Commentary

Facebook Sees the Future, and It is Mobile (and Gaming and Check-ins)

Facebook is moving decisively in three related areas, which it has identified as key growth areas based on its own recent experience as well as outside events: mobile access, casual gaming, and mobile check-ins (a small but growing subset of mobile access). The world's largest online social network recently unveiled two big deals which should allow it to monetize mobile check-ins as and buttress its already considerable lead in casual gaming.

On the mobile check-in front, this week Facebook announced a new mobile coupon service, "Deals," which alerts Places users when deals are available from nearby businesses: one of the inaugural Deals marketers, Gap, offered a free pair of jeans to the first 10,000 people who checked into a Gap store on Facebook Places. More place-based mobile partnerships are in the works, including promotional deals with Starbucks, H&M, 24-Hour Fitness and McDonalds.

Facebook is clearly interested in the potential of mobile check-ins. It has kept Places an API to enable programmers to develop new apps and services built around the Facebook feature; it now hopes to find new revenue streams selling place-based digital advertising to national brands and local businesses alike. Deals thus pits the social network against Gowalla and Foursquare, which feature many of the same elements, including incentivizing check-ins with discounts, coupons, and other special offers.

Facebook ChartThere's no question smartphone-users are a logical target for Facebook, considering the unmistakable trend lines: in under two years, the number of people checking into Facebook via mobile devices worldwide increased 700% from just 25 million in January 2009 to 200 million now, according to CEO Mark Zuckerberg. In proportional terms, the number of people checking in via mobile devices doubled almost exactly from 16.7% in January 2009 to 33% now (over the same period overall usage numbers increased 300% from 150 million to 600 million globally, while U.S. users increased 230% from 42 million in January 2009 to 138.6 million in September of this year).

The surge in mobile access seems certain to continue, and even accelerate, in parallel with the expansion of the smartphone market. Total annual smartphone sales jumped 15% from 151 million in 2008 to 174 million in 2009, and they are on course to increase another 55% to 270 million in 2010, according to Strategy Analytics; SA forecasts annual sales will rise another 31% to 350 million in 2011. Meanwhile the proportion of smartphones as a percentage of total mobile device sales has increase from 13% in the first quarter of 2009 to 23% in the third quarter of 2010.

Also this week, Facebook moved to expand its casual gaming offerings through a new deal with Electronic Arts, the maker of popular games like "Medal of Honor" and the "Sims" series, which will now produce games with a "simplified, more accessible experience for people who play games and purchase virtual goods on Facebook." The move comes about a year after Electronic Arts' acquisition of Playfish, which is already operating games like Pet Society and Restaurant City on Facebook; a leader in first-person shooter games, EA has lagged in casual gaming, but now appears determined to catch up.

For its part Facebook is muscling up to see off the threat from Google, which also has its sights set on the growing casual gaming market. Back in August Facebook created a new executive position, head of game partnerships, to "enhance successful partnerships and influence internal and external partners and industry stakeholders in the Gaming industry... [and] to help both large, incumbent gaming companies as well as venture-backed gaming start-ups develop innovative social gaming experiences building on Facebook Platform."

Again, there's no question that casual gaming is a major driver of Facebook's popularity and constitutes a large proportion of its traffic and usage time. Currently 290 million people play Zynga games each month, representing about 48% of Facebook's total user base of 600 million (other estimates run as high as 53%). Out of a total 700 billion minutes per month logged on Facebook by users, 60.9 billion or 8.7% are spent playing Facebook games, including titles from Zynga and other developers. Most important, Zynga games provide a big chunk of Facebook's bottom line. Facebook gets a cut of Zynga's revenues from virtual goods sales, which came to around $270 million in 2009 according to one estimate by Lightspeed. That means Zynga games contributed roughly $80 million or 11% of Facebook's total revenues of around $750 million in 2009. With virtual goods sales set to surge over the next couple years, that figure is sure to go up.

Of course, Zynga isn't committed to an exclusive partnership with Facebook. On the mobile front, Zynga is poised to bring more games to Google's Android operating system, beginning with Texas Holdem Poker.

2 comments about "Facebook Sees the Future, and It is Mobile (and Gaming and Check-ins)".
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  1. Erik Sass from none, November 7, 2010 at 3:30 p.m.

    Oops, sorry, one clarification: in the third paragraph, when I refer to people "checking in" to Facebook, I just meant accessing the site via mobile -- NOT necessarily checking into Facebook Places. It's not clear how many people are actually using Facebook Places; presumably it's still a small-ish fraction of the number who is accessing Facebook via mobile.

  2. Erik Sass from none, November 7, 2010 at 6:48 p.m.

    According to one recent report citing an unnamed source in Facebook, roughly 40 million Facebook users have tried Places. No data on how many are repeat users.

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