Less than a year ago Alex Le and Siqi Chen were working at one of the web’s most ambitious startups, semantic search engine PowerSet (Due out soon). But last December they made the tough choice to quit it all and go full time for their own side project, a quickly growing little Facebook application called “Friends For Sale”. That project has grown into a full blown venture backed startup ironically named “Serious Business“, which just raised $4 million from Lightspeed Venture Partners (double digit pre) and currently draws over 600,000 daily active users on Facebook. Steve Newcomb, formerly of PowerSet, will be taking a seat on their board.

True to its name, “Friends for Sale” is an application that lets you virtually buy and sell your friends. The game is an ego driven form of “poking” (virtual nudges) that makes it abundantly clear who the most desirable players are, by listing a leader board of your most expensive friends. Every one of your friends, whether they have the app or not, can be purchased as a “pet”. Everyone starts at a base price that rises with every resale. You get more cash when you log in, are sold, or have one of your pets bought away from you. Users can spend that cash on kicking their pets, give them funny tag lines, or even virtual gifts.

That one game has also been supporting the growing company’s resources (20 Ruby on Rails servers and growing) through a mix of banner advertisements and sponsorships. While the company declined to state their earnings, they estimated the company could grow to 12 engineers without raising any financing. The financing allows the company to significantly ramp up their expansion plans.

But Lightspeed didn’t invest in Serious Business just for a single game. Founder Alex Le cites “Friends for Sale” as the first in a series of of games built directly around your relationships with friends. The idea is to create games for all social networks (Facebook, OpenSocial) that rely on leveraging social skills to win, instead of your twitch reflex or poker proficiency. While they’ll have some games to announce in the next 30 days, the founders briefly threw out the example of a battle game where your friends are the soldiers and success depended on your social skills.

Serious Business is not without competition. Zynga and SGN are well funded social gaming startups. However, Serious Business has a much larger hit than either, so far. “Friends for Sale” has also already been cloned as “Owned”, which draws about the same level of traffic some days. “Friends for Sale” itself is a variation on an earlier game “Human Gifts”. These startups are also in competition with the cycle that most applications follow on Facebook, amongst other potential difficulties. Applications tend to explode for a brief period (if at all) before settling at a lower activity level or completely dying.

Serious business indeed.

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.

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.

(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.

Fred Wilson lit a fire today suggesting that certain bloggers need to step it up a notch to improve quality and be more like mainstream journalists.

A fair point if spoken generally, although I’d argue that the quality of reporting done by many bloggers today, at least in the tech space, is equal to or better than most mainstream journalism. I think this is particularly true when we’re talking about breaking, non-embargoed news, where contacts and inside sources matter more than having all the time in the world to think about, research, write and edit an article. His point, therefore, should have been that all news writers need to step it up a notch and aim for better quality, which is sort of like saying nothing at all.

Normally I wouldn’t take issue with the statement, except that it was partially aimed at us. Wilson specifically called out our Erick Schonfeld for his post on social gaming platforms, as well as Matt Marshall at VentureBeat for a post he wrote about Like.

Wilson’s first gripe is that Matt, in his post about Like, didn’t give enough credit to competitor ThisNext. His second - that Erick, in his post on Zynga and SGN, suggested that the “two companies are neck and neck like Hillary and Obama,” when “Zynga is almost an order of magnitude bigger.”

Wilson fully discloses his conflicts of interest in the post - that he is a friend to the founder of ThisNext and an investor in Zynga. At that point, of course, a lot of the credibility behind his opinions comes into question. The two bloggers he is attacking have no conflicts with these startups.

He fails to realize that both Matt (San Jose Mercury News) and Erick (Fortune, Business 2.0) are seasoned mainstream journalists who’ve made the crossover to blogging. So his whole argument about blogging v. mainstream media loses yet more steam.

In reading the articles, it seems to me that Matt did an excellent job of highlighting a recent surge by Like while still noting relevant competitors. Erick’s post, which I am more familiar with, is in my opinion above reproach. Erick notes the strengths and weaknesses of both platforms and suggests that developers will ultimately make a decision as to which, or both, they will join. Erick also interviewed Wilson for the post and quoted him in it.

So what this really comes down to is this. Wilson didn’t like the coverage. But instead of simply disagreeing with and rebutting the points made in the posts, he went after the reputation of the writers themselves. That would be inappropriate even if he was right. But the fact that he was both conflicted and wrong makes it inexcusable.

Wilson failed to uphold the very standards of integrity that he demands from others. He failed to contact Erick or Matt before writing, and didn’t seem to have the facts to back up his argument. In a twitter exchange between us on this issue, he defended his sloppiness on the fact that he’s a blogger, saying “if you are a blogger you can say what you think, once you become a journalist, you have a different standard.”

Now, frankly, I’m confused. Bloggers can say what they think, but journalists can’t? I think what he’s trying to say is that Erick and Matt are no longer bloggers and now need to hold themselves to a higher standard - one that Wilson explicitly doesn’t hold himself to. That sounds like hypocrisy 101 to me.

Also, in a comment to his original post, he says “Erick didn’t get it wrong…but i think he missed the opportunity to get it right.”

How can you be both wrong and right at the same time?

Wilson partially retracted his post in a follow up, saying that he was sorry for singling out Erick and Matt, and saying that he “didn’t mean to take a shot at either of them.” But he then goes on to say that the whole exercise was a good one, since it started this great conversation on the issue.

That’s no apology, Fred. An apology would include you admitting that both posts were well researched and well written pieces. And that it was wrong to attack the reputation of these writers just because the conclusions reached by them were different than your own.

One last note. In the comments Fred says it isn’t even debatable that SGN is not a real company. From what we hear on the street, some very high profile venture capitalists are willing to bet some serious money that he’s wrong.

Update: Mathew Ingram says I went a little too hard at Fred here. I don’t necessarily disagree. Fred tends to come at people pretty hard, so I went hard back. But some readers won’t know that, so it’s worth pointing out.

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.

The saga of Scrabulous is nearing an end. The Facebook version of Scrabble raised the ire of Hasbro and Mattel, which jointly own the rights to the game abroad and in the U.S., respectively. They have already asked Facebook to pull Scrabulous, one of the most popular apps on the social networking site.

So why is Scrabulous still up on Facebook? A flurry of behind the scenes deal-making has been going on between Hasbro, Scrabulous, and Electronic Arts, which has the license in the U.S. to the online version of the game. Hasbro is trying to get Scrabulous to sell itself for a song to Electronic Arts, or else shut down completely by the end of the day today. Scrabulous has been trying to shop itself to other buyers as well, but its legal liability is scaring away any potential white knights. Unless it gets some sort of reprieve or agrees to sell to Electronic Arts, Scrabulous will be no more, despite the more than 46,000 Facebook members who have joined the “Save Scrabulous” group. What choice does it have, really, but to sell?

And it might not end at Scrabulous. One industry source tells me that Hasbro is going after other knock-off games as well, and sending cease-and-desist letters to Facebook along with the infringing app developers, since it is the one hosting the games. So who might be next? Zynga, for one. The Mark Pincus startup that just publicly launched earlier this month—with $10 Million from Union Square Ventures, Peter Thiel, Reid Hoffman, Bob Pittman, and others—has games that are based on Risk (Attack!), Boggle (Scramble), and Battleship (Battleship). Zynga claims on its Website to have 1.4 million players of Attack!, 293,000 players of Battleship, and 257,000 players of Scramble. Battleship, Boggle, and Risk are all owned by Hasbro. If Mark Pincus has not already received a cease-and-desist letter, he will soon.

Social networks have been a boon for casual online gaming, because now it is easy to find someone you actually know to play with. But a safer strategy than knocking off traditional board games without licensing them first is to actually create original games. That is the tack the Social Gaming Network (SGN) is taking. It’s popular Facebook games include WarBook and Fight Club. Collectively, its games are generating more than half-a-billion page views a month. There is a business in there somewhere. SGN, which is part of Webs.com, is in the process of spinning off as a separate company. Maybe it should try to license those board games from Hasbro. Somebody should.