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.

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There is a new casual gaming network in town that’s got some serious cross-platform chops. Don’t be fooled by the cutesy graphics. Today, Mytopia is simultaneously launching across Facebook, Bebo, MySpace (currently pending approval) and its own Website with eight games (Chess, Backgammon, Sudoku, Dominoes, Bingo, Spades, Hearts, Video Poker). On Monday, it will release the same games across the major Web and desktop widgets: iGoogle Gadgets, Apple Dashboard Widgets, Yahoo Widgets and Windows Vista Toolbar Widgets.

Here’s the thing: the games work across all of these platforms. You can be on Facebook playing cards with one friend on MySpace and another on Bebo. And you can control what people on each network see about you. For instance, you can present your real profile to your friends on Facebook, and a different Mytopia avatar to everyone else. These are the sort of apps that could one day break Facebook’s, or any social network’s, hold on its members.

Mytopia was founded by a young Israeli American, Guy Ben-Artzi, and his sister Galia Ben-Artzi. They grew up in Silicon Valley, but now split their time between the U.S. and Israel. Nearly all the company’s engineers are in Israel. Guy wants to bring the computing architecture and game-play behind massively multiplayer online (MMO) games like World of Warcraft to casual games with broader appeal. Guy explains:

What we have done over the past year is look at all the massive multiplayers and tried to analyze what makes those sticky and social. What is great about all of these massive multiplayers is you have people playing in guilds and trading with each other. We are building the MMO backend minus the 3D perspective and hard core genre.

Mytopia games include the ability to join teams, compete in matches, send in-game messages, win points for different skill levels, collect virtual currency and trade in-game items with other players. The company plans to explore different ways to make money including in-game sponsorships, premium subscriptions, and micro-transactions linked to game items and the in-game economy.

In May, the startup plans to open up its casual gaming platform to other developers. By delivering this write-once, deploy-anywhere capability, it hopes to challenge other social gaming networks with platform ambitions such as Zynga and SGN. This should be fun to watch.

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(Update: SGN raised $15 million on May 13, 2008). It was only last week that the Social Gaming Network (SGN) and Zynga announced their respective developer platforms for games on Facebook and other social networks. I said the game is on between these two companies to win the hearts and minds of social gaming developers. The folks at Zynga took exception to this characterization. If you put all of its games together, Zynga is the 10th largest app company on Facebook as measured by number of installs. SGN is No. 51.

Venture capitalist and Zynga investor Fred Wilson accused me of not doing my homework in a post that set off a minor debate over the holiday weekend. After I commented on his post that the jury is still out on which of these young companies will succeed, Wilson responded:

Its not even debateable who is a real company and who is not.

Zynga CEO Mark Pincus also clearly feels that the comparison is not warranted. He told me of SGN:

It is just a thorn in my side. It is some bad ex-girlfriend who will not leave me alone. I think we are very clearly the leader in the space.

That thorn is about to get pricklier. Sources outside of SGN confirm that the company is about to raise as much as $10 million in a venture round. Multiple term sheets are on the table. None have yet been signed as the company studies its options. Says one competing VC who has done his due diligence and is eager to lead SGN’s round:

When all is said and done they will have as big a network as Zynga. Fred Wilson doesn’t understand what is going on.

Sounds like a debate to me.

If size is the determinant of a “real company” (which I don’t think it is), then SGN’s platform is already a whole lot bigger than just a week ago. In less than a week it has signed 10 Facebook games to its budding social gaming hub, including Jetman—one of the most popular games on Facebook—Pirates, and The Dot Game. It has also signed Free Gifts, a virtual gift-giving application on Facebook that includes the other seven of the ten games.

All told, the new apps will triple SGN’s daily active users from 200,000 to more than 600,000 on Facebook alone, bringing it substantially closer to Zynga’s 900,000. And in terms of the number of installs, the SGN network is getting much closer to Zynga’s 11.8 million (18.4 million including recently acquired CLZ Concepts and four other Zynga games not reflected in the stats), depending on how you count. Jetman alone has 3.8 million installs and 200,000 daily active users, SGN currently has 3.3 million installs, and Free Gifts has 10 million installs—but that is mostly for its gift giving app, which other gaming developers on the SGN gaming hub will be able to incorporate into their games.

Responding to Pincus’ quip, SGN CEO Shervin Pishevar says: “We are like an old girlfriend that got famous.” Noting that many of Zynga’s games are copycat versions of other games (Zynga’s Diveman is very similar to Jetman, for instance), he adds:

If you want to be a developer platform, you probably shouldn’t be copying developers’ games. If you want to compete with them, fine. That is why they are joining us.

So is it game over? Hardly. The games have just begun. But is SGN a real business? It is as real as any business built on Facebook.

Update: In an e-mail Pincus responds:

Wow erick.

A) you give them credit for traffic they don’t even own
And
B) you won’t give us credit for traffic (clz apps) we do actually own.

Do you even care how hypocritical sherwin is to accuse me of copycat games when he copied free gifts on bebo and risk on fb? Getting the irony? He is partnering with an app he literally copied in december while accusing me of this?

Erick, with all due respect I’m wondering if you work for sgn now?

I’ve updated the post to include the CLZ numbers, which are still counted separately by Adonomics, the data source I linked to. As for who owns what traffic, Pincus is right to point out that games Zynga owns and operates are probably worth more than games simply affiliated to any particular gaming network. But SGN’s deal with Jetman and Free Gifts is as tight as it gets without buying them outright. SGN will be hosting their apps, and Jetman’s developer will be creating more games for the SGN network. The battle here is over who will build the most powerful network and attract other developers, not who will buy up the most traffic.

Update 2: CLZ actually has 11.5 million installs, instead of the 5.3 million that Adonomics reports (it only counts 2 of CLZ’s 18 apps). But not all otehse are games (You’re Naughty, You’re a Hottie). I am beginning to really question how reliable Adonomics is. The SGN numbers are probably off as well. Also, all of these numbers come from Facebook, which currently has a bug with how it reports total installs. Daily active users is the better metric to use. Zynga has over one million daily active users, about double SGN’s (including Jetman and Free Gifts). Dead installs (i.e. inactive users) are only good for spamming.

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The social networking game is all about scale. There are so many apps now on Facebook alone, nearly 16,000, that it is nearly impossible to get noticed unless you are already part of one of the bigger app companies. Cross promotion between apps is the key. Some of the largest app companies like Slide or RockYou, for instance, typically charge 50 cents per install to distribute apps from smaller developers across their users. But now we are beginning to see networks starting to form across specific application genres.

In the social gaming category alone, a battle is brewing between the Social Gaming Network (SGN) and Zynga. Tomorrow, both will launch separate developer platforms for other gaming applications. (Info here for SGN developers, here for Zynga developers). The appeal to smaller social game developers is similar: join one of the gaming networks and see your game promoted on the toolbar or gaming page when people are playing other games in the network. Fred Wilson, the partner at Union Square Ventures, who invested in Zynga, explains to me:

It is the exact same value proposition why you would want to build your app on Facebook as opposed to the Web. You can rapidly develop an audience. It is access to audience and monetization.

Both companies have varying claims as to how large their audiences actually are. SGN CEO Shervin Pishevar says, “We are able to promote the developers’ games across millions of users and 700 million pageviews a month.” SGN’s most popular games on Facebook and its own site are Warbook, Street Race, and Fight Club. Zynga, for its part claims 1.3 million daily active users across Facebook, Bebo, Meebo, and Friendster. It’s most popular game is Texas Hold’Em poker (with 609,000 daily active users in Facebook alone), followed by Blackjack, Attack!, Scramble, and Sea Wars. At least on Facebook, it appears that Zynga has more daily active users. (See Zynga Facebook stats here and SGN Facebook stats here).

Zynga, I have learned, has also recently acquired two smaller gaming developers: one is behind the CLZ group of apps, which have 365,000 daily active users, and the developers behind the Superheros app (34,000 daily active users). The company is also trying to avoid the as-yet-unresolved fate of Scrabulous, a Facebook game that is being threatened to be shut down because it is a copy of Scrabble. Zynga recently renamed one of its games Sea Wars from Battleship. (Guess what game it is based on?). Attack! is similar to Risk, and Scramble is a digital version of Boggle. So there still might be some issues there.

Later tonight, SGN will launch a set of APIs for developers and its Gaming Hub application on Facebook, which will attempt to create a “gaming graph” that connects you to other games in the hub, particularly the ones your friends are playing. Joining the hub will let Facebook members keep track of what their friends are playing, their high scores, and will move all game-related feeds from their profile pages to the hub. Explains Pishevar:

What is annoying is there is a lot of noise on people’s profiles. That gaming graph belongs inside the gaming hub. It is a portal to all your games.

The gaming hub will also eventually become a mini ad network for games, although not at launch. Zynga, on the other hand, will have advertising baked into its hub, splitting any ad revenues with game developers. But the ads will be secondary to the cross-promotion.

So game developers will have to decide whether to go it alone, join one of the gaming hubs, or join both. May the best hub win.

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