Facebook: The Next Generation Game Publisher

Upon the eve of Casual Connect one of the big announcements was Facebook becoming a mobile games publisher. Much like how the launch of Facebook’s mobile ad network went largely unnoticed only to become a huge deal later, I suspect we may see this move in a similar light in the near future.

View from the podium before my Casual Connect event.

View from the podium before my Casual Connect event.

A social network like Facebook directly publishing apps isn’t without precedent. Facebook took their lead from Asian mobile social networks like Japan’s LINE and Korea’s Kakao Talk. Both extended their messaging services to include mobile games that use their respective social network for viral reach in ways similar to the bad old days of Farmville spam.

Both LINE and Kakao Talk have been able to send games to the top of the charts in their native countries netting big revenue. With increasing adoption of messaging applications in the West, this trend may continue here.

In the boxed software era you had few options other than to go through a publisher for distribution. Publishers had guaranteed shelf space at national retailers. Now that software doesn’t exist in boxes, there’s no need for shelves. As we’ve discussed before, users are the new shelf space.

Mobile publishers like GREE and DeNA pride themselves on having a huge audience to advertise games to. This usually involves blowing lots of money buying users through ads–many of which show up on Facebook. Pretty much this is the only service mobile publishers provide.

If user acquisition is all a mobile game publisher does, why not cut out the middleman?

Facebook can acquire users much cheaper than GREE or DeNA–they own the network. In fact, this is a major reason why GREE and DeNA make so much money in Japan. Especially in the feature phone era, they operated mobile social networks they also published their own games on.

Perhaps Facebook did the math and figured out that a cut of an app’s revenue in exchange for premium placement of ads is a profitable exchange. Instead of having an audience of 30-40 million users as DeNA’s mobage network does, Facebook has over 800 million mobile users.

In the past, Facebook has proven they can make a game popular–at least for a short time. It’s up for the game developer to create a game that lasts. Given the Chaotic Evil alignment of modern game publishers, I’d much rather make this deal with Facebook* than with one of them.

* Oh, I’d take this deal with Twitter too. They’ve been able to get Vine to the top of the App Store charts all year. Imagine what they could do if they published mobile games!

Stop Hiring Advertising Agencies to Write Software

Advertising agencies traditionally build “creative” campaigns such as commercials and print ads that fly out into the world with an unmeasurable impact on a client’s brand. The first disruption to this model came with performance advertising. Instead of seeing if sales of soda increased after a barrage of 30 second TV spots, advertisers could see who clicked on ads and which ones followed through to purchases. Advertising dollars could be efficiently spent by directly measuring the impact of advertising campaigns. Increasingly desperate advertising agencies managed to grab a piece of this pie–either by creating and managing pay-per-click campaigns for clients or creating the landing pages that these ads lead to.

Mobile is the new disruption. Although mobile ads operate in much the same way as pay-per-click ads, there is a new generation of advertising that is delivered as a mobile app. Many brands have dedicated apps such as Chipotle and Starbucks, while others have created advertising campaigns built around mobile games and location-based experiences. This is real software.

Most advertising agencies are not software developers. Yet many brands make the mistake of hiring agencies to build mobile apps. I’ve seen this many times, as companies that know how to make web pages and 30 second commercial spots scramble to understand software development on behalf of a client. This is an expensive and failure-prone strategy. The software development process is completely different from Photoshopping banner ads or shooting TV commercials. There is no way for a traditional advertising agency to transform themselves into a software company. Large ships are slow to turn.

The reality is mobile advertising is more dependent on software developers and data scientists than video editors and account managers. Some brands are catching on and eliminating the middleman. In fact, others have started incubators and are smartly creating startups around this new era of software-based advertising.

This is a much smarter use of advertising dollars. Advertising campaign budgets can easily rival a series-A for a hungry startup. A startup filed with smart engineers and designers that are far more capable of promoting your brand in a measurable way than a traditional agency. Agencies might consider the same approach. Instead of trying to do it all in-house either hire an actual software developer to build and manage the project externally or spin up a disruptive advertising software startup.