Facebook – Gamification.
Facebook does not intend to play second fiddle to Tencent for long.
Facebook is increasing its position in gaming aiming to come at this critical Digital Life service from all angles to ensure that it ends up dominating the segment in developed markets.
Facebook has launched a new app for the desktop called Gameroom which is a client, much like Steam, which allows games that are developed in Unity to be easily published and accessed via Facebook’s platform.
Steam is a PC gaming platform that serves as a distribution channel for digital games, supports multiplayer and has a thriving community of PC gamers.
Gameroom aims to be very similar with the added kicker that it will provide game developers with much easier access to its 1.6bn users which is an asset not to be sniffed at.
Facebook’s aim is to help developers sell more of their games to users and to encourage users to play games on its platform rather than elsewhere.
Steam gamers are mostly hard core players but it does also distribute casual games and we think that it is this segment that Facebook is going after at this stage.
This makes complete sense because when it comes to the ecosystem, it is the smartphone and the tablet that really matter as the vast majority of games played on these devices are casual games.
Hence, when Facebook is trying to entice users to spend more time within its properties, it will be on these devices where it will need to generate the most traction.
This is because it is based on the experience on these devices that the user’s ecosystem decision is taken.
Hence, we do not see Gameroom as a real challenge to Steam but instead a play to fully colonise the Gaming segment of the Digital Life pie which in developed markets remains largely unoccupied.
Facebook is coming at gaming from all angles from VR and Occulus at the high-end to experimenting with gaming within its chat app Messenger.
Gameroom adds another string to Facebook’s bow when it comes to conquering gaming and of all of the major ecosystems, it is probably in the best position for gaming (except Tencent in China).
Microsoft and Sony also have thriving gaming communities but have completely failed to convince any of these players to play casual games within their systems on mobile.
This has left the largest (30%) segment in Digital Life wide open which is why we think Activision bought King Digital.
We also believe that this is why Tencent purchased Supercell but the consortium structure that it is building around this acquisition makes me think twice.
This launch further reinforces my belief that Facebook is working at becoming the largest ecosystem of them all with over 2bn users and 80% Digital Life coverage.
This would put Facebook in undisputed leadership with Tencent in second place with 77% coverage and over 1bn users.
This is how Facebook goes from being a US$20bn revenue company to US$50bn, a large slice of which is likely to come out of Google.
However, in the meantime, Facebook has a lot of work to do as its current Digital Life coverage is just 36% and it remains really just a collection of apps rather than an ecosystem in its own right.
This is why we am nervous on the short-term outlook for Facebook as market estimates are assuming that revenues materialise from the new ecosystem services long before we see them as being mature enough to generate revenue.
We think the slip comes pretty soon, which is why we remain short-term cautious on Facebook despite the fact that it has a lot of long term potential.
There will be a better time to get in.
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