Consolidation is already beginning in the overcrowded Facebook application market (with 21,800 apps and counting). One of the first sectors to see buyouts of popular apps is in the social gaming sector. Earlier this year, Zynga bought CLZ Concepts and the Superheroes group of apps. Today, competitor Social Gaming Network (SGN) is responding with its own roll-up of Esgut (which created Suplerlatives, Entourage, and Text Twirl), Free Gifts, Nicknames, Oregon Trail and Friend Block. This moves SGN up the rankings in terms of total Facebook users (48.5 million) that have installed one of its apps, which puts it right behind Slide (97.7 million) and RockYou (72.6 million) and one spot ahead of Zynga (34.7 million). Of course, some of the biggest apps that SGN bought aren’t really games (Superlatives and Entourage), and in terms of daily active users, which is a more meaningful measure, Zynga is still ahead with 1.9 million versus 1.1 million.

Still, SGN is obviously serious about scaling up its business by hiring, acquiring, or partnering with the best Facebook app developers out there. The developers behind Free Gifts, Esgut, and Nicknames have now joined SGN as co-founders. “We are building a brain-trust of leading app talent,” says CEO Shervin Pishevar. He recently spun off SGN from Webs.com and moved his entire team from the East Coast to Palo Alto. And this morning it just released the sequal to its popular Warbook game on Facebook—Warbook:Rise of the Infernals.

The company has also launched its own cross-promotional advertising network for other gaming apps and is in the process of raising $10 million (says an outside source). (Update: That turned out to be $15 million). There are now 70 games and other apps on its Gaming Hub.

One of them, Free Gifts, is now part of SGN. More than 70 million virtual gifts have been exchanged between Facebook members so far. Brands sponsor the gifts, and there is a potential for direct consumer purchase of gifts as well within a gaming context. Pishevar is almost as excited about the prospect of virtual gifts as he is about social games:

It is real, it is happening, it is underground. I think it has a potential to become as important or more important than the advertising revenue.

The race between SGN and Zynga to become the biggest social gaming network is a race for talent, a race for active users, and most importantly, a race to see who can make money first. But while they keep elbowing each other for position, they shouldn’t forget that newer entrants with social-gaming platform ambitions are always trying to close in behind them.