Published as part of our sister-site GamesIndustry.biz' widely-read weekly newsletter, the GamesIndustry.biz Editorial is a weekly dissection of one of the issues weighing on the minds of the people at the top of the games business. It appears on Eurogamer after it goes out to GI.biz newsletter subscribers.
The quest to uncover new business models and revenue streams has become something of a crusade for the games business in the past five years. After decades of selling full-price games and the occasional expansion pack, the industry has been forced into rethinking its models by a combination of factors - demographic expansion on the one hand, and technological advancement on the other.
Games are hardly alone in this, of course. The advent of high-speed connections and the rapid pace of change in digital media technology has forced every media business to look hard at its fundamentals. New opportunities have been opened up, of course - consumers now want to access media in contexts which were unthinkable even a few decades ago, which has expended old markets as well as creating brand new ones. Old doors are also shutting, leaving businesses which fail to adapt to new market realities to die slowly, their oxygen supply cut off not only by piracy but by fundamental changes in consumer behaviour and perception.
As such, finding new ways of making money and new classes of product is a healthy and necessary exercise for any industry which wants to survive. However, the recent behaviour of Zynga - possibly the world's most successful casual games company - is a salutary example of the kind of pitfalls which businesses face in creating such new opportunities.
Zynga is a San Francisco-based company which creates games for Facebook, MySpace and other social network platforms. If the name of the company is not familiar, its games certainly will be. Anyone who uses Facebook is bound to have run across Mafia Wars, Dope Wars or FarmVille - the company's most successful game, with over 60 million active users.
These games are fairly straightforward in their concepts, but well-designed in their execution - by no means the pinnacle of casual game design, but good enough to be able to leverage the advantage of their social setting to create a compelling ongoing experience. Scratch the surface, however, and you find that they all share a common business model - one which has come under a great deal of unwelcome scrutiny in recent weeks.
Essentially, the games are based on a "freemium" model. Players can enjoy them for free, in which case Zynga makes a bit of money from straightforward advertising revenues. If they want to buy extra items (or simply to play for longer, by acquiring more "action points" instead of waiting for them to recharge over time), they can do so either with real money (a direct revenue stream from consumers), or by signing up to an offer from one of Zynga's partners.
It's the last part of the equation which has caused the scandal around Zynga's business model. Some of those partners were perfectly legitimate - Netflix, for example, encouraged people to subscribe to a 30-day trial of their service, and provided action points for Zynga games in return. Others, however, amounted to little more than scams, often promising people free items and then signing them up for subscription services which cost vast amounts of money and were nigh-on impossible to cancel.
Other partner offers would install applications on players' computers which were little more than malware, interfering with their programs and operating system and providing no clear way to uninstall the offending software. Some of them were merely extremely morally dubious - others may well have been illegal, at least in certain jurisdictions which don't take kindly to companies deliberately scamming their consumers.
What's certainly the case is that such scams were a breach both of Zynga's own restrictions on advertising - which the company appears to have completely ignored - and of Facebook's restrictions. As such, Facebook pulled the company's most high-profile game launch, FishVille, after only two days of operation, only restoring it to the site when Zynga had removed the offending partner offers.