Nexon Shares Drop Day One – After an IPO that raised more than $1.17 billion dollars, Nexon’s shares dropped 2.3 percent below their initial offering price by the end of the day. According to Bloomberg, Nexon’s shares begun trading at 1,307 yen, very slightly above the IPO price.

Rice University Picks Night Owl Games as Most Promising Company – Hardcore social game developer Night Owl Games has been named one of Rice University’s five most promising IT and Web Companies, beating out more than 60 other companies for the award. Night Owl Games’ first title, Dungeon Overlord has more than 120,000 MAU according to AppData.

Cie Studios Has a Good Year – Cie Studios, the parent company of Car Town developer Cie Games has released some financial highlights from 2011. According to the company, gross revenue was up 26 percent, but Cie did not break out revenue specifically from its games unit.

Michael Buble Visits CityVille – Canadian crooner Michael Buble is the latest celebrity to make an appearance in Zynga’s CityVille. Starting next week players will be able to collect items and complete quests related to the singer and will have access to an exclusive video within the game.

Social Goods Trading Network Fayceoff Goes into Closed Beta - Fayceoff, a new virtual goods trading network that allows players on social networks to trade unwanted virtual items has gone into closed beta. The company is incentivizing developer sign-up up with a $10,000 contest for integrating the free service into a Facebook game.

American McGee Working on Social Game - American McGee, the well known developer behind the Alice series and head of Shanghai-based games studio Spicy Horse is working on a new social fighting game based on toy collecting. According to Siliconera, the game will be called Big Head Bash and will launch in early 2012.

A Better World Sets Goal for One Million Good Deeds – Pennsylvania-based ToonUps is using its Facebook game A Better World to make the real world a little better. If players perform a million good deeds in real life by January 31st, the developer will donate $10,000 to Cure.org.

[Launch] Outplay Entertainment Launches Two Games – Outplay Entertainment has released its first two Facebook games, Word Trick and Booty Quest. The Scottish company was founded by the former heads of console development studio The Collective and opened an office in April.

[Launch] Pangalore Releases Pop the Candy – San Jose/Seoul-based developer Pangalore has released its latest Facebook game, Pop the Candy, a match-2 game set in a candy store. The game was developed in HTML5.

[Launch] PixelJunk Monsters Online Now in Open Beta - Japanese developer Q-Games’ tower defense game PixelJunk Monsters Online has gone into open beta. The Facebook game began life on the PS3 and PSP before being adapted as a free-to-play social network title. We reviewed PixelJunk Monsters Online when it was still in alpha.

Digital Chocolate’s Galaxy Life takes the lead on this week’s list of emerging Facebook games with Social Point’s Men vs. Women and GameHouse’s Bayou Blast rounding out the top three.

Some other notable entries on this list are the Mission Impossible game — timed to release with the December 21 premier of the film — and Storage Wars: The Game, which seems to have gotten a boost from A&E’s new season of the reality game show.

Top Gainers This Week – Games

	Name	MAU	Gain	Gain,%
1.	Galaxy Life	680,000	+370,000	+ 119%
2.	Men vs Women	640,000	+260,000	+ 68%
3.	Bayou Blast	410,000	+240,000	+ 141%
4.	Triviador Mundo	200,000	+160,000	+ 400%
5.	Gem Rush	940,000	+130,000	+ 16%
6.	Storage Wars: The Game	520,000	+130,000	+ 33%
7.	Mission Impossible	270,000	+110,000	+ 69%
8.	Chef Quest	220,000	+100,000	+ 83%
9.	Puzzle Adventures	220,000	+100,000	+ 83%
10.	Slots Farm – Slot Machines	870,000	+100,000	+ 13%
11.	TubeHero	840,000	+80,000	+ 12%
12.	Bopler Games, Play with hits!	210,000	+70,000	+ 50%
13.	GameGround	380,000	+60,000	+ 19%
14.	Birdland	370,000	+50,000	+ 16%
15.	Fantasy Basketball	110,000	+50,000	+ 83%
16.	Triviador	270,000	+50,000	+ 23%
17.	AA Games	120,000	+40,000	+ 50%
18.	Bubbles IQ	290,000	+40,000	+ 16%
19.	Fantasy Kingdoms	210,000	+40,000	+ 24%
20.	حديقة الحيوان	420,000	+40,000	+ 11%

All data in this post comes from our traffic tracking service, AppData. Come back next week for our top weekly gainers by monthly active users on Monday, our daily active users on Wednesday, and the top emerging apps on Friday.

Zynga’s shares hovered near their opening price at $10 as the company raised $1 billion in its initial public offering. It’s a momentous day for the San Francisco-based company and the entire social gaming industry as Zynga is now worth about $7 billion after being founded four years ago. Shares opened at around $11 when the company started trading on NASDAQ around 11 a.m. Eastern, but are now at $9.98.

Long derided by more traditional and console-focused gaming companies for building casual, free titles on the Facebook platform, chief executive Mark Pincus built a company that is poised to gross more than $1 billion in revenues this year. Yesterday, the company priced its shares at the high end of the original $8.50 to $10 range it proposed two weeks ago. It sold 100 million shares of Class A stock, which have the lowest voting power of the three different kinds of shares it has in its financial structure. The other two classes of stock hold 98.2 percent of the voting power.

Zynga’s IPO is just the beginning — not the end — of a four year journey that helped legitimize both the Facebook platform and the virtual goods-oriented revenue model. Zynga made $30.7 million in net income on $828.9 million in revenue through the third quarter of this year, up from $401.7 million in revenue during the same time a year earlier.

The question now is what Zynga can do to keep up its rate of growth at time when it has saturated the Facebook platform. Daily active users have declined for two consecutive quarters and margins have also declined as Facebook coerced developers to use its platform currency, Credits, giving it a 30 percent revenue share. It has also cut back dramatically on viral channels since 2009, hurting growth for game developers.

Zynga’s net income has also declined from last year’s $47.6 million as the developer invested in research and development for new games. That trend may continue well into 2012; for example, Zynga expects to spend about $50 to $70 million this quarter on network infrastructure.

Pincus said in an investor meeting last week that the company could probably double the number of paying players from 3.4 million out of 152 million monthly unique users in the third quarter this year.

When Zynga posted a 30-minute video of its roadshow a few weeks ago, the company emphasized that Zynga’s games tend to peak in revenues long after they’re launched. They pointed to FarmVille, which reached a peak in bookings about two years after it was released. Coupled with the fact that the last six months have been a busy launch period, Pincus says this lays the groundwork for near-term growth even as daily active users have declined for two consecutive quarters.

In addition to CastleVille, Zynga has recently launched Dream Zoo and ForestVille on mobile. The company has reached 13 million daily active users on Android and iOS, which is about one-quarter of its total usage every day. That suggests that Zynga may be able to reduce its dependency on Facebook, where it earned 93 percent of its revenue in the most recent quarter.

Zynga priced its shares at $10, the higher end of the $8.50 to $10 range it originally proposed two weeks ago. The company plans to list on NASDAQ tomorrow with an offering of 100 million shares, and 15 million shares on retainer from certain stockholders in case there is extra demand. That price would put it at a valuation of around $7 billion based on the total number of shares outstanding.

The company, which was founded just four years ago, has ramped up to more than $1 billion in revenue a year primarily off virtual goods on the Facebook platform. Its model, emphasizing free gameplay with monetization through virtual currency, has changed the way traditional video game industry giants like Electronic Arts operate.

The company made $30.7 million in net income on $828.9 million in revenue through the third quarter of this year. That’s up from $401.7 million in revenue during the same time a year earlier.

But margins have declined as Facebook coerced developers to use its platform currency, Credits, giving it a 30% revenue share even as the platform cut back on viral channels, hurting growth for game developers. Zynga’s net income has also declined from last year’s $47.6 million as the developer invested in research and development for new games. That trend may continue well into 2012; for example, Zynga expects to spend about $50 to $70 million this quarter on network infrastructure.

When Zynga posted a 30-minute video of its roadshow a few weeks ago, the company emphasized that Zynga’s games tend to peak in revenues long after they’re launched. They pointed to FarmVille, which reached a peak in bookings about two years after it was released. Coupled with the fact that the last six months have been a busy launch period, chief executive Mark Pincus says this lays the groundwork for near-term growth even as daily active users have declined for two consecutive quarters.

In addition to CastleVille, Zynga has recently launched Dream Zoo and ForestVille on mobile. The company has reached 13 million daily active users on Android and iOS, which is about one-quarter of its total usage every day. That suggests that Zynga may be able to reduce its dependency on Facebook, where it earned 93% of its revenue in the most recent quarter.

The company is selling 100 million shares of Class A stock tomorrow, with an extra allotment of 15 million shares. Keep in mind that Zynga has a three-class stock structure, where Class B shares have seven times the voting power of Class A shares. Class C stock — which are wholly owned by chief executive Mark Pincus — have 70 times the voting power of Class A shares. The company is structured so that the Class B and Class C shares, which investors in this IPO have no access to, hold 98.2% of the voting power.

This story originally appeared on our sister site, Inside Mobile Apps.

Zynga has quietly taken its newest mobile game, ForestVille, live on the App Store. While Zynga officially announced the game on December 15th, it was already available on the Canadian app store, a tactic developers have sometimes used to soft-launch new mobile games.

Featuring gameplay similar to the developer’s existing iOS title, CityVille Hometown, ForestVille tasks players to build a city for a variety of woodland creatures, replacing houses with caves and burrows more suited for its furry residents. Like CityVille Hometown, ForestVille is free-to-play and monetizes through in-app purchases. Players can also connect with their Facebook friends and trade gifts. According to very preliminary information from AppData, the game is ranked somewhere in the low 300s on the top free games chart.

It’s interesting to note that there is also a Facebook app for ForestVille that already has 2,000 monthly active users. As the app doesn’t list a developer its hard to say if it is legitimate, but if it is, there are two clear precedents for how Zynga could leverage it: The developer could use the app as an ad for the mobile game, similar what Zynga did for Hanging With Friends, or it could launch a cross-platform game from the app, which is what Zynga did with Words with Friends after acquiring the original mobile app in its acquisition of Newtoy.

The release of ForestVille comes just one day before Zynga begins trading on its IPO. The company is aiming for a valuation between $5.9 and $7 billion dollars. According to numbers revealed by chief executive Mark Pincus earlier this month at an investor’s lunch, Zynga is rapidly expanding its mobile user base, and now has 13 million daily active users on mobile platforms, so the release is well timed for the company.

This story originally appeared on our sister site, Inside Mobile Apps.

Hiring in the social gaming industry was steady this week, with seven companies reporting 12 new employees. According to data from LinkedIn and other sources, GameHouse showed the most activity, but biggest hire was at Kixeye, which brought on former Lionside co-founder Brandon Barber as senior vice president of marketing.

If your company is hiring new people or making a notable promotion, please get in touch with us. Email us at: mail (at) insidesocialgames (dot) com, and we’ll get your news into an upcoming post.

If you want to know who else is hiring, the Inside Network Job Board showcases current openings with the industry’s leading companies.

GameHouse 

• Kaari King, Senior Game Artist -  GameHouse begins our hires roundup this week with five new faces. King was previously the creative director and co-founder of Sunleaf Studios.
• Jeff Buccellato, Senior Producer – Next is Buccellato, who worked at both LeapFrog and Sierra Online before moving to GameHouse.
• Simon Asplund, Game Designer — Asplund was formerly a systems designer for Flying Lab Software.
• Frank Krause, SDE – Krause also moves from Flying Lab Software, where he worked as an SDET and SDE.
• Thomas Sitch, Senior SDE – Finally Sitch joins the GameHouse team, moving from Trilabrys Interactive and KingsIsle Entertainment.

GSN

• Kerry Laws, Office Assistant – GSN makes our roundup with a single hire. Laws was previously a service manager at The Arc of San Francisco.

Kixeye

• Brandon Barber, Senior Vice President of Marketing - Kixeye manages to get in a high profile move before the end of the year. Barber was previously the co-founder of Lionside and was a vice president of marketing for Zynga.

Peak Games

• Osman Faruk Küçükerdem, Assist. Product Manager – A pair of hires this week at Peak Games. Küçükerdem was previously a managing partner at Lunapark Medya İnternet Teknolojileri.
• Idil Kucuk, Product Manager – Next is Kucuk, was was formerly a social media specialist at Ping Digital.

PopCap

• Raul Fernandez, Customer Support Representative - Fernandez moves from Zynga, where he was a customer support agent.

Wooga

• Berk Hülagü, Engineer – Wooga also adds one new employee. Hülagü was previously the lead flash developer at Young Internet GmbH.

Zynga

• Jason Winn, Software Engineer – Zynga once again closes out the hires list with Winn, who was formerly an art director/flash developer at JWT.

Here’s a look at where AppData‘s top 10 games of January 2011 are now in December 2011, as the calendar year draws to a close.

A year is typically the better part of a social game’s life cycle for titles launched on Facebook after 2009. During those first 12 months, a game will grow rapidly in first three months, peak in overall traffic, then begin to shrink over the following six months. During this shrinking period, the percent of daily active users as a percent of monthly active users (or DAU/MAU) will often decline toward 10%. Generally, we find that if engagement rates fall below 10% DAU/MAU, a game has a very strong chance of being sunsetted, as its developers seek to cut their losses.

By December 2011, almost all of January’s top 10 games have lost much of the traffic they had at the start of 2011. However, this does not necessarily mean they’re candidates for sunset in 2012. Many of these games maintain high levels of engagement, and probably continue to earn decent revenue for their developers. At least one game, EA PopCap’s Bejeweled Blitz, retained most of its traffic while increasing engagement levels through 2011.

At the start of 2011, these were the top 10 Facebook games by MAU, according to AppData:

In January 2011, top entry CityVille had the advantage of being the newest game among the first 10, having launched the month before. Still, several top games which launched in 2008 — Pet Society, Texas HoldEm, and Mafia Wars — also maintained ranks in the top 10. (The others in the January’s top 10 launched in mid 2010, with the exception of FarmVille, which launched in mid 2009.)

By the end of the year, Facebook’s top 10 had changed dramatically, with just three games in the January 2011 list ranking in the top 10 for December 2011:

The three January 2011 holdovers — CityVille, FarmVille, and Texas HoldEm Poker — are from Zynga, reflecting the company’s continued dominance in the market, and its strategy of maintaining the lead by releasing numerous new games and cross-promoting across its titles. However, several competing developers managed to grow their own audiences to attain top 10 status since then.

Here is where January 2011′s top 10 games stand now, according to AppData:

CityVille – Zynga: 48.9 million MAU, 10.4 million DAU
December rank, by MAU: 1

Launched at the end of 2010, Zynga’s city management sim enjoyed stratospheric growth in January 2011, when it reached over 100 million MAU. In February and March, the game attained a peak of daily active users (or DAU) of about 21 million. Since then, however, CityVille has experienced a slow but steady decline in both MAU and DAU. While it retains the number one position in December, its MAU and DAU have fallen by over 50% from its peak. At the same time, CityVille’s DAU as a percent of MAU has remained strong, at about 20%, throughout the year.

FarmVille – Zynga: 31.7 million MAU, 7.3 million DAU
December rank, by MAU: 2

Popular since its launch in 2009, Zynga’s farming sim steadily lost MAU and DAU through 2011, beginning the year with nearly 60 million MAU and 16 million DAU. As with CityVille, it lost about half of those users by year’s end. DAU/MAU for FarmVille has fluctuated throughout 2011, falling and rising between about 20 to 30%. It now stands at nearly 24%, retaining strong engagement rates (if many less total users.)

Texas HoldEm Poker – Zynga: 28.9 million MAU and 6.3 million DAU
December rank, by MAU: 4

At the close of 2011, Zynga’s online poker game maintains its place in the top 10, and even grew during the first few months. (The game had about 35 million MAU and 7 million DAU in January, then grew to a peak of about 38 million MAU and 7.75 million DAU in February.) After some eight months of relatively stable user rates, the game began losing traffic. However, compared to Zynga’s CityVille and FarmVille, which both lost about half their maximum number of users over the year, the HoldEm Poker game has retained about 85% of the total players it had at the start of 2011. The game even managed to increase DAU/MAU engagement rates over the year, at first fluctuating between 16 to 20% through 2011, but from late October to now, fluctuating between 21 to 23%.

FrontierVille – Zynga: 1.2 million MAU, 230 thousand DAU
December rank, by MAU: 83

The 2011 performance of Zynga’s adventure/RPG game is somewhat complicated, due to the launch of Pioneer Trail, a standalone expansion to the game released in August. At the start of 2011, FrontierVille had about 30 million MAU and 6 million DAU. By the time Pioneer Trail launched, the original game had dropped to about 12 million MAU and 3 million DAU. At first, Zynga encouraged FrontierVille players to install the new Pioneer Trail app, then eventually made redirection automatic, so that users attempting to search or access FrontierVille would instead be taken directly to Pioneer Trail. FrontierVille now has just 1.2 million MAU and 240,000 DAU, with a 18% in DAU/MAU. By contrast, Pioneer Trail maintains 5.3 million MAU and 1.7 million DAU, for an impressive DAU/MAU rate of about 30% and claimed a place on the top 25 Facebook games for December. So while FrontierVille has fallen far from its high usage rates at the beginning of 2011, its successor has inherited a relatively large and very committed base of players.

Mafia Wars – Zynga: 2.7 million MAU, 590,000 DAU
December rank, by MAU: 37

Zynga’s crime-theme role-playing game also had an interesting performance in 2011. Mafia Wars enjoyed a peak of about 20 million MAU and 3.5 million DAU at the beginning of the 2011, but steadily lost traffic through the year, down by 85% from its January totals. At the same time, the game enjoyed a modest increase of DAU/MAU in 2011, going from about 15% in January to between 20 and 25% from October to November. This increase in engagement occurred despite Zynga’s heavily promoted launch of Mafia Wars 2 in October. While the sequel still enjoys higher traffic (now 7.4 million MAU and 670,000 DAU), its DAU/MAU has fluctuated between 7.5% and 8.5% over the last couple months. Given Mafia Wars 2′s steady decline of players compared to Mafia Wars’ relative stability, it’s quite possible the original game will eclipse its sequel in 2012.

Café World – Zynga: 6.6 million MAU, 1.5 million DAU
December rank, by MAU: 17

Zynga’s restaurant sim has lost over 60% of the audience it had at the beginning of the year. However, as with Zynga’s Mafia Wars, Café World’s loss of total players was coupled to a gain in engagement. The game climbed from a DAU/MAU rate of about 18% in January, to between 22 and 30% in the last three months of 2011. This high engagement suggests the 2009 game has managed to maintain a large group of dedicated players.

Treasure Isle – Zynga: 2.1 million MAU, 410,000 DAU
December rank, by MAU: 55

Dropping from a peak of 15 million MAU and 3 million DAU in January, Zynga’s treasure hunting game lost some 83% of its audience in 2011. Despite this loss, Treasure Isle’s DAU/MAU ratio has remained relatively consistent and healthy through the year, fluctuating between between 20 and 25% for most of 2011.

Millionaire City – Digital Chocolate: 2.4 million MAU, 410,000 DAU
December rank, by MAU: 44

Digital Chocolate’s city sim lost some 80% of its traffic through 2011, and saw a decline of DAU/MAU from 22% in January, to between 16 and 18% from October to December.

Pet Society – EA-Playfish: 6.2 million MAU, 1 million DAU
December rank, by MAU: 19

EA Playfish’s pet care sim lost over 50% of the players it had in January (when it enjoyed 12 million MAU and 2.25 DAU). Engagement rates have remained relatively low through the year, fluctuating between 12 and 16% for most of 2011.

Bejeweled Blitz, EA/Popcap: 8.7 million MAU, 2.9 million DAU
December rank, by MAU: 14

Of all the games in the top 10 for January 2011, EA PopCap’s casual arcade game has seen the strongest performance this year, maintaining 70% of the players it had 12 months ago. It also enjoyed extremely high engagement rates throughout the year, fluctuating between 26 and 36% DAU/MAU through 2011.

It’s interesting to note that most of these games still maintain healthy DAU/MAU rates above 20%, even one to three years after their launch. Only three, FrontierVille, Millionaire City, and Pet Society, currently have a DAU/MAU rate closer to 15%. However, this rate, while not optimal, is still suggestive of relatively strong engagement rates. It’s therefore likely that most of January 2011′s top 10 will continue to generate revenue for their developers well into 2012.

The Inside Network Job Board is dedicated to providing you with the best job opportunities across social and mobile application platforms.

Here are this week’s highlights from the Inside Network Job Board, including positions at 50 Cubes, 24MAS Group, Game Closure, Natural Motion Games, Social Point, Kubra, Acquinity Interactive and W3i.

• Executive Producer/Product Manager

• Senior Game Designer / Producer

• Administrative Position

• Product Lead

• Flash Developer

• Manager- Regional Sales- US West

• Sales Executive – Online Marketing
• Online Media Buyer
• Online Marketing Manager

• Ad Sales for Facebook/Social Apps

Listings on the Inside Network Job Board are distributed to readers of Inside Social Games, Inside Facebook and Inside Mobile Apps through regular posts and widgets on the sites. Your open positions are being seen by the leading developers, product managers, marketers, designers, and executives in the Facebook Platform and social gaming industry today.

With Facebook’s star game developer Zynga in the middle of its IPO process, some speculate that the Facebook games market has reached its peak and is no longer showing enough growth to justify betting on launching new social games for the platform.

This conclusion is generally based on three types of assumptions. The first is that games are now too expensive to make for Facebook to bring in healthy profit given that the level of quality in art and design has risen along with user acquisition costs, plus a 30% fee taken out of Facebook Credits transactions. The second is that games only have a window of two months to hit a peak reach with users before an inevitable decline begins, which leads many to believe that all a game’s resources and pre-loaded marketing are banking on a single point in time. The third is that all Facebook games must have a predetermined set of features in order to appeal both to the broader market — which is perceived in the coarsest terms as a “35-year-old housewife” — and to the unpredictable whales (players who spend hundreds of dollars in-game per month as opposed to just a few dollars at most).

The first can be backed up by some examples from the 2011 season of social games — which included high production value titles like The Sims Social, CastleVille and Gardens of Time — as well as by the fact that Facebook cut back on the viral channels that made early games grow so quickly, thus forcing developers to rely more on advertising now than they did in 2009. This creates a situation where developers spend more now on creating games and advertising them than they previously needed to, which eats into profits. The second and third assumptions, however, are harder to substantiate with empirical evidence.

We know based on data collected by Inside Virtual Goods and multiple case studies of traffic patterns in our AppData traffic tracking service, for example, that many social games do see the most growth in their first three months. We also have, however, notable cases where that initial growth period exceeded three months or the initial growth period didn’t begin until well after the game had launched. We also know based on data collected by Facebook and by several game developers in self-funded surveys that the primary audience for social games isn’t necessarily women 35 and older, but men and women from 18 to 35.

In short, yes, there are higher barriers to entry on the Facebook games platform now than there were a year ago. But that doesn’t mean the market for social games has stopped growing.

Why We Can’t All Be Zynga

Zynga is a developer that had the right idea at the right time with the right set of favorable circumstances to produce massive viral growth on the Facebook platform. The developer built its empire on simple, compelling game mechanics like harvesting crops or playing poker and then set about acquiring talent and intellectual property at a rapid rate to sustain that growth with new game releases and technology upgrades to improve the user experience.

But it’s not 2009 anymore and the Facebook platform has changed. For one thing, there’s less access to viral channels for social game developers. For another, Facebook is expanding in international markets where the potential audience for social games already has expectations of quality, content, and monetization practices. Lastly, there is more competition both on the Facebook platform and off now than there ever has been for free-to-play game developers.

Two years ago, a potential Zynga rival could release a city-building game or a restaurant industry sim within weeks of Zynga’s own entries into those genres and both games would experience growth (Zynga usually seeing quite a bit more thanks to its extensive cross-promotion network and possibly some help from Facebook). This is no longer a viable growth strategy for social games as many of the major Facebook genres — farming, city-building, crime, pets, and restaurants — are well and thoroughly saturated. This also goes for companies that make “reskin” versions of their own game, changing the setting or characters of a game that is still the same game concept underneath the hood.

How We Still Make Money

While developers can’t expect to grow like Zynga, they can at least hope to monetize like Zynga and potentially even monetize better. Whether it’s Zynga or not, a developer is always looking at the core equation: User Lifetime Value (LTV) > cost per install (CPI) = profitable game. While CPI is largely out of the developer’s control because virality and advertising depends on what channels Facebook makes available, the LTV of a user is something that developers can impact directly by monetizing their games in ways that differ from what Zynga has done.

Based on regulatory filings, we know that Zynga made over 5 cents in “average bookings per user,” which is the amount of virtual currency purchased by a user in a day, in the financial quarter ended in September. Most of Zynga’s virtual goods sales in the bulk of its games are based on premium decoration items and components for completing quests or building objects. These items go for anywhere from one or two premium currency units to 50 at between 10 and 14 cents per currency unit.

Note: Zynga also has a low CPI because they’ve already amassed a large network of players and don’t need to spend money to gain more.

As we say, however, the market is changing. There are game types out there, like the strategy combat genre, where users are paying for item types that provide protection from other users, or a distinct combat advantage (e.g. speeding up repair times on structures that produce combat units). In these games, the price of the item is more expensive than Zynga’s average item price (maybe $7 for a turret compared to $5 for a decorative banner), but players are more compelled to spend it based on the nature of the game itself. Monetization in these games is particularly compelling in cases where a player’s base can be completely destroyed, but instantly rebuilt for a small fee (say, 30 cents) at multiple re-builds a day. Even casual and sim titles are experimenting with new virtual good types that add game modes or interactions — like game tickets that allow for a week’s worth of unlimited play in Tetris Battle for $5 or Sims Social bed items for sleep and sexual interactions that go for $12 or more.

At rates like these, it’s not hard to imagine that there are games on Facebook right now that regularly make around or just above $1 per user per day — and many of these with more than 100,000 daily active users. The big question is, how high is the CPI variable in the profit equation?

Facebook’s First Role: Keeping Down Costs

Facebook is well aware that it’s responsible for the success of social games on the platform more so than the developers themselves. Aside from creating and maintaining the platform itself, Facebook is also the primary arbiter of discovery and growth for new games and now it has the added responsibility of preserving game economies through the strength of its platform currency, Facebook Credits. Based on Facebook Credits revenue gained via in-game transactions and Facebook ads purchased by game developers, social games could make up a significant portion of Facebook’s revenue.

Note: Facebook couldn’t be reached for comment on the breakdown of revenue, but for the sake of a rough sketch, assuming that Facebook Credits revenue hits $1.2 billion this year and 30% of that was collected from social games (even though Credits wasn’t officially mandated until July) and that Facebook hits the estimated $4 billion in revenue, that’s $360 million — or 9% of revenue just from in-game transactions. 

Facebook is also aware that it created a monster by allowing social game developers near complete freedom in the early days of the platform, once opened to third party developers. Spam apps and abusive use of the viral channels led Facebook to cut back on those tools dramatically in 2009 and 2010. This led to consternation in the developer community, which only swelled when Facebook made Credits integration mandatory across all apps. Facebook has tried to smooth things over through developer outreach programs and restoring some of that lost virality through features like the canvas app ticker and via new algorithmic discovery that sometimes surfaces social game activity to non-gamers in the site-wide live app ticker.

As for future growth on the platform, Facebook seems to understand that it needs to do more to produce growth for social games both through ads and organic means. On the ad side, Facebook recently increased the total number of display ads on pages from four to six and has introduced sponsored ads and recommendation surveys into the canvas app ticker. As for organic growth and discovery, former Inside Network Editor Eric Eldon points out over on TechCrunch that Facebook has been making changes that expose a higher volume of social game notifications than we saw over the summer and fall of 2011. The social network also seems to be experimenting with exposing new games based on players’ current game preferences — for example, showing us a friend’s arcade puzzle game activity when we frequently play a particular puzzle game instead of showing that same friend’s strategy combat story. Lastly, by launching a mobile platform that allows for cross-device play between smartphones and PCs, Facebook has made it easier for developers to enter the mobile market and find more growth there.

On their own, these changes might not be enough to get new social games to that arbitrary 100,000 daily active user mark mentioned above without developers having to spend on ads. But Facebook still wants to social games to succeed, we can expect to see it doing more in 2012 to spark organic growth, which in turn offsets the cost of user acquisition.

Facebook’s Second Role: Supporting New Game Types

As for what Facebook can do for games themselves, it’s all about improving the tool set available to developers. This means both cosmetic and small-scale features, like achievements and highly detailed game story content, as well as larger infrastructure changes that can support new game types, hyper-localized versions of games, and games that run off-platform while leveraging a deep Facebook Connect integration. For example, two years ago, it would have been impossible to imagine Facebook supporting a synchronous competitive multiplayer game. Now, we have those and first-person shooters, and even rudimentary racing games. We also see support for apps in new emerging languages that goes beyond mere translation and into actual game adaptation. In the next year or so, it looks like Facebook could even support large-scale synchronous MMO role-playing and combat games, which are both proven free-to-play genres in international markets like Asia and Europe. We also expect Facebook Connect integrations to become more sophisticated in a way that allows developers to simultaneously launch games both on Facebook and on their own sites — similar to what it sounds like Zynga is planning with Project Z (a.k.a. Zynga Direct).

Where Does the Growth Go? To the Right

As the social games industry matures, we’ll see fewer growth trajectories like this:

And hopefully begin to see more like this:

A sustainable social games business that hinges largely on Facebook is indeed still possible, but it depends on the ability of the developer to conceive, launch, and monetize a game on a reasonable budget and on the evolving nature of the Facebook platform itself. We can’t all be Zynga, but that’s probably the best news of all. A private developer has more freedom to try new things in an emerging market than a publicly traded one.

Small-but-profitable social network Tagged has acquired ailing social network Hi5, according to a Wall Street Journal report. Tagged CEO Greg Tseng tells the paper that this will double Tagged’s active users from 10 million to 20 million and bring total registered users up to 300 million.

Founded in 2003, Hi5 was touted by comScore as the third most popular social networking behind MySpace and Facebook in 2008. As the market matured over the next three years, both MySpace and Hi5 fell on hard times with developers migrating away from the platforms. Tagged, meanwhile, successfully shifted its business away from directly competing with Facebook — instead, focusing on more intimate social connections between members and “social discovery,” which is something Facebook has recently been trying to improve on its own platform. Tagged also beefed up its social games platform, turning to in-house development to support growth and revenue with virtual goods sales.

With Hi5, Tagged gains both user numbers and more access to audiences in Southeast Asia, South America, and other countries where Hi5 was more popular than Tagged. Tseng didn’t disclose the terms of the acquisition to the Journal, but he did say some Hi5 employees may join the Tagged team. He also says that Tagged is on track for 2011 revenue between $43 million to $45 million — down from the ambitious $50 million he told us earlier this year.