Social Gaming Ads To Soar — But Virtual Goods Still Lead Revenue

With the still rising popularity of social media games like Zynga’s Farmville and Mafia Wars, advertising is naturally beginning to follow. But at least for the next few years, despite a major growth spurt, ad dollars will continue to lag virtual goods when it comes to making money in the social gaming. “Understanding the popularity of social gaming is simple,” said eMarketer senior analyst Paul Verna. “Games like Farmville are all over Facebook and people can play at their own time pace, unlike casual multiplayer games.”

As a piece of the total U.S. online ad pie, which is roughly $25 billion annually, social game ad spending is still a veritable drop in the bucket. But it experienced explosive growth last year and it is expected to maintain some healthy gains into 2012.

Last year, social gaming revenues were $856 million. It will top $1.3 billion by 2012. In terms of the shifting share, virtual goods will barely move, retaining a nearly 60 percent share of the social gaming revenue pie with $792 million next year. Advertising will grow from a 14.1 percent share of the market with $120 million spent in 2010, to 20.5 percent share with $271 million in 2012.

The money and mindshare are gravitating towards social gaming, Verna noted, with game publishers extending their console games into a social environment. Overtime, that will likely shrink the value of virtual worlds and goods. That could be trouble for some companies, as advertising dollars, though rising, will not be able to fill much of the space that virtual goods revenues are contained in.

Verna also pointed to research that suggested the use of social gaming may have either peaked or becoming more fragmented. “When you look at the number of active monthly users for the top 15 social gaming sites, the numbers appear to be leveling off quickly,” Verna said. “So there is a chance that there is a bubble there.”

In the meantime, the general usage of social media gaming is set to gain by 29 percent in 2012 to 68 million users who play at least one game a week. “Within that larger group, virtual worlds will continue to have a place, but it will be much more narrow and niche over the next few years,” Verna said.