In hopes of pumping up its revenue outside of advertising, Facebook preps for gambling opportunities
Let the Facebook gambling begin -- well at least in the UK.
Online gambling operator Gamesys worked with Facebook and Bingo Friendzy to allow players 18 and older to play on the social networking site for cash prizes, rather than just virtual goods. This is a HUGE first step to help Facebook diversify its monetization and bring gambling possibilities onto the largest social network.
Granted, this is only available in the UK as of today, but it is clear that Facebook will want to roll this service out to as many countries (and possibly states) as it can, especially since the revenue that it has been raking in from the digital goods portion of its company has been rather stagnant the last three quarters at around $180 million - $192 million (that's less than 20% of the total revenue of the company).
Facebook's biggest gaming (and digital goods) partner, Zynga, also has plans to unveil some real money gaming opportunities next year.
Facebook is using age-gating technology to keep anyone under 18 away from the app and make it inaccessible.
While the standard cut of digital goods that Facebook reaps is 30%, it is unclear if Gamesys and Bingo Friendzy have inked any different type of deal since this is a gambling service (where people can win or lose money). I would bet that Facebook has created a slightly different contract for real money services that it could use to encourage more companies to offer this service.
Since gambling is seen as more of a vice and danger than buying virtual goods, Gamesys has set up tools to help people set spending limits before they start playing and its practices are regulated by the government.
Zynga, Facebook and other companies are chomping at the bit for the US government to reevaluate the gambling laws in the States so that online companies can offer similar services here, but currently, the different states' laws create a lot of challenges for this opportunity.
Zynga Poker, alone, attract more than 7 million people every day and over 30 million each month. Many of these players would love to get a return on their recreational gambling in the gaming world if they could -- and Zynga would love to prove to investors that it can vary its revenue model from the Facebook virtual good-based focus it has had for a handful of years.
If Zynga can successfully offer social gaming, in some fashion, it could resuscitate the falling shares that have dipped below $3 recently, after a challenging IPO in December.
Over the Christmas break, the Obama administration’s Justice Department also opened another door that got gaming companies toasting their eggnog -- it ruled in December that online gambling was legal, as long as it was not sports-related, which was specifically prohibited in prior law.
This ruling reversed a long interpretation that federal gambling law extended to Internet gambling.
Social gaming has proven itself to be a strong revenue driver for companies that can bring in those freemium players.
Digi-Capital found that online and mobile games are poised to grow into an $82 billion market with a revenue share of 50% as the historically popular console gaming flattens out.
Social and mobile gaming has done something that few thought was possible, turned some of the least likely demographics into serious and paying gamers -- the over 40 crowd, and this is proving to be a great growth market for gaming companies and an enticing market for advertisers that want to reach that market.
Last year, gaming investment and M&A more than doubled just as private placements grew by 96% to $2 billion.
The demand will be even greater in gaming if they can fold gambling in there too, even if its not yet in the US.
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Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users. Zynga’s games are available on Facebook, MySpace, Bebo, Hi5, Friendster, Yahoo! and the iPhone, and include Texas Hold’Em Poker, Mafia Wars, YoVille, Vampires, Street Racing, Scramble and Word Twist. The company is funded by Kleiner Perkins Caufield & Byers, IVP, Union Square Ventures, Foundry Group, Avalon Ventures, Pilot Group, Reid Hoffman and Peter Thiel. Zynga is headquartered at the Chip Factory in San Francisco. For more information, please visit www.zynga.com.