There was a lot of hand-wringing by developers prior to Facebook phasing out application-based Notifications on March 1st, especially among smaller developers who relied heavily on them to remind users to come back to their game or application. Making matters worse, the new features designed to replace Notifications had their own issues:

• Proxy email messaging wasn’t fixed until over a week after Notifications disappeared (see the bug) and some developers were caught off-guard that proxy emails have a restrictions on acceptable HTML and FBML tags
• The Games Dashboard and Counters have been extremely ineffective in driving traffic (one developer shared that of 150,000 referenced visits, 1202 were from the dashboard)

Illustrating the immediate impact of the changes, one developer posted this graphic of their application’s engagement metrics, highlighting the relative impact of Notifications versus the games dashboard in driving engagement:

Clearly, no one argues that end of Notifications was going to have a huge impact on traffic, and several developers were phasing out their reliance on Notifications way before the March 1st due to them being less effective as the channel was already overwhelmed with messages. Francis Pelland, developer of several relatively small Avastar applications summed up the debates on the developer boards: “I phased out Notifications in my apps about 3 weeks ago and my DAU is significantly higher than before through creative thinking and alternative viral features. People should sit and think rather than complain. This sort of thing happens every time when Facebook makes a change and consider it to be the end of the world, make threats to quit, and say it will be the end of Facebook.”

So how are the largest developers faring in the post-Notifications world? Clearly it’s not the doomsday scenario that some feared as developers are mostly relying on email or fan page posts to replace application-to-user Notifications, while user-to-user Notifications are being facilitated through creative use of Wall Posts. Here are some highlights by top developers:

Zynga

In the two weeks since Notifications, Zynga’s titles are a mixed bag with PetVille and FishVille down 4-6%, Mafia Wars and Café World flat and YoVille and FarmVille up 3%. Zynga’s use of email is fairly sporadic and limited to a few titles:

• FarmVille and Café World have yet to send an email (based on my observations and discussions with other users). With such a large user base, the cost of email may be prohibitive compared to the effectiveness of fan page posts.
• YoVille has slowly increased its frequency from once a month at the end of 2009 to 3-4 per month and has primarily focused on new item releases.
• Since December, Mafia Wars has sent seven emails, primarily focused on new game features (holiday gift safe house in December, Bangkok expansion release in late January and the revamp of their store in February). Three of those emails have entitled the recipients to the Mafia Wars hard currency, reward points.
• Finally, PetVille sent it’s first email to users as part of the process to accept emails and unlock a pet for your PetVille pet.

Instead of relying heavily on email, Zynga has focused on innovating user-to-user communication via Wall Posts, re-focusing users from sending gifts to asking for gifts and collaborative tasks that require users to plead with friends to send items so they can complete the task.

The only games that haven’t had either consistent emails (YoVille) or the collaborative task mechanism (Mafia Wars, FarmVille, Café World), are the only two games that are down over the last two weeks (FishVille and PetVille).

Electronic Arts

Since Notifications were turned off two weeks ago, there is a noticeable split between what games have been impacted: Restaurant City is up 8%, Pet Society up 3% and Country Story down 7% while the latest titles (Poker Rivals and Gangster City) are down 23-28%.

The biggest of the former Playfish titles (Pet Society, Restaurant City and Country Story) also have been prolific email senders averaging a message every week and focused on touting new decorative items, recipes and the occasional new feature. Poker Rival and Gangster City have yet to send emails out (based on my observations) which in part can be tied to the fact that without a farm, home or any physical place to decorate, there are fewer new things happening in these games each week, making content a bit of a stretch.

CrowdStar

CrowdStar’s Happy Aquarium and Happy Island have been relatively flat since the end of Notifications on March 1st. Only Happy Pets seems to have seen a marked decline (down 12%) and that may have more to do with the continual decline since rival PetVille was launched in early December.

Unlike the other developers, CrowdStar has not explicitly been collecting emails or prompting users to sign up for email Notifications. As such, the developer and has not sent any emails to date (again, based on my observations) about application updates, preferring to use fan page posts exclusively to convey new updates.

With regard to user-to-user Notifications, users in Happy Aquarium can still visit a friend’s tank and click on a button to notify that friend that their aquarium needs to be cleaned or fish need to be feed, but it appears that no notification goes out any longer and the application has not been changed to do a wall post to that friend’s wall.

Playdom

Playdom was a prolific user of Notifications up until the last minute, and while Wild Ones was up 6%, the rest of their biggest titles were either flat or down since Notifications ended March 1st: Sorority Life was basically flat, Mobsters 2: Vendetta was down 5%, Tiki Farm was down 6%, and (Lil) Farm Life was down 15%.

Emails have been fairly sporadic across titles but it looks like this is a channel they’re just beginning to experiment with:

• Sorority Life had two emails in early February around collectible gifts for Valentine’s Day, but none since
• Mobsters 2: Vendetta had one email in February touting their “gang-up” feature, then two emails last week: one providing an email-subscriber only car and the other promoting their new retail card and a potential bonus for redeeming one before St. Patrick’s day
• Tiki Farm: pushed an email (the first I’ve observed) the first week of March touting new decorations

Viral Marketing (and the Facebook Platform) Isn’t Dead

While much of the data above is based on imperfect observation, it suggests that developers can still find a way to drive engagement and viral marketing by 1) leveraging email, 2) continuing to publish engaging fan page posts and 3) innovating with ways to get users to publish to their friends and their own walls (such as the collaborative tasks). Granted managing these multiple channels is a great deal more complicated than Notifications, but it doesn’t mean Facebook as a platform is dead.

Less clear is whether the Games Dashboard can be turned into an effective application-to-user and user-to-user forum. Zynga and Playdom are experimenting with counters, but few others are seriously using the tool because it hasn’t been overly effective at driving traffic. The bottom line is that users can’t find it and/or don’t use it: Facebook didn’t heavily publicize the games dashboard during the rollout of the new homepage in early February, and developers were desperate enough to publish fan page stories in an attempt to educate their users:

Based on developer feedback that the new bookmarks in the left navigation under the Game Dashboard link are static, Facebook’s platform team updated the developer roadmap so that users will at least be able to move bookmarks around in the near future, but this doesn’t solve the fundamental design issue. I firmly believe the games dashboard is a huge opportunity, providing the potential to discover new games and find your existing ones. But further education cannot overcome the fundamental design decision to not have “games” as a persistent part of the site navigation, visible from every page in the top nav, and made useful for user and developer alike with its own notification flag.

Eric von Coelln is a casual games and MMO marketing veteran who focuses on emerging metrics in social games. He is currently a New York based freelance consultant to games and social media companies. You can find his blog here.

[Editor's note: This article was co-authored by Eric Eldon.]

When Facebook began enforcing new policy changes in mid December, it was called a “philosophical approach to platform governance.” As we covered on Inside Facebook, “instead of trying to spell out all the rules in detail, it is laying out more general principles and reserving the right to make policy enforcements when its policy team deems doing so to be necessary.”

Looking at what has and hasn’t been enforced since the changes were implemented helps provide some insight into the policy team’s thinking thus far.

When is Gifting Okay?

The policy: “You must not prompt users to send invitations, requests, generate notifications, or use other Facebook communication channels immediately after a user allows access or returns to your application.”

Just about every game launched prior to the changes in December had gifts — where users send gifts to friends, in most cases to users not already playing the game — first and foremost in their viral marketing strategy. This is still still evident by the number of games where the first menu tab is “Free Gifts” or “Send Gifts.” In reviewing 98 game applications with over 100,000 daily active users (DAU), only about 20% of them did NOT have a gifts component at the start of the game (the largest was Popcap’s Bejeweled Blitz with 2.8 million DAU).

We’ve been tracking this story over the past week. When we first looked, only four games with more than 100,000 DAU four appeared to be directing users to gift prior to playing the game: Happy Farm (940,000 DAU), Farkle, (840,000 DAU), Garden World (260,000 DAU) and Las Vegas Slots (210,000 DAU).

Facebook tells us that the policy “is not at all meant to stop gifting or virality — it’s meant to prevent users from being prompted to use Facebook communication channels before engaging with the application.” The company wants “users to initiate communications and not be asked to send them right after authorization or every time the user returns to the application.”

“Our expectation is that developers are required to comply with our Principles and Policies,” it says, “and if we come across violations, developers are going to be held accountable.” As many developers have been discovering lately, Facebook won’t punish apps by blocking them completely but rather shutting down some communication channels into fixes are implemented.

Out of the four games mentioned above, three have updated their interfaces to not require gifting, and are in compliance. Garden World still directs users to gift first, but we’re not sure for how long.

Let’s look at some more examples. Titles from Playdom, like Sorority Life and Mobsters 2, are taking users to a gifts screen when you click the Jobs and Missions tabs respectively. So while not the first thing users see when they come to the application, users still must skip the gifts screen (or send items to their friends) before they can actually engage in the game. This interface is okay, Facebook says, because the gift page isn’t what users see first when they add or return to the apps.

While gifts have often been considered social spam (with some developers specifically not including gifts because they feel they are too spammy), the feature has become a very powerful way to get users to interact around a game. Still, one can imagine a gifting mechanism that is a more natural extension of the game’s social aspects.

Café World by Zynga has a Free Gifts tab positioned first among menu items and was one of the first to add a “present” icon as an overlay to the playing screen; the app recently added a “Gift of the Day” section to your friends leaderboard across the bottom — you can send gifts to earn points. This interface is not just okay but a best practice, Facebook says.

It still by default prompts you to send this gift to all of your friends (versus just your Café World friends), but by positioning your promo near the friends leader board, it underscores the behavior that users are more likely to send gifts to their friends actually playing the game.

Pet Society by Playfish has taken the other extreme, only providing gifting of items from a user’s inventory to one of their friends actually playing the game. While this most accurately reflects the typical user’s desire to send something to a friend, it wouldn’t appear to be a top-of-mind functionality that would drive retention or viral growth as it is buried within the inventory “Chest” section of the game.

Eventually, we think most developers will create a gifts functionality that lies somewhere in between the “spam everybody” and “gift to a single friend” philosophies. One way for games like Café World to begin this transition would to change the default from sending to all your friends to just the users playing the game. Then take it one step further, allowing users to filter it to go to only their “active” Café World friends (say those that have played in the last week and thus are more likely to find value in the gift messaging).

Ideally, gifting can be a jumping point for users to have more conversations in and around the game, moving it from a viral marketing tactic to a game experience enhancing transaction that boosts customer retention.

Applications Continue to Gate Content Based on Number of Users

While gifting spam has been reined in a bit thanks to policy changes implemented by Facebook back in December, the company does not yet appear to be enforcing one of the other recent policy changes.

The policy: “You must not provide users with rewards or gate content from users based on their number of friends who use your application.”

Two of the biggest games on Facebooks, Zynga’s FarmVille and Café World, continue to use the practice, leaving developers trying to figure out how to interpret this specific policy. Below, you can see the Café World restaurant expansion requires 12 neighbors and just under 1 million coins (or a user can spend 35 Café World cash – the equivalent of $7 – to unlock the feature).

FarmVille recently introduced its long-awaited 24×24 expansion, and it requires a hefty 30 neighbors (or 60 FarmVille cash – about $12) to unlock. The desirability for this expansion by some players has resulted in long pleas to friends or strangers to “add them” so they can unlock it:

Besides the written responses, we’ve anecdotally heard of friends who have had long-ago forgotten colleagues contact them by phone to request them to friend them on a game to unlock something. That’s powerful stuff.

There is a long history of game design where users can either grind through to earn rewards or pay cash to unlock the items faster – a classic tradeoff between time and money that has helped fund a great number of games.

With Facebook, the ability to virally spread is equally valuable, as a portion of new users will end up spending real cash or bringing in other users. Thus developers like Zynga prize a user who can bring 30 friends to the game initially, then continue to influence (and retain) them through posts about the game. If, as a developer, you can’t remind users with notifications – those are being phased out in a month, you might want an army of users who will post on their walls handle viral communication for you.

While there is definite economic value being exchanged here by both to a developer and the user, it creates some presumably unwanted behaviors:

It induces users to go beyond their social graph of “known” friends. If a user “adds” a stranger, it potentially exposes more personal information than a user realizes they are sharing – basically, their whole profile unless the user actively goes through multiple steps to limit access.

Users are also creating secondary accounts just to play games, distorting DAU and MAU data as well as creating potential cheating issues. Comments on developer fan page posts end up being a litany of “add me” notes, drowning out any true conversation around the content being posted

While the Facebook policy as stated would appear to be squarely focused at eliminating these undesirable behaviors, the lack of enforcement begins to make one wonder if this is as important an issue to Facebook policy team now compared to when the roadmap of changes were initially announced. Clearly some of the latest changes to user information sharing – like privacy settings — were designed to get users to open up more and expand beyond the “known” friends to “Everyone”, so maybe Facebook’s platform team is less worried about users inviting people they don’t know into their personal network.

While the gifting policy has largely been enforced, Facebook says to expect more news on gating:”Our intent is to protect the integrity of the social graph and the authenticity of relationships on the site,” the company tells us, “but we recognize that this is a complex and important topic. We plan to provide more context on this policy soon.”

In the meantime, check out Facebook’s platform policy examples and explanations page for more detail.

While neither the full release of the Facebook Credits system nor the release of the full API to developers has yet to be announced, there have been a handful of games that have been testing the Facebook Credits integration.

As we reported back in mid-December, Happy Island, developed by CrowdStar, was the first game that exclusively used Facebook Credits for all in-game purchases. Recently, we’ve noticed that a “Payments Issues” link has been added to the footer of Happy Island, which provides a sneak peek at what options users will have to dispute payments for Credits going forward.

Selecting the Payments Issues link opens up a new dialogue box, where a user can choose to either get help in making a purchase using Facebook Credits or to dispute a past transaction:

If a user selects the first option, they see a very straight-forward dialogue box that opens with, at this point, just one pre-populated comment field (not a drop down) that the user can change, plus an additional text box where comments can be added:

If you wish to dispute a Facebook Credits purchase, then you are instead presented a screen with a pull-down box that allows you to select the purchase you want to dispute:

And then must describe why you are disputing the transaction:

This is a pretty simple billing resolution process, but since details about the credits program and a developer API has not been released yet, it provides a small insight into why they are building a payment operations team — in part, to deal with all these inquiries.

It also brings up the question of how this process will be balanced (if at all) with payment systems other than Facebook Credits. For example, (Lil) Green Patch by Playdom has purchases available by Facebook Credits and PayPal, yet the Payment Issues link (which is also integrated there) only deals with Facebook Credits – there is no direct link to deal with any disputes of payments done with PayPal. If Facebook continues to allow developers to use their own payment methods (including credit card, PayPal and offer systems), it would be doubtful that they’d want to lead customers who have issues with those payment methods to get mixed up with Facebook Credit-specific disputes.

When Facebook implemented a flurry of platform changes that curtailed some viral marketing tactics in early December, developers scrambled to revive tactics. There was the thought that this might level the playing field a bit, taking some wind out of the sails of the most aggressive viral marketers.

To get some initial feel for the impact of these platform changes — and to provide a benchmark for the industry — we looked at Daily Active Users (DAU), Monthly Active Users (MAU) and the resulting Sticky Factors (DAU/MAU) for top developers on December 7, 2009 (this was around the time the platform changes were starting to go into effect) and January 5, 2010. We assume that the impact of the holidays was across-the-board dips around Christmas and New Year’s Day for these titles. It also comes with the caveat that developer level numbers are not necessarily unique users as a user may play multiple games made by the same developer.

This initial cut makes it appear that some of the biggest developers (Zynga, CrowdStar and Playdom) have done reasonably well, but each of these developers actually launched a significant new game during the period. Because new games typically haven’t reached a steady state (which inflates the sticky factor) and because we’re more interested in the impact on games existing prior to the platform changes, let’s look at the numbers without Zynga’s PetVille, Playfish’s Poker Rivals, CrowdStar’s Happy Island and Playdom’s Tiki Farm:

The total line is not for all developers on the Facebook platform, just the seven aggregated above, so there is some bias in the aggregated numbers because Zynga makes up over half of the total MAU and DAU numbers. But given this caveat, the total line suggests that so far, these developers are seeing on average a 4.6% decline in MAU and a 12.2% decline DAU which has reduced the sticky factor by 8%. I believe MAU numbers will continue to decline a bit more before they stabilize a bit.

The Winners…so far

Without the new games, CrowdStar appears to be the only developer that increased their MAU, but even this is somewhat skewed by the fact that Happy Pets had launched in mid-November and was still seeing some increase in the beginning of December. CrowdStar’s Happy Aquarium maintained a relatively flat MAU, but saw a steady decline in DAU (down 20% from 8.17 million to 6.64 million), driving CrowdStar’s overall sticky factor to the worst drop amongst the group. Another trend here is that each successive title launched seems to be reaching a plateau that is lower than the previous launch, mirroring something we pointed out for Zynga’s games recently. Happy Island is still only a month old, but it’s looking like the potential of sim games may be reaching a new ceiling.

The only developers with below average declines in both DAU and MAU were PopCap and Zynga. Pop Cap’s Bejewled Blitz has actually been impressively consistent, bouncing back after each holiday-induced dip — its addictive game play and short, 1-minute sessions (perfect for the Facebook audience) helped it make more than one top ten Facebook games list for 2009.

Zynga’s individual games have been a mixed bag: FarmVille is still down 2 million DAU from its December peak of 28.7 million, but Zynga Poker (which we previously thought might be losing focus with the rise of sim games) seems to be chugging along (its synchronous play, scale, and allowance of in-game friends made it less dependent on viral marketing to retain users). In light of the core changes to its business model, Zynga has been especially aggressive in trying to retain users, giving away items that usually required hard cold cash through a slew of promotions in its games that also drove gifting (especially helpful after the pre-game gifting interstitial was banned by Facebook):

• FarmVille pushed gifting of presents – every 20 presents received from friends helped grow your Christmas tree. Then after December 24th, users could open these presents to get a number of decorative vanity items like reindeer, cats, sleighs but also free 1-, 5- and 10-packs of fuel for tractors (usually only available for cash payments). FishVille had a similar gifting of presents, as did PetVille.
• Mafia Wars created a gift safe house, providing users free rare items, as well as promoting gifting that provided extra XP or health and reward points (which can usually only be earned by completing levels or by spending cash).

And those promotions are carrying into the New Year:

• FarmVille is in the midst of “free fuel week” where users can gain a tank of gas (something previously you could only buy for cash) each day they come back (it would seem to be a test of a daily lottery system to get users to come back each day).
• Fans of Roller Coaster Kingdom were given 75 Coaster Cash (something that would have cost users $14.50 in real dollars) in an effort to revitalize massively declining MAU and DAU numbers (it may also be a way to meet the issue that items like park expansion were still gated based on the number of friends a user has – a practice currently in violation of the new Facebook policies).
• While not cash driven, PetVille users had the fee for reactivating their pet waived to get users back after the holidays in one of the longest (text-wise) notifications I’ve seen to date.

It’s hard to say what the financial impact of these giveaways will have (it could provide enough users a taste of what they could be paying for to push them into buying them themselves), but if they are curtailed, I would expect the DAU and MAU numbers for Zynga to fall further than they have to date.

Losing Ground

Playfish, Slaskey and Playdom all had relatively higher than average declines in both MAU and DAU over the last 30 days. Playfish appears to be continuing their decline since the purchase by Electronic Arts in early November. Pet Society rebounded a bit with the launch of a daily lottery in early December, but it revised its slumped much like Restaurant City after the holidays without aggressive marketing promotion (PetVille passed Pet Society in DAU earlier this week). Now two months since the acquisition, EA appears to have done little to prop up Playfish’s position (newcomer CrowdStar passed Playfish in total DAU earlier this week).

Slashkey and Playdom both saw some pretty large drops in the DAU of their farm sim games: Farm Town (Slashkey’s only title) dropped nearly 28% while Playdom’s (Lil) Farm Life dropped nearly 30% from its mid-December highs. Playdom’s numbers, though, could be partially explained as cannibalization by its new farm title, Tiki Farm – the rise in daily active users for Tiki Farm seems to nearly mirror the decline in (Lil) Farm Life:

Managing Churn Becomes Crucial

It is still early to assess the full impact of the Facebook platform changes, but there is no question that the core economic model (getting 2-4% of users to buy virtual items) is drastically modified when churn increases. Developers have traditionally stemmed churn by a) building better games or b) acquiring new players through ad buys and viral growth to replace the users that leave. With three core viral tactics removed or marginalized (and the eventual loss of Notifications on the horizon), developers need to build more compelling games and features to keep users or innovate with new tactics and spend a lot more in advertising to drive new users.

Based on the numbers above, it appears PopCap has been able to maintain an audience based on its proven hit casual game mechanic in Bejeweled Blitz and it will be interesting to see if any more Pop Cap titles make their way to Facebook or whether they focus on their own social free-to-play destination site.

At the other end of the spectrum, Zynga’s aggressive promotion and give-aways appear to be buying it time while it tries to figure out how to revive and develop new viral mechanics – a luxury afforded by the recent influx of investment that most other developers can’t match – as well as figure out what game mechanics to develop next.

Eric von Coelln is a casual games and MMO marketing veteran who focuses on emerging metrics in social games. He is currently a New York based freelance consultant to games and social media companies. You can find his blog here.

While we recently attributed some of the across-the-board declines in daily active user numbers for Facebook games to seasonality, it’s becoming clearer that recent policy changes by Facebook may be contributing to these declines as well, forcing developers to completely revamp their viral activities. Here are three viral practices that have been reined in and examples of how developers are attempting to cope with the changes.

Pre-Game Gifting Interstitial Screens are Gone

The policy:”You must not prompt users to send invitations, requests, generate notifications, or use other Facebook communication channels immediately after a user allows access or returns to your application.”

How developers are coping: This was viral-marketing 101 for nearly every Facebook game: every time you went to the application, you first had to go through a “gifting” screen before you could actually play the game. Only Playfish refrained from this practice in the past. Now that it’s been taken out of the arsenal, developers like Zynga and CrowdStar are trying different ways of getting users to get back in the gifting habit. Most games have opted to add an icon on top of the game play area, specifically prompting users to send gifts, like in CrowdStar’s Happy Aquarium and Zynga’s Roller Coaster Kingdom:

Zynga’s PetVille has incorporated the gift icon into the basic navigation on the screen, with little balloons that highlight an action they want users to take:

Zynga’s Mafia Wars is more aggressively integrating prompts and banners into the page:

And still, some games still have the gift interstitial, but they are generally smaller games, like Hive7’s Youtopia, which Facebook might not have gotten to yet:

Pop-Ups to Prompt Users to Share Achievements…Revamped

The policy: “You must not display a Feed form unless a user has explicitly indicated an intention to share that content, by clicking a button or checking a box that clearly explains their content will be shared.”

How developers are coping: Instead of the standard Facebook news feed form windows popping up, each game is experimenting with different in-game prompts that users need to activate to show their intent to publish to their wall. PetVille prompts users by having a new icon show up in the bottom right, with a balloon prompting users to share:

Playfish’s Pet Society has a somewhat confusing choice between a sharing icon and a green check mark icon (used to close the in-game pop-up and NOT share), whereas Farm Town by SlashKey prompts with a simple binary choice of either sharing (green check icon) or not (red X icon):

CrowdStar’s Happy Pets uses the check-box approach – although the prompt is by default pre-checked to share so the user must un-check it before clicking on the green check mark icon:

Gating Content Based on Number of Friends… Not Enforced?

The policy: “You must not provide users with rewards or gate content from users based on their number of friends who use your application.”

How developers are coping: This common developer practice often prompted users to request perfect strangers to “Add Me” so that they could unlock levels or items in the game without having to pay for them, thus running amok of Facebook’s intent to keep your social graph strictly to your direct friends (we recently offered up an alternative). In response to the policy being enforced, Treasure Madness by zSlide no longer requires you to have a number of friends to dig under certain heavy rocks. Instead, they now make users pay for “contractors” at 150 in-game gold pieces per contractor. So a rock that would have required 10 friends to lift, now requires 1500 gold pieces:

Yet it’s still a question as to how intense Facebook plans to enforce this policy. For example, Zynga’s Roller Coaster Kingdom still appears to be gating items based on the number of friends, gating the options for booking guests, upgrading park attractions and for expanding the amusement park area:

We fully expect these policy changes to have an impact on growth and retention rates as developers adjust their viral marketing tactics to comply. But with the seasonal impact of people getting away from their computers to celebrate the holidays, plus developers quickly reacting and optimizing new tactics, it may take several weeks to fully understand just how severe the impact of these changes will be on growth and retention rates.

Eric von Coelln was the vice president of marketing at Oberon Media, a leading multi-platform casual games company, and most recently the vice president of Marketing at PowerSoccer.com. He is now a New York based freelance consultant to games, e-commerce and social media companies — including some of the largest social gaming companies on Facebook. While Mr. von Coelln does write about some companies for which he has done paid consulting from time to time, this post is based on publicly available information and in our view is an unbiased analysis of the industry. You can find his blog here.

Every year around this time, when I was selling casual download games across the Oberon Media distribution platform, we’d see the numbers of games sold begin to decline: disposable income and leisure time tend to dry up as everyone gears up for Christmas.

And so after months of impressive growth, some of the biggest games on Facebook are reflecting what could be a similar seasonal trend on the social platform – virtually every big game has seen a decline in their Daily Active Users (DAU) since their peaks earlier in December:

Collectively, these games have fallen 12.0% from their monthly highs, dropping from 97.0 million DAU to 85.3 million on December 21. A Facebook platform issue that impacted all applications for 48 hours starting December 9 might also have pushed users to give up the games and focus on their holiday shopping in earnest. In addition, some of these titles have had extenuating circumstances that might have caused the variances. Mafia Wars retooled their infrastructure and put in anti-hacking measurements massively impacting the game’s DAU. In contrast, Pet Society launched a new lottery feature to drive users to return every day and helped improve DAU.

Yet because the decline is pretty consistent across multiple developers and game types, it’s reasonable to attribute these declines to the seasonal trends I’ve experienced in the casual game download space. Still, could it be a bit more ominous signs of a slowing in Facebook’s growth? Or signs that games are maturing and life cycles are declining as more games enter the market?

Are There Other Factors Beyond Seasonal Trends?

There is no question that social games growth has mirrored the massive increase in Facebook subscribers – Facebook has added over 100 million monthly active users (MAU) in the six months that FarmVille has grown to just short of 75 million MAU. Having a continual influx of new users makes it relatively easy to continue growing the game.

The pace of Facebook monthly active users seems pretty consistent (at least for numbers reported through November). But what is really interesting in the graph above is comparing the relative progressions of each of the most recent Zynga releases.

FarmVille is by far the fastest growing and in general has been able to maintain its growth. The successive titles of Café World, FishVille and PetVille all appear to have smaller initial trajectories and then to plateau at a certain level, each one slightly below the former release.

This is reminiscent of the casual download space, where a developer would release a genre-defining title, like Diner Dash, and then churn out successive titles based on that mechanic. Each one had some initial huge boost in interest and sales, but over time the games held user interest (in terms of spending money to buy the title) for shorter periods of time and typically at a lesser number of units.

It is still early in the social games life cycle, the numbers for these games are still in their beginning stages and it’s probably too early to say they are on their decline – Café World only Monday released achievements in the game, which based on examples of Mafia Wars and FarmVille helps boost the DAU count.

If the casual download game space can provide any insight on this trend, changes will come the week after Christmas. Once Christmas is passed and users break out new computers or have holiday money to spend, the sales of PC download games usually rebound – and I’d expect the DAU for top Facebook games to start their upward swing again.

And if the numbers don’t rebound? We may get some interesting insights into the life cycle of a social game.

Eric von Coelln was the vice president of marketing at Oberon Media, a leading multi-platform casual games company, and most recently the vice president of Marketing at PowerSoccer.com. He is now a New York based freelance consultant to games, e-commerce and social media companies — including some of the largest social gaming companies on Facebook. While Mr. von Coelln does write about some companies for which he has done paid consulting from time to time, this post is based on publicly available information and in our view is an unbiased analysis of the industry. You can find his blog here.

Will Facebook users feel more comfortable trusting their credit card information with the company instead of social game developers and other payment providers when they go to buy virtual goods? If the answer is yes, we may see a new surge in revenue for developers, and for Facebook.

The question is closer than ever to being answered, too. Facebook is planning to more fully release its virtual currency, Credits, on third-party apps in the coming weeks. In the meantime, here’s a look at which games are already running Credits, and how they’re going about doing it.

Here are the games integrating Credits that have been announced so far, sorted by developer and noting the Daily Active Users (DAU) for each game:

• Crowdstar — Happy Aquarium (7.3 million DAU), Happy Pets (2.9 million DAU), Happy Island (just launched)
• Playfish — Restaurant City (4.2 million DAU)
• HitGrab — MouseHunt (173,000 DAU)
• Zynga — Pirates: Rule the Caribbean! (159,200 DAU)
• Playdom – (Lil) Green Patch (79,228 DAU) and TikiFarm (just launched)
• GPI – Robin Hood (11,104 DAU)
• Alamofire – PackRat (8,442 DAU) – although I couldn’t identify the integration point

There are two basic implementations seen to date:

1. Buying in-game currency with “Pay with Facebook” as an alternative payment method along with credit card, pay pal, mobile and offers
2. Buying in-game items directly with Facebook credits

Most of the developers opted for a simple implementation, just adding Facebook credits as another in a laundry list of purchase options for users:

Once users select Facebook Credits, they are presented with the option of using their existing credits if they have enough. Otherwise they are presented with options to buy with the credit card on file (if there is one), their mobile phone, or to select a new card.

In general, Credits are 10 for USD $1, but if you buy with your mobile phone, there is a pretty standard (and somewhat sizable) 43% haircut taken to help cover the carrier fees. There are also some subtleties in implementation, such as Playfish only implementing Facebook Credits for the purchase of coins, but not Playfish cash.

Crowdstar has been the only one of the developers listed above to do the in-game items directly, with slightly different implementations. Happy Aquarium actually reserves specific items in its store to be purchased only with Facebook Credits – ostensibly now offering item exclusives under three different currencies:

And more interesting is Crowdstar’s implementation of credits to buy upgrade items directly in recently launched Happy Island, as we covered yesterday. For a user who already has Facebook Credits, this is an extremely simple purchase process as detailed in these three steps. The only issue so far is that the upgrades don’t appear in the game immediately – in this early stage you seem to need to refresh the game for it to display.

From a developer perspective, there is definitely some trepidation in relying on Facebook solely for purchases. Besides several operational and redundancy considerations, direct relationship with paying users is really valuable. The larger developers have created user accounts, letting you take currency across games (like Playfish) or at least save your credit card info to make it easy for you to pay across different games. The other major benefit from a direct relationship with end users is cash flow: with credit purchases going through the Facebook credit system, developers now have to wait for Facebook to remit the funds to them.

As Zynga has one of the broadest bases of players, and thus presumably some of the most control to lose, they have been aggressively pushing discounts on buying in-game currencies. Since Thanksgivng, both Mafia Wars and FarmVille have been offering discounts on the respective game currencies, often seen as pop-ups touting a special limited time offer to buy one of the usually $10 or more valued bundles. This kind of promotion is fairly typical in retail and in e-commerce, providing incentive to users to increase the size of their average order (from experience, a majority of users only buy the smallest currency bundles, typically around $5). Judging by the frequency of Mafia Wars and FarmVille promotions (indiscriminately hitting both previous buyers and non-buyers), it must be working.

In addition, Zynga may be pushing users to set more direct accounts with Zynga to buy in-game currency and help solidify itself against potential pressure from Facebook or users to add Facebook Credits options to all of its games.

For now, Crowdstar is taking the lead as far as exposure to users and integrating in deeper ways – as a newer entrant among the top developers they have the most to gain from innovating and integrating Credits into their games. Yet with every potential streamlining of the end-user experience, there are still several things that need to be proven over the next few months.

Summarizing the Pros and Cons of Implementing Facebook Credits

Pros:

• Easier customer experience, especially when users never have to associate dollar amount with the purchase decision (as in the Happy Island example where item are purchased with current balance of Facebook Credits) – any time you can make a purchase decision more frictionless, it’s easier for people to buy more.
• Removes barrier of user having to go get their credit card  – they already have it file with Facebook (an increasing base of users due to Facebook’s gift shop and third-party gifting applications)
• Customers may trust their credit card to Facebook more than to a game developer and that developer’s choice of payment provider(s)
• Implementation of Facebook Credits API eliminates need to get a credit card processor and/or a mobile payments provider

Cons:

• Still an untested platform, especially in regards to scale; Facebook’s issues with its core platform have been a source of concern for developers already so it’s hard to trust your payment system to to it, until there is more of a track record
• Developers may still want an alternative credit card processor so they have redundancy in case the Facebook Credits system goes down, or to have protection in case Facebook processing fees get exorbitant
• Developers may still want to offer alternative payment methods like PayPal, prepaid cards and offers (none of which can currently be used to buy credits) or to cover mobile territories Facebook does not cover
• If users don’t have Credits or a credit card on file, not really much more of a value-add than putting a user through credit card.
• Ceding a direct paying relationship with end-users to Facebook and having to wait for Facebook to remit funds to you versus receiving directly from end-user
• Integrating Facebook credits into direct-purchase items a la Happy Island may limit some of the ability to do promotions and manage your virtual economy

A funny thing happened to Facebook’s open platform – game developers took the opportunity and ran with it, even taking over the core of the service for a while. By this fall, parts of the site had become overrun with users trying to get their friends to join them on their farm, help their mafia or help them clean their aquarium. Beyond constant stories about games in users’s news feeds, developers were making ample use of the Notification feature, jamming it full of promotions and notices of new items and features to get users to come back each day.

Facebook fought back with a roadmap of changes to help the core value of the platform, as well as a news feed that, for many users, caused links, status updates and photos with friends and family resurface to the top.

But all this didn’t treat the core issue: Facebook has become the broadest distribution platform ever for games.

• Almost every top application on Facebook is a game (see AppData for more on that)
• Users are joining Facebook in some parts of the world, like Taiwan, mostly to play games
• Users are subtly being coerced to add strangers as friends to advance in games in order to unlock new levels and items, often without going through the cumbersome process of protecting their personal profile information from these strangers

The sooner that Facebook figures out how to carve out a slice of the Facebook experience to support that, the better it will be for Facebook users and game developers.  And that doesn’t mean cracking down on developers.  It means coming up with a way to meet customer demands and still be true to the core principles of Facebook.

So, a modest proposal:

1) Create a new type of “friend” on Facebook – a “game friend”

2) By default, accepting users as a game friend only provides the sharing of information centered around that game both users have joined

a. Game Friends would not have any access to each other’s profile – users would have to specifically opt in to share such profile information

b. When a user shared an item from an application, they would be given the option of communicating only to Game Friends instead of the current default “All”

3) A new API that allows the accepting of gifts from Game Friends without the cumbersome process of individually accepting through the current requests mechanism

Ideally this allows the users more control over their personal information and allows developers to grow an application by a broader base (go add more friends without endangering your privacy) yet also have much more cost-effective communication with users that are actively interested in their product.

In fact, we’ve already seen some games try to create a set of separate identities, like “poker buddies” in Zynga’s Texas HoldEm poker game. Imagine being able to take your gaming buddies across every game without spamming the rest of your friends. Facebook is now prompting users to adjust their privacy settings to share content with Friends of Friends or Everyone, in an effort to expand the social network and help you meet others. So why not leverage games as a way to potentially do the same?

We should also note that Facebook has clearly thought about the special place that games have taken in its developer ecosystem. In its roadmap for forthcoming changes to the home page, the company shows a separate bookmark tab separate from other applications, specifically for games. Sub-menus let you see see your games and your friends games. Once you select the games page, you can also see your recent games as well as all of the games your friends are playing.

The games bookmark feature looks promising, although it doesn’t fully address the game friend problem. The future of our social networks depends on effective filters. The idea of a game friend filter could provide even clearer value to developers, users, and Facebook.

	Name	MAU
1.	FarmVille	71,523,193
2.	Café World	31,940,052
3.	Causes	31,917,896
4.	Social Interview	29,912,434
5.	Happy Aquarium	27,508,093
6.	Mafia Wars	26,857,214
7.	FishVille	25,305,412
8.	Pet Society	21,447,371
9.	Birthday Cards	21,059,336
10.	Texas HoldEm Poker	20,018,548
11.	Facebook for iPhone	19,196,532
12.	YoVille	18,977,171
13.	FamilyLink.com (formerly We’re Related)	18,450,010
14.	Farm Town	18,447,733
15.	Restaurant City	16,655,503
16.	Friends Exposed	16,316,089
17.	Roller Coaster Kingdom	15,138,618
18.	MindJolt Games	13,945,850
19.	Facebook for BlackBerry® smartphones	11,732,693
20.	Mobile	11,727,134

Eric von Coelln was the vice president of marketing at Oberon Media, a leading multi-platform casual games company, and most recently the vice president of Marketing at PowerSoccer.com. He is now a New York based freelance consultant to games, e-commerce and social media companies — including some of the largest social gaming companies on Facebook. While Mr. von Coelln does write about some companies for which he has done paid consulting from time to time, this post is based on publicly available information and in our view is an unbiased analysis of the industry. You can find his blog here.

With the release of PetVille last week, one of the more notable changes is that Zynga stopped cross-promoting Texas Hold’em Poker, signaling that Zynga is continuing to move away from the synchronous games of its early days and dedicating its resources more fully on asynchronous games.

I generally think of Zynga going through three game development stages:

Stage One – Turn-based social games

• Key games: Scramble, PathWords, Word Twist, Sodoku, Attack!
• These games were fairly popular in the days of Scrabulous, but head-to-head play among friends was often a waiting fiasco: Users came on at different points in the day for a asynchronous session and would have to wait for others in a game to finally log on and take their turn before game play could proceed.

Stage Two – Testing Three Paths: Asynchronous, Synchronous and Sim Games

• Key games: Mafia Wars, Texas Hold’em and YoVille
• Mafia Wars created the ability to leverage those short, multiple-times-a-day user sessions and provide a core asynchronous play style that was duplicated in a multitude of titles (Gang Wars, Space Wars, Dragon Wars, Street Rcing, Fashion Wars, Vampire Wars, Special Forces, Dope Wars, Pirates)
• Texas Hold’em (eventually renamed Zynga Poker) invested heavily in a robust lobby system, allowing users to join other Facebook users not in their network in synchronous play
• YoVille was also developed in this period (my understanding that this was actually developed externally and purchased by Zynga) providing a valuable learning experience about what worked in sim games.

Stage Three – The Rise of Sim Games and Games as a Service

• Key games: FarmVille, FishVille, PetVille, Café World, Roller Coaster Kingdom
• Short game play with appointment gaming mechanisms that are all asynchronous and built for a more broad audience
• Interestingly, all of these games have origins from other Facebook titles, except Roller Coaster Kingdom, which actually has had the most difficulty in terms of creating growth and a high sticky factor (relative to the hyper growth of the other titles in this stage). In fact, Roller Coaster Kingdom was actually dropped from cross promotion when FishVille launched.

So why drop Texas Hold’em (currently # 11 in DAU)? I thought I’d look at the growth factors of the Stage Two games since the introduction of FarmVille in late June till the beginning of this month (using data through December 6th) to see how this rapidly growing new audience is taking in the older games. In this table, I look at the marginal growth in DAU and MAU since FarmVille’s launch:

Not surprisingly, YoVille’s similar game play style has afforded it the biggest growth among these games. In comparison, Texas Hold’em has had the smallest increase in DAU and MAU (although to be fair, the poker game had a higher base MAU of 13.8 million compared to 12.2 million for Mafia Wars and 7.8 million for YoVille at the time FarmVille launched) and seemed to benefit the least from the rise of the new sim games.

Dropping Texas Hold’em Poker from cross-promotion toolbars really seems to come down to two key points: demographics and synchronous vs. asynchronous game play. Speaking generally, Poker skews heavily male and is more of a niche (5% of the US plays poker online and players are 74% male between the ages of 26-35 according to industry data). These Stage Three games are much more casual games by nature, which traditionally has a female skew and slightly older audience.

More importantly, Poker is truly a synchronous game play mechanic – you have to have other people to play against online at the same time with you – where all of the other games have a core asynchronous game mode that make them more similar and likely more successful as cross-promotions.

Can Synchronous Game Play Thrive on Facebook?

It has been widely believed that Poker was one of the key revenue drivers for Zynga (especially prior to the release of FarmVille or growth of Mafia Wars), so I doubt Zynga will put its Poker game out to pasture. Indeed, all the major developers have their hat in the ring with poker: Playfish has recently joined the fray, launching Poker Rivals and Playdom has about 150,000 DAU using it’s Poker Palace.

Beyond poker, there is a rich history of synchronous multiplayer games especially in cards (from Bill Gates playing Bridge with users in the community on MSN’s old Zone game portal to groups gathering to play Gin together on Wednesday nights on Pogo.com), suggesting that there is a definite audience and opportunity here.

But the challenge is that in these examples you largely play a pick-up game with strangers: there is always a group of players online and enough of a pool to always start a game. In contrast, Facebook relies on the strength of your social network, and many of your friends are not online at the same time, making the pool of available players who have the same interest in playing a specific game very small.

Take a look at how many people appear in your Facebook chat window – I’d guess that at any one time you’ll have at most 10-15% of your friends available. Then think about what percentage of those friends will actually want to play the same game with you? It’s small, thus there is a need to somehow, safely, branch out beyond your friends to play.

Playing with Strangers

There is already a compliment of multiplayer games (other than poker) on Facebook that involve synchronous play with strangers (e.g. the Stage One Zynga games, GameHouse’s Uno, and Large Animal Game’s Bananagrams), but they are all relatively tiny compared to the 4.5 million DAU for Texas Hold’em – in fact many have 100,000 DAU or less.

Interestingly, the applications with the largest audiences where strangers are playing together may actually be the top asynchronous games. Games like FarmVille and MafiaWars have required users to have a certain number of friends in the application to unlock different levels or content (in some cases those items or levels can be unlocked with cash).

While not explicitly pushing users to play with strangers, you can go to any game’s fan page and see users comments to a developer post that look like a stream of “Add Me” requests – pushing users to add total strangers so they can advance in the game.

Facebook, to date, is not actively curbing this practice, which seems to be in violation of a strict interpretation of the Facebook Application policy and could lead to users overly sharing their profile data with complete strangers. Point 2 under the Application Integration Points policy states “You must not provide users with rewards or gate content from users based on their number of friends who use your application.”

Maybe Facebook recognizes as well that there is a market need for some effective way to tap into the desire to provide social interaction, not only with your friends, but others who just so happen want to play the same game as you. Clearly there is a market opportunity to easily create another set of “friends” that are strictly friends within a specific game application, and not necessarily privy to your latest status updates or photos from your last vacation. I expect developers to innovate and push the envelope, but it would be nice to have Facebook be proactive and create an API (and safe user experience) that helps bridge this gap.

Eric von Coelln was the vice president of marketing at Oberon Media, a leading multi-platform casual games company, and most recently the vice president of Marketing at PowerSoccer.com. He is now a New York based freelance consultant to games, e-commerce and social media companies — including some of the largest social gaming companies on Facebook. While Mr. von Coelln does write about some companies for which he has done paid consulting from time to time, this post is based on publicly available information and in our view is an unbiased analysis of the industry. You can find his blog here.

As you might expect with the Thanksgiving holidays, growth in the top fish simulation games appeared to wane as the US portion of the Facebook user base focused on real-life relationships and turkey dinners.

Across the board, daily users for each of the fish sim games flat-lined during Thanksgiving — although the reporting tool failed to provide new numbers for Sunday the 29th and Monday the 30th of November, most games were flat or down Thanksgiving week. In addition, for Zynga’s FishVille we’re seeing the social game sticky factor (Daily Active Users/Monthly Active Users) declining. At this point, the game looks like it might settle at a 28-30% sticky factor similar to CrowdStar’s Happy Aquarium and Tall Tree Games’s Fish World:

In this group, 6 Waves’ My Fishbowl continues to have the strongest sticky factor, a good 33% higher than other fish sim games with over 1 million Daily Active Users (DAU). I believe its success is primarily due to the fact that it is the only one of the four top fish sim games natively coded in Chinese, which is allowing it to take advantage of Facebook’s rapid growth in Southeast Asia. In addition, it may also have something to do with the fact that My Fishbowl has a strong game element of “stealing” from your neighbors’ tanks (if your friends are late to collect the treasures produced by their fish, you can go in and steal these treasures for yourself).

Stealing is a heightened level of appointment gaming – in addition to a user knowing they have to come back within six or 12 hours to get something from their fish, they need to come shortly within that window to prevent friends from stealing that item. From my experience, this game element seems to be pretty standard fare in casual games coming from Asian developers, yet I’ve seen repeated response on game ratings and message boards that many western users don’t like the fact that they need to steal from their friends to get ahead.

If developers see Facebook growth slow (the most recent jump to 350 million users announced yesterday is at a slower pace than previous growth), there will be more pressure to tap multiple markets. This will require not only translations of game elements, but also the need to truly understand the regional differences in game styles and how best to position those games within Facebook and other regional social platforms.