Monday, January 30, 2012

Upcoming Facebook IPO Could Change the Game for Social Games

Rumors of Facebook's impending (but not scheduled) Initial Public Offering (IPO) cover the news wires lately, as investors look to ride what could be a sustained wave of profitability from the seemingly unstoppable force of Facebook. With numerous social gaming companies linked to the success of Facebook, the upcoming IPO will most likely have wide-reaching effects on the currently entrenched social-gaming brands, as well as changing the game for startups looking to join the ranks of social-game developers.

An IPO means two very important things -- a huge inflow of debt-free capital up front, and the ability to raise additional large sums of money for growth through future offerings. This can give Facebook a significant boost (not that it was strapped for cash) that can fuel marketing and new-customer acquisition in new markets around the world. Existing social games on Facebook could see a rush of new players from a range of geographic regions in a relatively short time. Games themed after quaint corners of North American culture or featuring core mechanics popular to U.S. players may find themselves struggling to hook customers from distant regions the way they've hooked Americans. This can provide an opportunity for growing social-game developers to create cross-cultural gems that resonate among a wider audience.

Social-game developers listed on public stock exchanges will likely find themselves facing additional stock-price pressures after Facebook's IPO (I'm talking to you, ZNGA). As Facebook becomes as hot of a topic as Google among investors, stock traders may begin to react to Facebook-related news by acting on shares of entrenched companies. As Facebook's share prices rise, so too will the shares of game companies utilizing the platform. As Facebook's share prices fall, the opposite may very well hold true. Facebook's quarterly earnings may become just as important as game developers' earnings at determining the developers' stock prices, creating new dynamics in the financial relationships between Facebook and the gaming brands entrenched in its platform.