As we approach the end of 2011, Inside Social Games looks back at the biggest stories in the social games industry based on controversies and rumored controversies around everything from layoffs to sunsetted games.

While not necessarily the most popular articles among investors and developers, these stories and subjects tend to be repeated almost as often as the success stories of mergers and acquisitions, IPOs, and other exits or expansions. In the case of rumors, these stories often couldn’t be independently verified or lacked enough substance to warrant a news report. Even so, some of them were persistent enough to merit mention here.

Zynga’s Stock Clawback Scandal – November, Unconfirmed
This year Zynga took some very poorly timed heat from a Wall Street Journal expose that claimed company CEO Mark Pincus pressured employees to return stock rights due to poor individual performance. Surfacing a month before the company’s hotly anticipated IPO, the article called Zynga’s corporate practices and long term ability to retain employees into doubt. While Zynga never denied the story, CNN did obtain a company memo that said the Wall Street Journal’s article was based on hearsay, but also specifically mentioning “meritocracy” as a core company value. We’ve since heard rumors that the alleged stock clawbacks were only directed at a very small number of employees that truly were under-performing. In the end, Zynga’s shares went on to be priced at $10, netting the company a billion dollars in its IPO and a market valuation of $7 billion. The company’s shares slipped after they began trading, and are now worth $9.75.

RockYou’s Dramatic Pivot – November
The year started off well for RockYou with the Playdemic acquisition and a new ad platform and partner publishing program. By mid-summer, however, it was clear that the Zoo World developer was in trouble even as it continued to expand via acquisition. The first of its partner-published games, Cloudforest Expedition, was delayed and eventually beaten to market by Zynga’s Adventure World. Overall traffic declined across most of RockYou’s owned-and-operated games despite a strong launch of Zoo World 2. By the time SVP of Games Jonathan Knight left the developer-publisher in late summer, rumors of planned layoffs began to circulate. RockYou CEO Lisa Marino confirmed just over a month later, adding that Playdemic would be sold back to its original owners and that Cloudforest developer Loot Drop was released from its contract. RockYou is currently claiming a profit for the final quarter; Zoo World 2 is showing a resurgence in traffic; Cloudforest Expedition remains unreleased, though Loot Drop has signed new agreements with other social game publishers.

Diner Dash Finished on Facebook – July
San Francisco-based PlayFirst began the year wtih big plans for bringing its IP to Facebook and a $9.2 million round of funding it secured at the end of 2010. Despite a solid launch and strong initial growth of its premier franchise, Diner Dash, the developer sunsetted the game after just eight months due to poor performance — the third failure in a row following Wedding Dash Bash and Chocolatier: Sweet Society. SVP of Games and General Manager Eric Hartness left the company around the time of the game’s demise and an unspecified number of employees were laid off not long afterward. At it stands now, the developer appears to have made a full scale retreat from social games, with a company representative telling Joystiq that PlayFirst will now focus on on the “mobile casual gaming space.”

Kabam’s Restructuring – December, Partially Confirmed
At the end of spring 2011, Kingdoms of Camelot developer Kabam closed an $85 million fourth round of funding to put toward ramping up its existing Facebook games and launching new ones. At the time that the funding was announced, Kabam said it had 400 employees across multiple studios — including a newly-opened San Francisco studio. Around August 2011, however, multiple anonymous tipsters told us that Kabam was preparing or had already begun rounds of layoffs. The stories seemed inconsistent as Kabam maintained a steady flow of hiring during this time period, and continued to launch new games. We observe, however, that Kabam sometimes launches games on Facebook that are neither branded nor announced — for example, Samurai Dynasty, which we first saw on our AppData charts in June — and then sunsets them if they fail to gain organic traction. These scrapped games could be cause for layoffs as could general restructuring. Kabam came out this month and announced the latter, claiming that fewer than 80 employees were affected. This contradicts the information provided by the tipsters, which place the number between 80 and 200. A spokeswoman tells us that Kabam currently has around 475 employees; the developer recently launched a licensed Godfather game on Google+ and on its own site.

Sticky Situation at Digital Chocolate – October, Unconfirmed
Once a major competitor to Zynga, Digital Chocolate was already losing ground at the beginning of 2011 despite launching new games Army Attack and Millionaire Boss and expanding onto mobile and Google+ with some of its older titles. As Millionaire Boss began to decline rapidly and planned updates to Army Attack were delayed, it came as no surprise to hear from a tipster who worked at the company that the developer was considering layoffs. A Digital Chocolate spokesperson denied any major layoffs when we contacted the developer in October, but a second source with knowledge of the company told us that Digital Chocolate’s social studio branch in San Mateo had been completely shut down due to rising user acquisition costs on Facebook. Additionally, this source says a failed publishing agreement with a first-time social game developer hurt Digital Chocolate’s ability to offset user acquisition costs. Digital Chocolate recently launched a new social game, Galaxy Life, on both its own site and on Facebook.

Vostu’s Most Litigated Form of Flattery – June to December
Brazilian social game developer Vostu made some ink in June this year when Zynga sued the company for copyright infringement, claiming Vostu had copied their games wholesale, right down to unintended glitches and mistakes. Vostu hit Zynga with a countersuit alleging Zynga had unsuccessfully tried to negotiate a partnership or acquisition with it before Zynga’s initial lawsuit. The companies settled out of court this month, with Vostu agreeing to pay Zynga an unspecified amount in compensation and make changes to MegaCity, Café Mania, Pet Mania and MiniFazenda. Vostu is currently branching out and is on track to release more casual social games, thanks to its earlier acquisition of MP Game Studio. Vostu is also working on adding new features to its core social games, like the custom in-game radio stations it just added to MegaCity and MiniFazenda.

Sony Online Entertainment Exits Facebook – May
Sony Online Entertainment started off the year by publishing a tie-in Facebook game for its EverQuest II franchise and continuing to operate several games developed by independent studios. None of these games found much traction in the first months of 2011, and somewhere around May, SOE quietly walked away from Facebook. Its games were either abandoned completely or handed back to their developers, as was the case with Night Owl Games’ Dungeon Overlord. A spokeswoman for the publisher wouldn’t confirm that SOE is completely out of the social game industry, but did say that the company was trying to get back to its MMO roots.

Deep Realms Deep Sixed – June/July, Unconfirmed
Disney Playdom was just beginning to exit its moratorium on new game launches at the beginning of the year, first with Deep Realms and then with Gardens of Time. The latter completely eclipsed the former — and just about every other game Disney Playdom released this year, even the Disney-branded GnomeTown and ESPN Sports Bar & Grill — and so we weren’t surprised to hear rumors that the Deep Realms team had been trimmed down early on in the year as the developer shifted its attention to other ventures. Given Deep Realms’ current traffic, it’s unclear at this point if the game will survive Q1 2012.

Rocket Ninja’s Wrestler: Unstoppable Makeover – May
2D wrestling sim Wrestler: Unstoppable had a very outspoken and loyal fan following by the time the game was acquired by Rocket Ninja in 2010. It appears to be these same fans stirring up controversy around the developer’s updates to the title — mainly, the visual makeover from 2D to 3D with Rocket Ninja’s proprietary engine. Players cited numerous bugs and performance issues caused by the new engine as their main complaint and a petition was circulated, calling for a return to the game’s original visuals. Wrestler: Unstoppable went into a sharp decline around the end of September; Rocket Ninja announced a $7.5 million second round of funding in November to put toward scaling its 3D engine in social and mobile games.

As 2011 winds down, we’ve compiled this year’s Facebook games reviewed by Inside Social Games and measured their performance on AppData, our data tracking service.

Below are 2011’s top ten winners, defined for the purposes of this report as 1) Facebook games that officially launched between the start of the year and September 2011, which 2) have the highest current number of monthly active users with 3) current retention rates (DAU as a percent of MAU) of 20% or higher. This list only includes games reviewed by Inside Social Games during that period. Note that these factors distinguish our list from the top 2011 games rankings published by Facebook, which were compiled using a mix of active user counts and user reviews.

10 — Collapse! Blast: 240,000 DAU, 1.2 million MAU
GameHouse’s match-3 puzzle game launched in late July, reached a peak of about 1.25 million MAU before the end of August, and has maintained close to that level of users ever since.

9 — HotShot: 350,000 DAU, 1.4 million MAU
PlayQ’s pachinko-style arcade game that strongly resembles EA PopCap’s download title, Peggle, launched in early May and has enjoyed steady growth and strong engagement throughout its run, with a DAU/MAU rate well above 20%.

8 — GnomeTown: 340,000 DAU, 1.5 million MAU
Disney Playdom launched its fantasy-themed city sim game in July, reached a peak of over 500,000 DAU in September, and has remained close to that level for the remainder of 2011. The game got a significant boost a month or so after launch when the developer added Disney branding to the game’s interface and display ads.

7 — Slotomania – Slot Machines: 1.600 million DAU, 5.5 million MAU
Playtika’s slot machine gambling game actually launched in the final weeks of 2010, but only began showing strong growth toward the middle of 2011. It has maintained strong DAU/MAU rates through the year, even approaching the 30% range for several months.

6 — Zombie Lane: 400,000 DAU, 2.1 million MAU
Digital Chocolate’s zombie-themed RPG launched in March, enjoyed sharp growth from April to June, peaking at about 1.5 million DAU, then began a slow slide of users for most the rest of the year. Its growth finally stabilized around October.

5 — Magic Land: 520,000 DAU, 2.4 million MAU
Wooga’s fantasy-themed city sim launched in August, and has enjoyed strong, steady growth of DAU since then, reaching its current peak this month. A mobile companion game debuted on Facebook’s HTML5-based mobile platform in October.

4 — BINGO Blitz: 880,000 DAU, 2.8 million MAU
Buffalo Studios launched its Facebook-era update to the classic board game around the start of the year, and has enjoyed strong growth and very heavy engagement rates since, with a DAU/MAU rate in the 30-35% range for most of its run.

3 — Gardens of Time: 2 million DAU, 8.5 million MAU

Launching in April, Disney Playdom’s hidden object puzzle game enjoyed sharp growth in its first couple months, a slower growth rate in the next three months, then saw a steady but gradual loss of users starting in September. However, the game’s DAU/MAU rate has remained strong throughout its run, and has fluctuated between 22% and 26% in the last three months.

2 — Diamond Dash: 2.8 million DAU, 11.8 million MAU
Wooga officially launched its arcade-style matching game in March, and has maintained a DAU/MAU rate of about 20% since then. Growth of DAU has also been consistent, with the game reaching its current peak this month. The game went cross-platform on iOS at the beginning of December.

1 — Words With Friends: 5.6 million DAU, 13.5 million MAU
Zynga launched the Facebook component of its Scrabble-like board game in July, allowing Facebook users to play games against users both on desktop and mobile. Growth has been consistently strong since then, with the game reaching its current peak of MAU and DAU this month. Words with Friends has maintained retention of over 40% since October when Facebook debuted its mobile platform with the game as a launch title, making it by the far the most engaging game on this top ten list.

A notable absence from this list is EA Playfish’s The Sims Social, which launched in late summer and still maintains a very large userbase of 5.1 million DAU and 27.7 million MAU. The reason the game didn’t make our top is due to a decline in overall traffic begun in October that brought retention rates below 20%. Similarly, the DAU/MAU rate of Zynga’s Empires & Allies (now with 16.1 million MAU and 3.1 million DAU) has been trending below 20% in recent months. Other prominent absences from our list include 6waves Lolapps’ Ravenskye City (launched in October, 20% retention), Zynga’s CastleVille (launched in November, 21% retention) and Zynga’s Mafia Wars 2 (also launched in October, 8% retention).

Interestingly, no single game genre dominates our list: Three are classified as casual arcade, two are fantasy-themed city sims, and two are gambling-themed with just one RPG and one hidden object game, plus a Scrabble clone at the very top. Also notable: The top ten games were created by nine different developers, with only one, wooga, creating two of the ten. While previous years in Facebook gaming have been dominated by one genre (such as farming sims) or one company (such as Zynga), 2011′s most popular games suggest a growing diversity and sophistication of the market.

Facebook has compiled a list of its most popular games for 2011, as well as lists of other games with notable achievements for the year.

The data was compiled primarily using active user counts and user reviews. Facebook adjusted its methods for counting active users in October, which may have had an impact on the final figures used to compile its lists. Facebook also tells us that, of its monthly gamers, 25% play at least ever other day with the average gamer playing more than three different titles per month.

Here’s the list of Facebook’s top 10 most popular:

Most popular games in 2011

1. Gardens of Time (By Playdom)
2. The Sims Social (By EA)
3. Cityville  (By Zynga)
4. DoubleDown Casino (by DoubleDown Entertainment)
5. Indiana Jones Adventure World  (By Zynga)
6. Words With Friends (By Zynga)
7. Bingo Blitz (By Buffalo Studios)
8. Empires & Allies (By Zynga)
9. Slotomania-Slot Machines (By Playtika)
10. Diamond Dash (By wooga)

Facebook also broke out special categories for the fashion, sports, and casino genres as well as a category for most popular games with 50,000 to 100,000 users and another for games with highest engagement figures in the 100,000 to 500,000 user category. You can check these out on Facebook’s blog.

Scotland-based newcomer Outplay Entertainment enters the social and mobile game market this month with two games launched on Facebook that will eventually become cross-platform experiences on iOS and Android in the first quarter of 2012.

The term “cross-platform” has been used a lot by developers in the last year as Facebook-spawned devs make their first attempts at mobile games and mobile developers attempt to migrate their apps to Facebook and other social networks. It can mean two completely unrelated games that share a common theme, like CrowdStar’s It Girl for Facebook and Top Girl for mobile. It can mean a game that is identical across all platforms, but not connected by platforms, such as Rovio’s Angry Birds on G+ versus Angry Birds on just about every other device under the sun. It can also mean games that are the same game no matter what device the player users, like Zynga’s Words With Friends — which is what many developers term “true” cross-platform play.

Outplay Entertainment currently falls toward the Words With Friends end of the spectrum with its two games, Booty Quest and Word Trick. When the mobile versions launch, players will be able to initiate games on Facebook and then have that same game immediately available to them on iPhone or Android if they switch devices. For future projects, the developer may lean more toward CrowdStar’s cross-platform model where one platform has the “main” gameplay experience while another platform provides supplemental elements. Similar to what Ubisoft has planned for its upcoming Ghost Recon games, this could take the form of a mobile companion game generating additional currency or experience points for the Facebook main game.

For now, though, Outplay is focused on getting its foot in the social-mobile games door and scaling quickly. Though there is some skepticism that developers cannot use Facebook as a sustainable starting point on which to build a business, the developer feels it has an edge by virtue of experience, compelling gameplay, and ample resources to direct toward marketing. The company was founded by brothers Richard and Doug Hare, two video game industry veterans that have come a long way from 1997 when they first founded a development studio focused on porting Windows games to the PlayStation console. In the following interview, the brothers outline Outplay’s approach to the rapidly shifting market:

Inside Social Games: How two brothers can work together without killing each other?

Richard Hare, Outplay Entertainment Co-Founder (pictured right): It’s probably the fact that we grew up playing games together. It’s been a hobby and then it became a common interest. The first company of scale we created was The Collective, which we formed in 1997 with one other business partner, and focused on console development. We grew that over the course of eight years to 150 people, then we merged with Backbone Entertainment in 2005.

Doug Hare, Outplay Entertainment Co-Founder (pictured right, with child): We merged the companies, created Foundation 9 Entertainment, and then sold the majority of it in 2006. As a result of that investment, we grew to about 800 people in 11 different studios. That’s when we started [researching] Facebook as a platform and at the same time saw the [rise] of Apple with the launch of the App Store. It was difficult to go after those markets from within our company, so it ended up being easier to start a new company. We’re still substantial individual shareholders at Foundation 9, but we have no operational involvement.

ISG: How did you end up back in your native country, Scotland? What’s the development culture like there?

Doug: We started with the idea of doing Outplay in the states as a very virtualized company with lots of different individuals collaborating on the product — after 800 people, we were drawn to the idea of a small company. As we refined our view of the market, it became apparent that games were services rather than products you could fire [off] and forget, so we started realizing that we needed a fairly substantial internal capacity. We started looking at various locations where we could set that up, and [chose] Scotland. We came to that realization around April or May of last year and came back in September to start meeting with VCs and angels investors. We officially opened our doors in April 2011.

We can’t claim to be experts, but a lot of stuff happened while we were away [from Scotland]. But one of the surprising things [about] Scotland is that it’s the home of Lemmings and Grand Theft Auto. Those games originated here and Grand Theft Auto is still developed here. [Video games] is not a huge industry in terms of headcount, but in terms of the size of the country — five million people — the amount of relevance is amazing for such a small country.

ISG: We’ve heard some people say that Facebook isn’t the best place to launch a studio anymore now that Zynga dominates the market and cost per install (CPI) is really high. Where do you see opportunity on the platform?

Doug: It’s a question of having the type of product people want to play. Whether it’s the App Store, the Android Market, Facebook, or Xbox Live, they have the same challenges around discoverability — grabbing people’s attention so that they come back. [The opportunity] comes from the quality of the product that we create, the genres that we select, and the part where we can direct a reasonable amount of marketing toward [the games] to get traction. We’re not trying to be Zynga, we’re not trying to compete for the same audience. They’re an atypical outlying phenomenon. We’re making different types of games that will ultimately attract a different audience.

ISG: Booty Quest is a match-3 game and Word Trick is more like more like Scrabble, both very casual older female-skewing genres. Is that the demographic you’re primarily focused on?

Richard: There’s a multitude of reasons why we led with those genres. From our perspective, they’re great games. It’s a style of casual game that we enjoy playing. And because we’re forming a new team in a new country, we wanted smaller scale products with a relatively constrained and focused style of developing. From a market analysis standpoint, they seemed like logical bets to start with [because] even though there are many match-3 games, there’s a large appetite for that style of entertainment. We also felt we could create something that was innovative within those [genres]. These are an exercise in proving out the team and proving out our product. As we move into next year, you’re going to see more complexity in content types and development.

ISG: How do you offset CPI on new games, being such a new studio? Is it all in the marketing or will you integrate an ad platform or hot new viral mechanic no one’s thought of yet?

Doug: We’re moving rapidly and beyond simple raw marketing. We have other secret sauce as to how we [attract] audiences that we’ll be rolling out next year. It’s something along the lines of what you mentioned — only it’s saucier and more secret.

ISG: On the cross-platform side, what’s your approach? Are you using HTML5 or building native apps by platform?

Doug: We built our own technology for cross-platform development. HTML5 is interesting, but the experience that we have on mobile devices is just not something that you’d be able to get on HTML5 right now.

Word Trick and Booty Quest exist very happily on [PC or mobile]; the experience is satisfying regardless of the platform. However, that’s [not the case] for most types of games. Taking another type of game and making the same experience [on multiple platforms], one of them is going to be a pure experience on one of the platforms whether you like it or not. We’re not going to make the games identical all the time; we’re going to have games that you want to play on Facebook, on PC. And then we’ll have another game that’s a different experience [but related to the Facebook game] on a different platform. The two games are standalone, but if you play both, you’ll move faster through the experience. It’ll be a better experience overall.

There are other companies that are doing this. But there will be a change in the patterns that people play [by] and we want to have an approach to where we’ll be there whenever [the player] want us, no matter what the device.

Richard: The key is being sensitive to the context of the platform you’re playing on. There’s certain things that work extremely well or are only possible on mobile. We want to make sure it’s not going to be an exercise in porting between desktop and mobile, but trying to recognize the true experience based on the context. We’re not going to do, “Here’s the Facebook game,” and then a few months later, “Here’s the mobile game.”

ISG: You define your games as “skill-based,” even though they’re not actually related to the concept of gambling — where players compete against one another to earn prizes relative to their skill. What does the term “skill-based” mean in the context of your games?

Richard: One way of looking at it would be that there’s always a level of challenge that can be worked and mastered. That’s something that has a natural appeal and draw over time because it’s not too easy. With gameplay mechanics, we want to make sure that it’s always rewarding and satisfying. It’s finding the right level of skill or challenge. That will be based on the style of product — [Booty Quest] is more reaction-based while [Word Trick] challenges your vocabulary.

Doug: Both games require you to develop [a skill]. It’s rewarding to see your development of that skill, more fundamentally satisfying than games that are based on patience. The term “skill-based” reflects casino gaming, but the idea is really that you’re demonstrating a skill and the evolution of that skill is underpinning the overall enjoyment. There are a lot of games on Facebook that don’t have the requirements for what [we define as] skill. They have behaviors that can be rewarded, but there’s no change in behavior.

ISG: What does the road ahead look like for you, beyond launching new products? Are you in the process of raising funding?
Doug: We raised our seed funding at the start of the year, so we’re not raising money right now. When we pitched the company as an investment opportunity, the idea was that we were going into it [with] the functionality a publisher would have — dedicated community management, dedicated quality assurance, marketing, and public relations. We’re at 32 people right now — we started with two in April — and we grew ourselves in the space of three-and-a-half months. We’ve built these games and mobile versions that are nearly complete. What we’ve accomplished, when you think about it, is quite a lot.

Zynga’s Words With Friends for Facebook has grown steadily since the developer launched the cross-platform experience over the summer. In the last few months, however, the game has really ramped up growth thanks to an ad-based viral mechanic and cross-promotion alongside Zynga’s “traditional” Facebook games.

According to our AppData traffic tracking service, Words With Friends currently enjoys 13.5 million monthly active users and 5.6 million daily active users. Note that this figure also accounts for mobile users that link their apps with Facebook Connect.

The viral mechanic is based on the ads that the original iOS game leveraged in its free version. A player would make a move, and the game would generate a pop-up video or banner, but players could upgrade to the paid version of the game in order to avoid any ads. Zynga’s Facebook take on this model has been to show players ads after the moves, and prompt them to invite a minimum of two friends in order to play the game ad-free for a certain amount of time (currently one week). Players can also pay 36 premium currency units (which comes out to a little less than $5) to make the game permanently ad-free. The ad box can be exited about five seconds after opening.

Words With Friends also seems to be getting a boost from Zynga’s cross-promotion bar, which previously only featured Zynga’s core franchises — FarmVille, CityVille, etc. This cross promotion bar could be driving traffic to other Zynga games on Facebook, as we observe an uptick in Adventure World that seems to coincide with Words With Friends’ rise on the platform. Words With Friends may also be getting a boost from Facebook’s HTML5-based mobile platform, launched this fall, as it was one of the few titles available in the first week — but as the game is still only playable on smartphones as a downloadable app, there may not be much traffic coming from this direction.

Zynga acquired Words With Friends developer Newtoy last November in order form a new studio called “Zynga With Friends.” Regulatory filings made ahead of Zynga’s initial public offering reveal that Zynga spent $53.3 million in cash and stock for the buy. The studio has since produced Hanging With Friends, which currently does not have a cross-platform play option for Facebook users.

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.

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.

Zynga had added almost 2 million new mobile daily active users in about a month according to new data that chief executive Mark Pincus shared with prospective investors ahead of next week’s expected initial public offering.

The company now has 13 million daily active users on mobile platforms, up from the 11.1 million users it was seeing on average per day through October, according to the most recent amendment of its IPO filing. Pincus revealed the numbers at an investors’ lunch a Reuters journalist attended.

In the third quarter ending in September, Zynga had 9.9 million daily active users on its mobile games, a number that was already a tenfold increase over what it had at the beginning of 2011, when its games had issues cracking the top 50 on the iOS top grossing charts. We don’t know for sure, but it’s possible that Zynga is second in daily active users only to Angry Birds developer Rovio, which last said it had 30 million daily actives. Outfit7, which says it has 70 million monthly active users, might potentially have as much or more than Zynga too.

> Read the rest on our sister site, Inside Mobile Apps.

Kabam’s newest strategy role-playing social game, The Godfather: Five Families, comes out today on Google+ for a 45-day exclusive launch period.

The Godfather marks a couple of firsts for Kabam: It’s the developer’s first licensed game, developed with Paramount Pictures’ digital entertainment branch. It’s also the first time we’ve seen Kabam launch a game on a social network other than Facebook, where the developer originally got its start (as Watercooler Inc.) with social applications and later with hardcore massively-multiplayer combat titles like 2009’s Kingdoms of Camelot. Based on our early look at the game, The Godfather builds on Kingdoms of Camelot’s combat and citybuilding gameplay mechanics with more emphasis on narrative, art quality and shifting player rankings.

The decision to launch the game on G+ before all other platforms seems like a vote of confidence in G+ social games. To date, Google hasn’t released much information about the growth of its social network and even less data is available on the health of the social games platform, which is segregated from the rest of the social network. We don’t know much about how games are selected for the G+ platform; but we’ve heard that it’s a more intimate and competitive submissions process than what developers experience on Facebook’s games platform.

Speaking to Inside Social Games, a Google spokesperson stresses that at five months in, it’s still early days for the social network. An announcement made at the Web 2.0 conference in October claims that G+has 40 million users. While we’re sure not all of those people are playing games on G+, Google tells us that rapid game launches from major developers like Kabam, Digital Chocolate and Zynga are validation of the market.

Based on the performance of Edgeworld and Dragons of Atlantis — both Facebook games the served as G+ launch titles — Kabam tells ISG that the developer is “pleased” with monetization and traffic on the platform. This was a key factor in determining the exclusive launch period for The Godfather.

“While pleased, we’re not entirely surprised,” a spokesperson says. “We know from experience and research that core gamers actively seek out their games. Equally important is our operational experience to date. The G+ team has been very responsive and supportive of our efforts — they’ve provided excellent service and a willingness to get things done quickly and efficiently.”

Kabam goes on to say that it will evaluate The Godfather’s performance on G+ before rolling it out to other networks and platforms. Additionally, the developer will continue to run The Godfather in open beta on Kabam.com as a means of testing new features. Kabam tells us that it uses a new proprietary technology to adapt and deploy games across multiple platforms more quickly, which will make it easier to facilitate simultaneous releases in the future.

Currently, G+ offers 30 titles in its Games tab — many of which are ports of existing Facebook and mobile games. The Godfather: Five Families has been in beta testing on Kabam.com since the fall.

Disney Playdom will sunset its long-running social game, Social City, this December just three months shy of the game’s second birthday on the Facebook platform.

As the approximate life cycle of a social game on Facebook seems to be roughly 12 to 18 months, the move comes as no surprise. It’s even less of a surprise, considering Disney Playdom’s recent success with Gardens of Time and its efforts to release new social games based on Disney properties in 2012. Effective resource management dictates that developers need to spend more on the games that are making money, and shut down ones that aren’t in order to allocate resources to new games.

It is rare, however, to see one of Facebook’s big five social game developers taking an older game offline even if it is more than 18 months old. Many of those games (particularly Zynga’s) still enjoy large audiences that, in theory, monetize at a higher rate than those who are playing a new game in its first three months of life. Image also keeps older games online, as many developers are defined by the success of their original games.

In the case of Social City (review here), it was one of several hit games Playdom offered in its pre-Disney acquisition days. Sorority Life and Mobsters were also “big name” games that attracted millions of users back in the early days of the Facebook and MySpace games platforms. Social City, however, got a larger amount of media attention than other pre-Disney Playdom games because it launched just before the Disney acquisition and went on to win a Game Developer Choice Award at GDC Online in October 2010. Due to its success, the game survived the initial upheaval after the acquisition (which saw the sunsetting of Playdom’s Big City Life, Treetopia, and Fanglies in October 2010) and even made it onto Android where some of Playdom’s competitors were experimenting with cross-platform social game experiences.

Social City’s Facebook traffic was in decline even then, however, down over 50% in monthly active users and over 80% in daily active users from its peak point of traffic at 12 .6million MAU and 3.1 million DAU seen in spring of 2010. In the last six months, MAU and DAU have continued to fall, eventually putting its DAU as a percentage of MAU — a metric that helps us see what kind of retention a social game enjoys — below 10%, which is where most developers usually shut down or abandon a game. It’s a similar story to Playdom’s Market Street, which launched in 2010 and was sunsetted in August 2011.