Electronic Arts today made a huge splash in the social gaming world by acquiring Playfish in a deal worth potentially as much s $400 million. EA could have attempted to gain a foothold in the space organically, but the company chose the acquisition space, which has certainly put the publisher in a great position overnight. As Barry Cottle, Senior Vice President and General Manager of EA Interactive, reminds us, EA did the same thing in the mobile space (with Jamdat) and that's worked out quite well. The social games market is expected to top $1 billion next year, and EA is now ready to capitalize on the burgeoning sector.
IndustryGamers chatted today with both Cottle and Kristian Segerstrale, CEO and Co-founder of Playfish, to find out what the future holds for Playfish as part of the EA family and where social games are headed.
IndustryGamers: There are a number of social gaming companies out there that you could have purchased. What was so attractive to EA about Playfish?
Barry grins from ear to ear, envisioning social games domination
Barry Cottle: They're a leader in the space with an amazing quality team and quality games. We've known these guys for a fairly long period of time, from their macrospace phase in our mobile relations. The team there is very strong and their vision and culture is very consistent with ours. And their view and approach to gameplay also mirrors a lot of our value system as it relates to building games – creating very engaging, entertaining experiences and building sustainable value through that.
And in terms of the acquisition, as you know the space has really exploded in the last six months – it's gone from 100 million active monthly users in social gaming on Facebook alone to 250 million – so to be able to go in and become a leader in this space overnight, but to bring with it the IP and distribution advantages and scale and resources with a Playfish, we think that's the right success formula to essentially own and win this space long-term. It's how we approached it in mobile, in terms of bringing on board people who have experience and understand the space and then marrying all the assets of EA against that; it's proved out fantastically for mobile, and we think it'll happen again for social networking.
IG: This really is a big bet on the future of gaming. Social gaming is predicted to surpass a billion dollars next year, but compared to the traditional games market, that's still a small slice. Do you see social games becoming the next big thing, eventually overtaking console games?
BC: I think digital gaming is absolutely growing significantly. The key thing is you have to bring games to where people are, as opposed to trying to drive people back to a destination website or traditional gaming platforms. Just the fact alone that if you took a snapshot of Facebook a year ago, less than 10 games were in the top 25 applications, and now it's 22 of 25 – you have to go where people are spending their time. The thing that's changing is not so much that people play games and pay for games, it's really more about how they discover and consume that content. Things that are disruptive as social networking platforms or the App Store essentially change the whole notion of the publishing barrier to entry and the traditional notion of shelf space. How people are discovering games is now driven through social interactions with friends and their recommendations. The fact that social networking has surpassed e-mail as a communication vehicle tells you that this is where people are spending their time, so you've got to bring games to them.
And it's important because people will pay; micro-transactions have been proven in the East and have now successfully moved to the West. It used to be pay first and then play, but now it's becoming play, then pay. I absolutely see this is how the world is moving. John Riccitiello, our CEO, has been saying for a long time now that we need to transition to the software as a service model, so this [acquisition] clearly helps accelerate it, because these guys have two years of experience running games as live ops, where 10% of your development cost happens before you develop a game and 90% happens after. These guys are the best at it, so it's great to bring their DNA into our organization and marry it with our IP. And it's great that we can now take some of the franchises they're building and extend them to some of the other platforms and start providing truly cross-platform connected play, which we think will help shape the way people play games even more.
IG: So in terms of the actual games portfolio, I guess we're going to start seeing some more cross pollination between EA's IP and the Playfish IP, where some of the EA franchises will start appearing more on the social networking platforms and then some of the Playfish games could work their way into the more traditional platforms, including PSN, XBLA, and WiiWare?
BC: Yeah, I think you nailed the synergy dead on. It's very similar to how we've set up a group like mobile, which takes EA IP and goes in and wins the market. I was looking at the App Store this morning and we had 9 of the top 25 grossing games on the iPhone because we have a dedicated group that knows how to build and innovate our IP on that platform. That same synergy exists here [with Playfish]. These guys know how to build games on [social networks] that people enjoy and want to share with their friends. Just like the mobile group, it's a mix of EA IP and non-EA IP, so they'll have wonderful franchises that they'll continue to build, and they'll have access to EA IP, so you will see EA IP entering the social games space in a bigger way, and vice versa. These guys have built fantastic franchises that have 20 million+ monthly active users that we can now take to other platforms, and our goal would be to do it in a connected manner. There's that whole notion of being able to truly play a game regardless of what device you're playing on, gaming platform or non-traditional gaming platform.
IG: One of your competitors, Zynga, has been dealing with some controversy over scammy ads and offers. When it comes to monetizing these games, are you at all concerned about pushing users away with stuff like this?
Kristian Segerstrale: We've focused from the start on creating a player friendly franchise on social networks. What we've done to really set us apart is focus on the depth of experience inside the games, the production values... and from our perspective, the vast majority of revenues is from direct payments from consumers. Our participation in the offer market is very conservative and small. We believe that in order to be a winner in the long-term it's all about player experiences; ultimately, if we create something our players love, they will reward us with their time and then finding things inside those games to actually pay for. When we started off two years ago, we knew that micro-transactions worked in the East, but we weren't certain they'd work in the West. But the experience we've had is that it's a very sustainable business model, so we're excited about continuing to build on that.
IG: It seems like traditional console publishers are racing to get a piece of the social games pie. Do you see your competitors, like Activision perhaps, making a move next to get into social networks?
BC: It's a space that cannot be ignored. I would think most players would try to enter it at some point. One of the reasons I think we're uniquely positioned to win in this space is we've now got a leadership position with 60 million monthly active users, and we've got the cross-platform capability with the #1 mobile, the Pogo casual online, combined with the portfolio of brand IP available for it, and the distribution; there's really no player in the space that has the leadership position and those three axis points of converged gameplay married with that IP. So I definitely expect competitors to get in, but I feel really good about how we're positioned to win.
IG: The social games space is obviously very young still. What are the major challenges ahead that you foresee for this sector?
KS: Well, one thing about social games, and this is something we've seen from the start, is it really feels like an unbounded growth opportunity, unlike traditional games when you sell them through retail or you sell them through an app store where there's a certain sense of a distribution bottleneck in that there's only so much shelf space, and guiding consumers through that selection experience is quite challenging. The great thing about social games is the discovery mechanism is social; you discover games through what your friends play and that turns out to be an enormously profitable distribution driver. So we feel that today, even though we have something like 300 million monthly actives across Facebook (and add another 300 million across other social networks), there's a huge population out there and we believe somewhere between 20-40 percent of those people will play games. So there's a huge opportunity to grow and lots of different ways to do that. The challenge for any company in our space is just growth and execution. Are we able to create the best possible experience for our players while being able to grow, and grow those experiences around the world? That's the single biggest challenge and at the same time the single biggest opportunity.
BC: Within any industry, there's always going to be changes. There are policy changes, platform evolution and the like. You saw MySpace and Facebook neck and neck, and now Facebook has gone to over 300 million monthly users. The key here is to be nimble, and I think the dynamics of what these guys have created – the core live ops team, understanding how to build value out of social gaming and monetize – is a skill set that can apply to a lot of different platforms and evolve with those policies. So it's about staying on top of it, being nimble and executing.
IG: Thanks for your time today, and congrats on the deal.
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