Inside Social Games

Virtual goods may be bringing millions of dollars for social and casual gaming companies, but there are still lots of bills to pay, from servers to employees to advertising. Some of those costs appear to be the cause behind Habbo maker Sulake’s planned layoffs.

Last year, the company made 50.1 million Euros in revenue in 2008, with profits of only 1 million Euros, according to Arctic Startup. That would have been revenue of $70 million, going by the exchange rate at the end of last year, with profits of around $1.4 million. Those are not great margins. So, the Finnish company plans to lay off 40 employees out of its 300 total, the publication reports.

While we don’t know the exact reasons for the layoffs, one analysis from last March suggests that Sulake either had unoptimized technology or was overstaffed, or both.

Despite all of the optimism we and many others have about the virtual goods model, this is a sharp reminder that revenue and profit are two very different things. Still, some companies, like China-based Changyou.com, are seeing much healthier bottom lines — that company recently reported a 54 percent margin over the last 12 months.

To dig deeper into virtual goods, check out our new report: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010.