Gaming among friends, that’s the simple answer. Contrary to the console games, where you play anonymously or against machines, in social games you play with friends.  For example, in Restaurant City you run a restaurant with your friends, and it’s the social element that makes it so much fun.  It’s like Monopoly—you can’t play it on your own.  

The social aspect also creates an incentive for people to distribute the game—they invite their friends—which means that we do not need to market the games so actively. Instead we can focus on creating a high-quality experience. That’s our priority. The better the game that we create, the more likely it is that its users will spread the word and involve their friends.  

Our games are not developed for hardcore gamers. That’s very important to keep in mind. Most of our players have never played a console game. By keeping the threshold low we are able to involve many more people. That’s why the games are free. We monetize the content via micro-transactions, by selling virtual currency and virtual goods. As you get deeper in the game—if you want to go deeper—you can buy all sorts of goods that enhance the experience. We have about 60 million active monthly users, or about 12 million daily active users. Between 1 and 10% of these players buy virtual currency, a typical transaction being between 5 and 40 Euros worth of virtual currency. We also rely on advertising but that’s the secondary income stream. The bulk of our revenue comes from micro-transactions; and that makes us profitable. In a way we’re at the intersection of Web 2.0 and the games industry: we have many users—that’s the Web 2.0 element—and we make a little money.

It will come, no doubt.  In fact, all the major game companies are working on this.  But again, remember that we’re talking here about a very small segment of the entire web population.  Yes, there will be games for hardcore gamers.  But the disruptive element of social gaming is that this is opening gaming to a much, much broader population.  It’s the social aspect that makes this so powerful.  Did you play the board game Risk?  I had so many sessions playing risk with friends until 3 in the morning.  It was all about having fun with friends.  The game itself was less important; we never remembered who won.  These games are not about 3D realism; we don’t need to render a blade of grass to minute detail.  No, it’s the social element that matters here, and in the process we’re unlocking an entirely new audience.

This is so important!  Quality is absolutely crucial.  At Playfish we are absolutely focused on quality.  We’re trying to be the Apple of social gaming.  But unfortunately there are companies out there that use all sorts of tricks to get people to invite friends, often unwittingly so.  We do the exact opposite; we make it hard to invite friends.  We focus exclusively on game quality.  If the quality is right, people will make the effort to invite their friends.  That’s also why we have a high-quality audience.  Some of these companies are more like marketing companies; they’re not gaming companies.  But I think that people are smarter—people can tell the difference between quality and crap.  We supported the changes made by Facebook (ed. note, Facebook has restricted the ability of external applications to message Facebook users).  The marketers were obviously outraged, but it didn’t affect us, since we don’t rely on spam.

We’re not a Facebook company; we’re a social gaming company. Our games run on 9 platforms, including Netlog, the iPhone, etc. All we need to know is who you are, and who your friends are. That’s the basics. We understand that Facebook will never be the only platform. In the years ahead you may see the market fragment somewhat; a combination of one or two big players and many smaller players. But that doesn’t matter to us. All we need is access to the social graph, the very basic information about the social network. You can play the same game via different platforms. It’s easy for us to integrate our games into different platforms. It’s the complete opposite to the console games, like Xbox or Wii, where the game is integrated in the vendor’s hardware.  

I think that there are two broad trends to consider in the next three years or so. Firstly, the web is becoming more social. It’s pretty clear that everything gets better via your friends. People are increasingly reliant on their social network: your friends tell you what is good to read, to buy, to do, etc. Within the next 3 years nearly every single web user will be mapped in a social graph. That is huge. And this is a trend that is not going to stop. Within three years we’ll see one of the networks reach one billion users.

 

The other major change will be in the e-commerce infrastructure. Today this is still dominated by eBay and Amazon, using the credit card payment system. But this is still cumbersome and doesn’t handle micropayments well. Also, this type of e-commerce is still largely about physical products and physical distribution. But with web services and virtual goods, delivery has no marginal cost. I can send a virtual jukebox anywhere at no marginal cost; delivery isn’t the problem, but paying is. Paypal, for example, still doesn’t work outside the EU and the US.  There are many companies out there racing to become the next, truly global payment platform.  It’ll be much bigger than Visa or Mastercard.  

 

And I don’t know what web 3.0 is....