The social games bubble is bursting and mobile is next

I’ve said for a long time that the explosive growth of social and mobile gaming is a fashion trend. Many a clueless analyst and click driving “journalist” has latched onto this trend as a clear and irrefutable sign that this is where all gaming is going and those who doubt it just refuse to embrace “the future”, sentiment that always makes me chuckle and roll my eyes. This does not mean I think they are going to go away or that they won’t be a major part of the gaming landscape going forward, that couldn’t be further from the truth. However, how anyone can look at the growth in both industries and say that it isn’t a bubble is either clueless or just doesn’t want to see the truth. There are many industry bubbles throughout history to refer to and this bears many of the same signs.

There has been much proof of the cracks in the bubble appearing of late but few have been as dramatic or sudden as the implosion of Zynga. They had a meteoric rise with their shovelware skinner box Facebook non-games and were reporting staggering and ballooning revenues that made many believe they’d finally cracked the nut to make gaming something everyone could get into, even when drenched in scummy business practices. It caused a gold rush of investment and many more companies to spring up in the space, few of which got the same level of attention. They quickly tried to expand into the similarly exploding mobile space, paying insanely overvalued prices for studios that had hit titles like Words with Friends and Draw Something.

Zynga quickly went public and has been cratering ever since but not before their scumbag extraordinare CEO Marc Pincus got his big pay day. From an IPO price of $10, they are now around $2.10 and their market cap is worth less than their physical assets such as real estate. They are losing money, closing studios and laying off employees, bleeding users, writing down mobile studio acquisitions made just months prior and are desperately trying to restructure themselves as an online gambling company. As is the case with most fashion trends, people got bored with what they were offering and moved on. Though Zynga is the biggest example of this, they’re also far from the only one. Lots of front line workers are now out of a job while the people who led them into oblivion are still rich. It’s the opposite of any kind of justice or fairness.

I am not a stock market analyst, I am not a professional pundit and I’m certainly not any kind of journalist so why does it feel like I’m one of the few who actually saw this coming? I certainly didn’t see it happening this fast but I was laughed at when I said this type of growth was unsustainable. When companies grow too fast, they tend to crash down hard. It’s the ones that have measured, controlled growth that tend to survive and thrive. It appears an upheaval is happening in the social games space right now, one that’s going to decimate a lot of what was quickly built, leaving behind something that will be much smaller and certainly not something that represents the future of all gaming. Many of those in charge of these companies deserve to have some hard questions asked of them but so do the analysts and press people who overhyped them and now act like they couldn’t have known this would happen. If a clueless armchair commentator like me could see it, what’s their excuse?

Make no mistake, while this may be a bubble that started to burst in the social space first, a similar reckoning is coming to the mobile games industry as well. A bazillion and one mobile studios are starting up every day and many former AAA developers are switching to mobile development, many as a means to try and survive. The AAA industry is without a doubt in a chaotic state right now but as I’ve said before, mobile is quickly becoming just as risky and hard to succeed in. It’s gone from a space where nobody could fail to a space where your cost of entry may be low but you’d almost have better financial luck buying a lottery ticket. Those who succeed either do so hugely or just well enough but the majority crash and burn. This isn’t being talked about because no big players have been affected by it yet, the same as in the social space. But make no mistake, it’s coming. A lot of hyped games will fail, a lot of studios will fold and a lot of talented aspiring developers will be left disillusioned and will give up on the craft. That’s a crime to the medium.

To be clear, while I don’t care for more social and mobile games, I’m not getting some sick sense of schadenfreude from this happening. I don’t like to see people out of work and I think the more people there are making video games of all types, the better off everyone who is into this hobby will be. However, as someone who isn’t into those forms of gaming, it has frustrated me greatly to see pundits proclaim that the types of games I love are dead, they’re no longer possible and that we either need to embrace “the future” or get out of the way. Social and mobile games will be here for the foreseeable future and that’s a good thing but they’ve started themselves off on very shaky ground, largely led by greedy businesspeople and the analysts and press puppets that propped them up and ignored valid questions that needed to be asked of them. As business does, it will adjust, adapt and what’s left will be strong and know how to thrive. But the time for meteoric growth is rapidly ending,

Ask yourself this question: Why have the majority of big publishers who have been around for decades only dipped into social and mobile gaming (yes, EA being a notable exception who is also feeling the pain right now), instead choosing to focus on their core console and PC businesses? Is it because they’re just clueless old guard types who stubbornly refuse to embrace reality and will end up in the footnotes of gaming history? Or could it be that businesspeople with a history of success saw the signs of another bubble and decided to feel things out before jumping into bed with the unknown? No one’s saying so we don’t know for sure but consider this as well: Zynga once had the financial might to buy almost any AAA publisher and now, despite EA’s stock price and market cap being a fraction of what they used to be, EA could now buy Zynga lock, stock and barrel with cash they have in the bank. That flip happened in less than a year and I think it speaks volumes.
The last few years of social and mobile’s stratospheric rise has been very interesting to watch. And the next couple of years after the bubble bursts and it begins to settle into a more sustainable model will be even more interesting.