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@ LA Games Conference: Making Money From Social Games

This story was written by Tameka Kee.
VCs have been pumping money into social-gaming companies like OMGPOP and Zynga because the startups have figured out how to do what the social networks themselves mostly haven't: make money from users directly, not just through advertising. Players across Facebook, MySpace and other networks have been gobbling up millions of dollars worth of virtual goods, and while actual figures are hard to come by, attendees at the LA Games Conference did shed some light on how they enticed users to pay (and play). 

The mindset behind virtual goods: Playdom reportedly brought in $10 million in Q4 running games like Sorority Life on Facebook and MySpace (via Venturebeat). CEO and co-founder Dan Yue (pictured, right) wouldn't comment on that, but he did say most of the startup's revenue came from virtual goods." It's the audience that makes virtual items compelling to users," Yue said. "You give them limited-edition items, an image that they can show off on their profileand tie it to a nominal game bonus, like a level advancementand people will buy. It might seem strange, but it's no different than buying a brand-name bag in real life to show off to your friends."

Incorporating advertising the right way:  That doesn't mean advertising isn't valuable. Yue said display ads didn't perform well in Playdom's games, but performance ads did. Facebook's platform manager Gareth Davis said that banners, video and performance ads each had specific kinds of games they worked best with. One multi-player game, for example, forces losers to wait and watch video ads until the rest of the players lose as well. Davis said people actually do wait and watch the ads because they want to continue playing with friends, but that the format might not work with a different kind of game. MySpace's SVP of business development, Jason Oberfest, named Playfish as a company that was particularly innovative with video ads: "They had P&G sponsor a game called Geo Challenge, with video ads, and cross-marketing on TV, and it was done in a way that was very relevant to the game experience."

Get it to spread virally: It's easier said than done, but not impossible. Davis said the top 10 games on Facebook have over 60 million players per month, and they mostly spread virally. "These games need to use the network's unique properties, like having stories automatically published to a player's feed so that their friends can share the experience." Yue agreed: "The gameplay mechanisms need to require players to involve their friends to complete levels or earn more gear. That's how Mobsters went from 0 to 10,000 users on MySpace in three months."

By Tameka Kee

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