A Long Beach, Calif.-based casual gaming company founded way back in 2004, called GoPets, has sold to social gaming giant Zynga for an undisclosed sum, according to a Facebook status update from a GoPets founder spotted by Virtual Goods News over the weekend. Zynga is not commenting on the acquisition.

Why would Zynga want this company? Right off the bat, it’s easy to think that Zynga is looking more seriously at virtual pet-caring games, along the lines of SGN’s (fluff)friends or Playfish’s Pet Society. From the GoPets company description:

GoPets is an online world that revolves around 3D virtual pets. You can adopt a cat or dog, and design it’s very own 3D virtual land on which it lives. A GoPet can be dressed up in fancy clothing, eat exotic foods, and interact with the different items that you buy it.

But it’s not just the game genre that has similarities to Zynga. GoPets also includes a very evolved set of virtual goods monetization features. There’s a mini-game section, a multi-currency virtual economy, a premium subscription service, and a lot more — the game is popular enough to warrant this Wikipedia entry that will tell you about it in detail. GoPets also has what appears to be a couple of spin-off sites, including GoDance and Big Bad Puzzle.

Zynga, of course, has increasingly complex virtual economies running in its own games. One acquisition, of MyMiniLife earlier this year, came with technology that was quickly put to use in its hit game FarmVille. What’s more, Zynga appears to be getting into the popular social game genre of fish-themed games — it got a trademark for “FishVille” recently, for example.

Also, from what we can tell, GoPets has deep roots in Asia: Wikipedia and VGN wrote that it is based in Seoul, South Korea (the company web site lists its location as Long Beach), and it also won a Red Herring Top 100 Asia startup award in 2006.  On a related note, we heard awhile back that Zynga has been visiting Asia more often; in fact, we got a tip that something big was happening with GoPets, a number of weeks ago. As Zynga is not commenting, we’re assuming that GoPets was one of the fruits of Zynga’s exploration. Now, according to VGN, at least some of the 55-person company will be working out of Zynga’s much larger San Francisco headquarters.

Social network Bebo has launched a new gaming section of the site yesterday, called the Social Games Experience. It includes both in depth developer tools and games developed by existing social gaming companies including Playfish (Pet Society) and MindJolt (MindJolt Games). The announcement punctuates the end of a 19 day long beta period that Bebo claims helped spur 45% growth in canvas page views and 54% increase in game installs since its start on October 15th.

Beyond the currently existing games, however, the announcement also includes the launch of the new games platform’s main page, called Games Homepage. The page includes games, high scores, recommendations, and a display of the “Most Addictive Games on Bebo.”

Though it may seem commonplace from a Facebook perspective, each feature is a key part of what makes up of social gaming. The first is challenges, allowing users to issue game challenges via Bebo Messenger from within the game itself, or through the home page. Regardless of method, those challenged will receive an instant message directing them to the game should they be online, or discover a challenge announcement within the Challenge and Standing module the next time they log on.

As one may have guessed, the second pillar is leaderboards (which display either your top ranked friends or all Bebo users), creating an overall competitive feel and purpose to playing. This is followed by the simple ability to see just who is online, active, or idle (a feature powered by AOL Instant Messenger) coupled with game updates that show just who is adding and playing what games, as well as when they receive, what is called, Bebo Luv.

The profile module for a game can also be added directly to a user profile. In turn, this creates a feed that will also add greater social depth by allowing them to show off scores and achievements. As with Facebook feeds, this feature also includes inline commenting, as well as direct challenges, and a nifty little one called “talk smack.”

All other benefits associated with Bebo’s new Social Games Experience are listed below:

• Visibility in the Games Module on the User Profile Page
• Access to post to the Games feed on the Games Homepage
• Access to post to the global leaderboard on the Games Homepage
• Ability to send real-time challenges to users via Bebo Messenger
• Ability to send user-initiated challenge requests to online users via Bebo IM
• Set/get scores & ranks from Bebo’s global leaderboard, visible on the games homepage
• Get scores/ranks of similar users to help in challenge pairing and to render within applications
• Send user-initiated smack talk
• Show a users online presence in the Multi-friend selector & Multi-challenge selector
• See updated libraries for Java and PHP
• The ability to benefit from the popular Bebo ‘luv’ as means of reward

Former MySpace chief executive Chris DeWolfe has been looking at raising a large round of funding, and buying or otherwise merging smaller social gaming developers into a cohesive unit that can challenge Zynga and other market leaders. CNET published this story before we had a chance to, but we can confirm we have heard the same from multiple sources. We emailed DeWolfe early last week and we’ve heard nothing back.

Why would DeWolfe be looking at social gaming? Well, as he was MySpace’s CEO until last spring, he had the chance to watch Playdom, Zynga and a range of other developers grow big on MySpace’s developer platform. Certainly, he has seen many social gaming companies grow even bigger on Facebook.

And, why DeWolfe? His parting with MySpace owner News Corp. did not appear to be pleasant. But, 1) he made a lot of money for a lot of people when MySpace sold for $580 million to the media conglomerate in 2005, 2) he made money for News Corp. while running MySpace over the last four years, and 3) as a MySpace cofounder, he knows the social technology business better than most; the CNET report mentions that he may be working with recently-departed MySpace CTO Aber Whitcomb on the fund.

In other words, potential investors will listen to him, and developers might be convinced to join forces with him. How much money? $100 million, according to a report from this summer by TechCrunch, although at the time the focus of the fund was not named.

Meanwhile, the competition is getting more intense in social gaming. Big, traditional gaming companies like EA are looking at either buying companies (possibly Playfish, we first heard some weeks ago) and are meanwhile building their own social games. Leaders, like Zynga, are growing in part through buying millions of dollars in advertising on social networks. All big social game developers are also growing through cross-promoting new applications in toolbars within their more established ones.

In fact, back in early October, before we heard the DeWolfe rumors, we were speculating who could challenge the current markets leaders. “Perhaps a group of VCs or a private equity firm will step in with $100 million, roll up some of the smaller yet successful developer shops, and go to war?” DeWolfe is not the only person we have heard might be going for this approach.

The platform is in flux, as new changes — like the new homepage last week, or the notifications switch coming soon — hit all developers. Perhaps the time is right for a roll-up?

Advertising offers have been a key way for some social games to make money. And, there have been recurring questions about them (most recently on TechCrunch), as some offers are scams. Today, Zynga chief executive Mark Pincus has published a blog post explaining his company’s position in more detail.

What he says matters because Zynga is the single largest social gaming company on Facebook, and it has also been using offers for many months. In the post, Pincus defends the concept of the offer, points out that it does not make up a majority portion of Zynga’s social gaming revenue, admits to not guarding well enough against scammy offers, and says the company is working to fix the problems. For more on the issues, see our post from earlier today.

Key quotes, below, along with our context.

Pincus: “Most of these offers are good for the advertiser and user. There are many users who don’t have access to online payment methods who are still interested in making in game purchases. There is also great potential for large web players like amzn, ebay and netflix to leverage social media channels like facebook and zynga to acquire new user relationships. Sponsoring a white tiger or pink tractor may accelerate these customer acquisition campaigns.”

Context: Netflix and a couple of other fully legitimate companies have been using offers for a long time, and they still are. This is because offers, at their core, allow users to earn points in a game in exchange for something else they might want, like a Netflix subscription. The concept of an offer is perfectly legal and ethical, although particular offers are neither.

Pincus: “The offer industry is still just getting started and this category of advertising makes up a small minority of our revenue, the bulk of which comes from users directly purchasing virtual goods.”

Context: In April, another big gaming company, Playdom, told us that half its revenue came from offers and half from direct payments — multiple industry sources since have told us that the offer share of revenue has gone down versus direct payments via PayPal, mobile payment providers, etc. So based on what Pincus is saying, either the number has gone down for Zynga, as well, or the company never made most of its money from offers in the first place.

Pincus: “We have worked hard to police and remove bad offers. In fact, the worst offender, tatto media, referenced in the techcrunch article, had already been taken down and permanently banned prior to the post. Nevertheless, we need to be more aggressive and have revised our service level agreements with these providers requiring them to filter and police offers prior to posting on their networks. We have also removed all mobile ads until we see any that offer clear user value.”

Context: It is not clear when Zynga made this change, although we’ve asked the company for comment [Update, see quote, below]. Mobile ad scams have been a problem on Facebook for many months, as we’ve previously covered. We have also heard that these scams can be much more profitable than more legitimate forms of offers — meaning that social gaming and offer companies may only be getting rid of them now that social gaming itself is becoming more mainstream, and as people start looking more closely at potentially questionable practices.

From Zynga:

This has been a continual process over the last few weeks. We have revised SLAs in place with our partners well in advance of last week; and, beginning last week and over this past weekend we aggressively worked with our partners to remove all mobile ads and other ads that didn’t offer clear user value.

At this point, though, the question for any company that has run scammy offers is if or how much they have been complicit in the problem. We have heard whispers about scams within the industry, and we have also heard that offer rates are dropping because users and advertisers are not finding value in them. But we have not gained a significant amount of evidence in proving how widespread the problems have been. Neither has any other publication, from what we have seen. We are continuing to look into the issue. Email us, here, if you have more information to share: mail AT insidefacebook DOT com.

In the first of many significant changes that Facebook is rolling out to its developer platform, the company introduced a new home page news feed on October 23rd. This new design made the default view of users news feed an algorithmically-tuned “Top Stories” feed, with the live stories feed still available through the click of a button on the home page. The change may now be significantly impacting the growth and engagement numbers of social gaming applications, although the change is so new that this is the first week where we might see meaningful evidence.

Games that have done well in recent weeks continue to lead, although some appear to be seeing their daily active user counts level out despite the growth. Given all the other changes Facebook has planned for the platform in the next few months, watch for potentially big shifts in our weekly lists going forward.

	Name	MAU	Gain	Gain, %
1.	Café World	27,977,880	+4,163,216	+14.88
2.	FarmVille	62,923,096	+1,262,767	+2.01
3.	Death Story	1,055,404	+1,055,388	+100.00
4.	Bejeweled Blitz	10,234,486	+846,585	+8.27
5.	Pet Society	21,521,684	+807,488	+3.75
6.	Restaurant City	18,012,216	+557,768	+3.10
7.	Mobsters 2: Vendetta	3,934,386	+435,068	+11.06
8.	Tattoodle	5,403,633	+337,726	+6.25
9.	Forever Friends	1,416,490	+286,939	+20.26
10.	Pillow Fight	2,554,608	+277,987	+10.88
11.	JibJab	822,223	+263,605	+32.06
12.	Animal Paradise	4,180,206	+233,082	+5.58
13.	(Lil) Farm Life	5,984,443	+216,527	+3.62
14.	Which Zodiac Sign Are You Most Compatible With?	617,788	+203,564	+32.95
15.	Vampire Wars	3,961,179	+203,393	+5.13
16.	Barn Buddy	7,065,975	+202,037	+2.86
17.	Country Story	8,342,134	+201,299	+2.41
18.	Texas HoldEm Poker	18,755,446	+182,255	+0.97
19.	what are you born to do?	806,029	+176,489	+21.90
20.	Sorority Life	7,401,778	+174,246	+2.35

Before we get into the numbers, there are a few reasons why the news feed changes could be impacting apps. Top Stories uses an algorithm to figure out what your friends are doing that will be most interesting to you, which is in essence how the news feed worked before Facebook switched to the live stream in March. Now, Facebook has said, Top Stories is based in part on engagement factors like how often you comment or like other peoples items — although the company has not made all of the details of the algorithm available.

Also, both the new Top Stories feed and the live feed now contain photos, events and other content that formerly appeared in the “Highlights” section on the right-hand side of the old home page. Putting all this content into the feeds means potentially less room for the stories that users share with each other about their actions in apps.

In terms of the user experience, the result for most users is that they see fewer stories about apps than before. So in order for an app to maintain its daily user base, people actually have to want to use it. See this article for more coverage of forthcoming changes.

The fastest-growing game this week is virtual aquarium decorating app Happy Aquarium, made by CrowdStar. The app has had a few big weeks, and this past one it gained 4.40 million users to reach 22.8 million monthly actives. In terms of daily active users, though, the app has stayed relatively flat at around 6 million. Note: The game no longer officially appears in the “games” category, even though it had in past weeks. So that’s why the game is not on the list. It’s not clear why CrowdStar would have made the change — perhaps they didn’t feel that the app was so much of a game? We’re going to keep covering it here, in any case.

DAUs also appear to have flattened for Zynga’s latest hit, Café World. The virtual restaurant game gained 4.16 million to reach 28 million monthly actives. But DAUs have apparently flattened since the redesign went into place, with around 7.76 million as of yesterday. Other leading Zynga titles, like FarmVille and Roller Coaster Kingdom, also appear to be slightly flattening.

Going on down the list, the trend generally seems to be that game DAUs are slightly flattening, although some, like Popcap Game’s Bejeweled Blitz, continue to see DAU growth.

Another way to look at the data is by checking out our top game developer leaderboard on AppData. These top developers show the same trend: Flattening or slight lower DAUs since the 23rd.

As the virtual goods market continues to grow in the US – nearly doubling this year to just over $1 billion, according to our recently released Inside Virtual Goods research report – more attention is being paid to one of the more intriguing sectors of the virtual goods payment ecosystem: offers. Offers, a form of incentivized lead generation for performance marketers, are a popular alternative payment method for a variety of free-to-play online games, and currently play a role in the monetization of many social games through virtual currency microtransactions. How does it work? Basically, players are incentivized by developers to take advertiser offers with in-game virtual currency that they can then use to progress through the game.

One of the main issues that many people are still trying to wrap their head around is the sustainability of the offers space. Given concerns over quality of both the offers themselves and the leads they generate, are offers really going to be a meaningful method of social game monetization in the long term?

Quality has been and always will be an issue in any performance-based marketplace. Why? Because actors on both sides – advertisers and users – are trying to optimize for their own goals. And as you may expect, based on the history of the world, some people are always willing to be tricky to make an extra buck. That’s why the companies that operate performance marketing platforms have to keep both sides in check. If either side of the system – users or advertisers – act fraudulently, the system stops working. This is why Google has large efforts and teams devoted to managing both click fraud and landing page quality.

One example often cited by skeptics of the sustainability of offers in social games is the story of the “free iPod” incentivized marketing companies of a few years ago. Basically, these companies got people to sign up for a lot of offers by promising them a valuable reward, like a free iPod or plasma TV. But two significant problems arose. 1) Eventually, the advertisers paying for those leads realized that most people who took their offers weren’t really interested in their products at all, but were just trying to get the prize, and so they stopped investing in this area. 2) In addition, because the “free iPod” companies were paid for generating the leads, but had to actually pay out of their own pocket to deliver the prizes, they often made it difficult for users who took the offers to actually get the prize. User complaints led the FTC to get involved.

At the end of the day, the sustainability of offers in social games (or any other area for that matter) first depends on whether there is real value being delivered to both advertisers and users. I agree with Jay Weintraub that there are a couple of fundamental reasons why the space is creating sustainable value.

1. Payment choice in social games. When users decide to purchase virtual currency, they are most often choosing from a variety of payment methods inside the context of the game – and, within the offer wall itself, a variety of offers. These days, most payment aggregators offer five, ten, or more different payment options for users wanting to purchase virtual currency. These include PayPal, credit cards, mobile/SMS, offers, prepaid cards, and many more. In addition, once a user chooses to browse the offer wall, there are almost always many offers shown by default that are targeted to the user. While this is by no means perfect, it does mean that all users aren’t being forced to pick from a few offers they’re not interested in as the only way to get the virtual currency. Overall, offers make up a minority of virtual goods revenues in social games. The majority of revenues come from some form of direct payment, according to the many industry sources we’ve spoken with about the matter.

2. More accountability through identity. Within Facebook especially, users are operating in the context of their “real” identity. While no one claims Facebook identity is never faked, Facebook’s identity is designed to be very generic and socially verified – as people use Facebook, their whole history of application activity and personal content (photos, notes, links) are tied to their identity, as vetted by their friends. This means it’s generally a little easier to track down fraudulent users.

Andrew Chen also explains well how offers in social games can be examples of good product bundling that generate value.

All of that being said, quality is an important issue facing the industry. Last Tuesday, I had the opportunity to moderate the panel on managed offer platforms at the 80/20 Conference, which is focused on the latest in the performance marketing industry. On my panel were Mitch Liu (Co-founder, Offerpal Media), Adam Caplan (President, Super Rewards), Matt Handel (Co-founder, DoubleDing), Noah Kagan (Founder, Gambit), and Gurbaksh Chahal (Founder, gWallet). During our discussion, Adam Caplan answered a question about how much leads generated through incentivized offers on social networks were discounted by advertisers, and he said that right now he sees a 30-40% discount. Also during the discussion, Mitch Liu answered a question about fraud by saying that Offerpal has outright banned nearly 10% of users from taking any more offers, and that Offerpal has 40 support staff who spend a lot of time calling users to verify their identity.

When it comes to offer quality, much of the concern is focused on offers that don’t clearly disclose their terms to users – for example, mobile content subscriptions that end up billing users monthly without clearly explaining that up front. Every offer network says they eradicate low-quality offers, and new companies entering the space say they’re doing the same. But there are still some deceptive offers out there, and an important question is how widespread they really are. Many developers are self-selecting away from these offers in order to provide a good user experience and protect their brand, in turn driving demand for higher quality offers, but, as we’re seeing, other developers aren’t. (And some developers are choosing not to integrate offers at all.) Clearly disclosing offer terms is important both for users and for the long term health and growth of the social gaming ecosystem overall. Each developer, offer network, and social network (i.e. Facebook and MySpace) should set and enforce clear policies along these lines – if they don’t, regulators will eventually get involved.

Finally, it’s important to note that many of the most sophisticated performance advertisers – who have been around the block a few times – are investing in this space, and have been for some time. The Netflixes and Equifaxes of the world have well-developed methods of evaluating lead quality and adjusting bid prices accordingly, and if you look on your favorite offer wall today (in the US), they’re still there near the top of the list. It’s unlikely that Netflix doesn’t understand how its ads are showing up in social games.

At the end of the day, the most fundamental question facing the industry is whether incentivized marketing in social games is providing real value to honest advertisers and users. If you believe that is the case, then it only makes sense that as the space grows, it will attract more developers and advertisers interested in testing the performance of the market – as well as some people willing to act unacceptably until they’re discovered and forced to stop. The best thing all offer networks can do for themselves, users, and the industry overall is to keep adding more offers that provide more value to users and advertisers, while eliminating any deceptive ones.

Gallery: Offer Walls in Popular Social Games

1. FarmVille, by Zynga – Offers by Offerpal Media

2. Pet Society, by Playfish – Offers by TrialPay

3. YoVille, by Zynga – Offers by Super Rewards

4. Mobsters 2, by Playdom – Offers by Offerpal Media

When we compared this month’s Facebook Top 25 to our first release last December, the growth was astounding. Question is now: How did MySpace do? As we have noted in the past, on Inside Facebook, MySpace has hindered its own platform by not providing clear monthly active user counts for games.

Nonetheless, we do at least have the number of installs, which we can use to get a loose sense of how many new users the games are adding over time. While the top game, Mobsters (from Playdom), hasn’t changed much — it has 14.1 million total users today versus 13.0 million before — the average number of installs across the board certainly has. If you were not in the top ten 11 months ago, you had under 2 million installs a month. Now, the majority of top 25 games on the list have at least around 2 million installs, running all the way down to #20 (Heroes) with 1.9 million. Even those that rank from #20-#25 have seen their average number of installs quadruple. Nearly a year ago, the #25 spot, My Green Garden, held 370,702 installations. Now, the #25 spot, Bloodlines, holds 1,594,092.

Here are the highlights from this past month:

• The Mobsters game sits tight at #1 with over 14 million installs while Zynga has continued to grow with almost 13 million.
• Playdom’s Bumper Stickers app remains at #3 gaining 178,040 more installations, over last month’s report, with Own Your Friends coming up behind it with a growth of about 27,000.
• “Gambling” still proves more popular than the non-mafia role playing games, as Texas HoldEm Poker stays above, at #5, the Zynga virtual world, YoVille, and its RPGs, Vampires and Street Racing (#8, #9, and #10 respectively).
• Tag Me from BitRhymes and Kiss Me from Playdom swap places to #11 and #13 respectively, as Cheers!!, also from BitRhymes, remains at #12 with 3.8 million installations. Curiously, as we saw last month, the app still doesn’t show up in the app gallery.
• Sorority Girls appear to be more popular that poker as Sorority Life beats out Poker Palace for the #14 spot by a scant margin of roughly 24,000.
• Finally, last month’s newcomer, Whats my Impression on friends, from BitRhymes, earned 1.7 million installs, moving up from #24 to #22. Green Spot, however, falls to #24, as it has been overtaken by What My Friends Think About Me.

Though it is difficult to see accurately, MySpace has indeed grown since 2008. The exact amount is obviously obscured, but with four times the number of installs now in the lower ranked titles than last year, overall growth cannot be denied. Nevertheless, if there is any one difference that signifies a different evolution than from Facebook, it is the significant lack of new titles that appear on this list month after month and the absence of international applications. MySpace traffic fell, year over year, to 65.7 million users in September, according to comScore, and from our understanding it has a similar number of users outside the US. But the company also has a range of new initiatives planned, including ones for gaming, we hear and hope. Stay tuned for more.

It has been almost a year since we first started keeping track of the top 25 gaming applications on Facebook. In early December of last year, the top game was (Lil) Green Patch, with just over 6 million monthly active users. Today, Zynga’s FarmVille is in first place, with nearly 63 million monthly active users.

How times change. Facebook itself has grown from around 130 million monthly active users to more than 300 million. Social gaming has benefited from this growth, and also likely helped drive it.

Here are the highlights from this past month:

• Beyond FarmVille, Zynga’s Café World makes its debut at #2 with a little over 27.5 million monthly users. A number reached in an amazingly short amount of time, having only launched at the beginning of October.
• Another new appearance, Happy Aquarium from CrowdStar represents another booming genre: virtual aquariums. The game comes in at #4 with over 22,409,456 monthly actives, pushing Pet Society, YoVille, and Texas HoldEm Poker down to #5, #6, and #7 respectively.
• Playfish’s Restaurant City gains well over 2 million active users this past month, yet still drops to #9.
• Zynga’s Roller Coaster Tycoon itteration, Roller Coaster Kingdom appears for the first time at #11, boasting over 14 million players this past month.
• Another newcomer, Fish World from Tall Tree Games appears two spots down, at #13 (8,536,985 MAUs).
• Farming the Playfish way in Country Story earns 1,563,988 MAUs, but still drops from #13 to #14.
• Another new, international title appears at #21, with roughly 6 million total MAUs, called Paf le Chien (from developer, adictiz) which, loosely translated from French means “Paf the Dog” with Paf meaning the dog’s name and being the French onomatopoeia of hitting something.
• Chinese titles My Fishbowl and 開心農場 remain on the list at #23 and #25 respectively, with a new title, Island Paradise from Meteor Games landing between them at #24

With six new titles to the list, several international developers, and top games holding over 10 times the amount of monthly users as they did a year ago, it is amazing to see just how much the Facebook platform has grown. Likely, if you had told developers they would be getting MAUs in the 10s of millions 11 or 12 months ago, they’d have been hopefully, but probably wouldn’t find it too believable.