If you only followed Zynga’s stock price, you might think the entire business of games on Facebook was in free-fall. But many of the big developers of social and casual games are doing just fine, according to Davin Miyoshi, vice president of social games at GSN, which operates a major game studio in downtown San Francisco. In fact, Zynga’s loss might be other developers’ gain, Miyoshi says, as the perceived uncertainty around online games discourages new investment, reduces competition, and gives financially sound players the opportunity to shine.
“It’s a really exciting time, actually, even though you will hear otherwise,” Miyoshi told me in an extended interview last week (an edited transcript of which is below). While all social game companies face a common challenge right now—namely, the fact that the industry’s first, rapid wave of “green field” growth is over—Miyoshi thinks most of Zynga’s problems are self-inflicted, having to do with overinflated revenue expectations and a company culture that’s proving, shall we say, unpalatable for many employees. (Actually, Miyoshi’s words were “toxic” and “miserable.”)
Miyoshi is a former investment banker who spent five years in corporate business development at 3Com, helping to engineer the turnaround at the ailing router and switch maker that paved the way for its eventual purchase by HP for $2.7 billion. After leaving 3Com in 2006, Miyoshi co-founded Mesmo, a social TV startup that evolved into a developer of social games and got acquired by GSN—also known as the Game Show Network—in 2010. The Mesmo team became the core of GSN’s social games division, which now has 35 employees and is the seventh largest game developer on Facebook. Miyoshi’s division focuses on virtual casino games like Wheel of Fortune Slots and Video Bingo, while GSN’s 100-strong East Coast shop in Waltham, MA, focuses on cash games like Scrabble Cubes. (I profiled that part of the organization back in 2008.)
I’m not a huge player of casual games, so I wanted to use my time with Miyoshi to get his sense of the state of the market, including which game genres are most popular nowadays, how business models are shifting, and how the fortunes of big players like Facebook and Zynga are affecting other companies. It was a frank and wide-ranging interview, as you’ll see below. One of Miyoshi’s major points was that the gold-rush days when casual game developers were scooping up million of new users each month have ended, and that developers are now being forced to grow by building better games that grab players away from competitors.
Xconomy: If you had to give a one-minute history of the business of casual and social games over the last few years, what would you say?
Davin Miyoshi: A few years ago the two main forms of monetization were downloads, the leaders in that space being PopCap and iWin and a few others, and the sorts of games in which GSN was involved—skill-based gaming where you had the ability to compete using real cash. What happened then with the emergence of social gaming on Facebook was that we saw a new way of being able to generate revenue from end users via virtual goods, virtual currency, and microtransactions. You could take classic casual games like Bejeweled Blitz and monetize them via power-ups.
On Facebook, you saw a number of different genres emerge. Early on it was role-playing games. Then you saw a lot of simulation style games, and enterprise-building and time-management games like Diner Dash and Sim City and Restaurant City. Then came the mid-core games, meaning real-time strategy games from companies like Kixeye and Kabam, such as Kabam’s Kingdoms of Camelot.
You also saw the emergence of the iPhone and being able to play casual games on smartphones. That’s an interesting jump and there is an opportunity for casual games there to
