Friday, April 18, 2008

SGN v. Zynga Round 3 - SGN buys 1 million active users

I have a suspicion that brand advertisers don't really get the social networking app arena. Why? Because Zynga and SGN have both been buying up apps with lots of dead installs. Dead installs are only useful for two things, cross-promoting your others app via email (against Facebook's TOS), or pitching to advertisers as reach. You know, "reach", how many users engage with your site/app in a given period. For instance, SGN is pitching 50 million installs, though I doubt less than 10% of those user will interact with a SGN game in the next six months. However, advertisers might well read 50 million installs and get excited. It's like politics in Chicago, even corpses count.

Regardless, SGN needed to do something. Their core game apps: WarBook, Jetman, Fight Club, and Street Race have seen massive dropoffs in usage since their peak, losing more than 70% of their traffic - from 700,000 DAU in mid-December to just under 200,000 DAU as of today. It's hard to pitch yourselves as a traffic acquisition method to other game developers if you don't have the traffic.

The recent acquisitions (esgut, Nicknames, Friend Block, Oregon Trail, Free Gifts) have added over 1 million active users to their core userbase. Wow. Did I say dead installs, because that's some LIVE traffic.

However, SGN made some excellent strategic purchases that add more value to their company then just traffic.

The guys as esgut make apps that show a clear understanding of the nature of social networks: Entourage, Superlatives. These apps are about showing off your connections with your friends which is really at the core of social network usage for anyone under the age of 21. Nicknames shares this understanding as well.

Until Friends for Sale! came out, not many people realized the value of linking friendship display and games. SGN clearly does, and I hope with the guys at esgut and Nicknames on their team, we'll see some games coming from them that connect more deeply with friendship values.

However, the brilliant move was acquiring Free Gifts. I'm sure that Shervin (CEO of SGN) is looking to create a virtual goods economy. Free Gifts is Facebook's top gifting app, making it a great launchpad for premium virtual goods integrated into SGN's game network.

Games+friendship+virtual goods. Now we're getting somewhere.