Feature: The future of Facebook  

The shift from desktop to mobile has seen Facebook’s role in the social casino sector come under threat. Martyn Hannah reports

Facebook’s days as a social gaming power player appear to be numbered. The rise of mobile has seen millions of players around the world shift from accessing social casino games via their desktop computers to playing through native applications downloaded to their cell phone and tablet devices. The trend has forced operators to adopt mobile-first strategies, which in turn has meant significantly less time and money spent developing games on Facebook’s Canvas platform. Even DoubleDown Interactive, which historically derived the majority of revenues from Facebook, has invested heavily in mobile in recent months with the channel now accounting for more than 50% of deposits. [private]

Facebook has responded to the changing landscape by evolving its services and introducing new features to players, and still remains a strong and significant platform – Eilers Research estimates Facebook accounted for 36% of social casino revenues from the top 15 operators in the third quarter this year. But the secular decline is clear to see, and the lack of a mobile development Canvas suggests Facebook sees its future in the sector not as a platform provider but more as the go-to acquisition channel.

“Facebook Canvas has probably reached a plateau and it’s clear that mobile platforms are where the main growth is, both in terms of audience and revenues,” says Plumbee chief executive Raf Keustermans. “But Facebook has moved really aggressively to capitalize on the advertising opportunity. The social media firm is playing a very important role as an advertising platform for mobile games – they can leverage their deep data set to help game companies target the right players. Other advertising solutions are far less sophisticated as they don’t have the data that Facebook has.”

Life in the old dog

But just how severe is the decline in social casino games being played on Canvas? In its latest social casino tracker report, Eilers estimates social casino game revenues were down 2.8% sequentially and 6.1% year on year to $299m. Eilers said it continues to see “broad based” decline in terms of users levels, and doesn’t expect the trend to change. “The more pressing issue is whether the rate of decline begins to accelerate. While the social casino game category as a whole is still outperforming other game genres, we note the overall decline in user levels is finally catching up, especially for some of the smaller publishers,” the report says.

Despite the decline, developers are still investing in Canvas – albeit some more heavily than others. For the likes of High 5 Games (H5G) and Akamon Entertainment, the majority of their revenues still come through the platform. For Akamon, this is in part due to its focus on the Latin American market where mobile penetration isn’t quite so deep at this stage. At H5G, Patrick Benson, VP of integrated marketing, says the firm has “ridden the Facebook tide” probably more than any other developer and continues to invest in the platform, but admits the shift to mobile is inevitable.

“The majority of our revenue comes through Canvas and most of our loyal players still prefer to play casino games on the Facebook platform. That said, we are now working feverishly to adopt a mobile-first mentality and our main development and engineering initiatives will be heavily focused on delivering a mobile optimized casino experience. Admittedly, Facebook remains the sweet-spot for High 5 Casino and this might not change for some time,” he adds.

The big get bigger

But it is the bigger social casino publishers such as Playtika, Zynga and Product Madness that have been able to hold steady despite the secular decline on the platform. Eilers estimates Playtika actually grew Facebook revenues in the third quarter, up 11% year on year to $77.5m while Zynga grew its revenues by a similar amount (11.8%) to $36m. Product Madness, owned by land-based slots giant Aristocrat, did an even better job and saw revenues increase a massive 22% during the period to $17m. The reason for growth is largely due to achieving higher paying player conversion rates and monetization levels. However, the bigger developers also have the means to reinvest in product, sales and marketing, and tend to have a larger and more loyal user base.

“Of course, the larger companies with bigger budgets can throw more resources at games and marketing so will have a better chance of growing market share,” says Keustermans. “But Facebook as a platform is fairly agnostic to advertising budgets. The partnership and platform teams, in my experience at least, are helping the smaller studios as much as the bigger ones,” he adds.

The transition from desktop to mobile has been an expensive one for developers, particularly when it comes to player acquisition costs and marketing/advertising. The cost and demand for mobile impressions, clicks and installs are rising fast and particularly on Facebook’s ad platform. Advertising has long been Facebook’s main revenue driver, but in Q2 the firm reported record ad revenues of $1.8bn, up 50% on the same period the previous year and a massive 150% on Q2 2013. In terms of social casino, Facebook has had particular success with its video ads, where acquired users have a good lifetime value – one of the reasons why Facebook remains the main acquisition tool for the channel.

“It’s a mix between the targeting possibilities of Facebook and the engagement power of videos,” says Akamon CMO Oscar Fonrodona.  “Facebook is the best tool to target users, once you have successfully targeted them, offering users a video of a game is giving them a little taste of that game, so they can, in a sense, test the game. It happens the same with Instagram video ads, which are performing incredibly well. Facebook is one of the most expensive ad channels. But it’s not a matter of being cheap or expensive, it is the difference between Cost of Acquisition and Life Time Value. And I can say it is a very profitable channel in that regard,” he adds.

Facebook’s decision to focus on becoming the go-to advertising platform for social casino operators looks to be a smart one. The vast audience Facebook enjoys on mobile – via its Messenger, Instagram and Whatsapp! platforms – offers a critical mass for social game developers, and one they can only tap into by working with the social media giant. In that regard, Facebook’s place in the industry looks to be secure for the near term-future at least.

“Facebook’s transition to mobile has already proved it can transcend its origins and platforms as well,” says Andrea Moro, director of games at DoubleDown Interactive. “Provided it continues to invest in the category, there is a lot of value that can be unlocked in the future.”