, they offer further evidence that gamers are increasingly turning to interactive entertainment that’s cheap (as with bestselling iPhone games that usually sell for a few bucks) or free (as with incredibly popular social games like YoVille.) It may also be conveniently good news, it should be noted, for Future Ads, which owns ad-driven casual gaming site Gamevance and game hub PlaySushi. Then again, with online advertising revenue also down, ads are far from a reliable panacea for game developers anyway.

The survey’s macro trend, however, is undeniable, and one to which major game publishers are finally adjusting. After years of developing retail and subscription-based MMORPGs, for example, Sony Online Entertainment last April put out Free Realms, a freemium, casual gamer-friendly title, and was duly rewarded with some 3 million registered users in less than two months. (Sony hasn’t disclosed how many of those converted into paying customers; an educated guess is about 10 percent, paying around $2.4 million monthly.) Other freemium online games from big publishers, like Electronic Arts’ Battlefield Heroes, are on the way; if they replicate Free Realms’ success, they’re likely to shape consumer spending patterns even after the recession. Since they’re produced on lower budgets, freemium games can’t offer all the flash of a game retailing for $60. But if the history of the Internet is any guide, great-but-expensive almost always gets beaten out by OK-but-cheap, or better yet, free.

Image courtesy FreeRealms.com.

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Tags: Casual Games, electronic arts, Freemium, Sony

When Google launched its O3D browser plug-in for displaying rich 3D graphics last month, I was dubious that the virtual world industry would eagerly embrace it as a platform for future MMOs. Most of the larger casual virtual worlds, like Habbo and Gaia Online, run on Flash; Mozilla and the Khronos Group are already developing their own 3D graphics API for Firefox. There’s also a lot of insider buzz about Unity 3D’s web plug-in, which already has an install base of 10 million, a company representative recently told me, and is the chosen platform for several major MMOs in development. What’s more, the weak launch and hasty execution of Google’s own virtual world, Lively, suggested the company had given up on the space.

After this weekend, however, I think O3D deserves a closer look from MMO makers. Here’s why:

O3D To Be Fully Integrated Into Google Chrome This Year

Vangelis Kokkevis, O3D’s tech lead, spoke at the Metaverse U conference in Stanford, making his API’s case to the virtual world developers in attendance. While it’s still just a plug-in for IE, Firefox, Safari, Chrome and Camino, Kokkevis said the “next goal” for the team is to fully integrate it into Google’s browser by the end of 2009. Since launching last September, Chrome has gained a slightly bigger slice of the browser market, and an aggressive marketing campaign could help it build momentum. If O3D is integrated on schedule, virtual world developers would gain a potential audience of Chrome users who can launch their products without having to pre-install a plug-in.

COLLADA Converter Makes O3D Compatible With Leading 3D Graphics Formats

At Metaverse U, Kokkevis emphasized O3D’s COLLADA converter, which translates graphic files made with industry-standard graphics software like Maya, Max, and Google’s own Sketchup. That makes O3D much more attractive to studios already working with these tools; by way of demonstration, he showed off a graphically rich platform video game built in Max and converted to O3D, he told us, within a couple weeks. COLLADA’s code is managed by the Khronos Group, which the O3D team is also participating in; Kokkevis even suggested that O3D’s efforts could be merged with Khronos. As he put it, “We want a 3D API for the web browser, whatever the flavor.”

Google Wave Plus O3D Plus Chrome = Virtual World Win?

Virtual worlds are hardly just about graphics, however; at least as important are communication channels between avatars and their groups, both asynchronously and in real time. After I got back from Metaverse U and read early reviews of Google Wave, the product suddenly struck me as a potential complement to a virtual world running O3D, especially within Chrome. Rather than implement a third-party chat/instant-messaging system or create one from scratch, MMO developers working with O3D could use Wave to perform those services (assuming they’re compatible, to be sure.)

After his presentation, a group of developers surrounded Kokkevis, peppering him with tech-heavy questions. He told me there weren’t any companies creating MMOs in O3D yet, but he raised the possibility that Google might port Sketchup and Google Earth into O3D, “once we become part of the browser.” (Both have been implemented for MMO-related projects.) Still, the debacle with Lively has left in its wake some distrust of Google’s commitment to virtual worlds; one Metaverse U attendee openly challenged Kokkevis on that point: “What makes you sustainable?”

“I really cannot tell you what the future can be,” Kokkevis replied. “We’re hoping it’s going to be successful.”

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Tags: chrome, Flash, google, Metaverse, mmo, unity3d, Vangelis Kokkevis

Second Life creator Linden Lab will announce on Wednesday that SL users have generated 15 billion voice minutes on their internal avatar-to-avatar VoIP service since the product was launched 18 months ago, and are now forecast to do 15 billion total voice minutes in 2009. By contrast, Skype handled 65 billion total voice minutes last year, according to parent company eBay (PDF).

Since Skype users aren’t usually communicating with each other in a virtual world, this might seem like an apples-to-oranges comparison. However, Linden has been emphasizing Second Life’s voice chat feature as a utility for educators and corporations with an SL presence who use it to conduct in-world conferences and other voice-driven applications. And tomorrow, the company will also announce a battery of voice services usable outside SL, including “AvaLine,” which enables mobile phone-to-avatar calling.

Linden VP Joe Miller told me the company believes this puts it in competition with Skype. Judging by SL’s high voice usage rates, it’s certainly a niche competitor. Then again, with Second Life’s roughly 750,000 monthly users compared to Skype’s 42 million-plus daily users, it’ll be a long time if ever that the VoIP giant feels the virtual pressure.

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Tags: Mobile, Second Life, skype, SMS, VoIP