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Thanks to the rise of massive social networks, namely Facebook, and a multi-billion dollar virtual currency market, social gaming has become one of the hottest spaces on the consumer internet.

But there's another reason social gaming is so hot: it is putting the 'casual' back into the concept of 'casual gaming'. Through social games like Farmville and Mafia Wars, millions upon millions of non-gamers have become gamers. In the process, social games are potentially reshaping the gaming industry more broadly.

That's certainly one of the attractions for private equity investors, who have poured hundreds of millions of dollars into large social gaming companies like Zynga. And it's also one of the reasons that a major traditional gaming behemoth like EA spent up to $375m to acquire social games developer Playfish.

But EA's acquisition of Playfish appears to have been only the beginning of the feeding frenzy. Yesterday, Disney announced that it is buying social gaming upstart Playdom for $563.2m up front, with an additional $200m earmarked as an earn-out. Playdom operates Mobsters, which is the top social game on MySpace, and according to paidContent, is the fourth largest social gaming 'player' on Facebook. Playdom itself has been active on the acquisition front, having put some of the $70m+ it has raised from investors to use buying up smaller social gaming startups.

Some, of course, might argue that this acquisition looks relatively expensive on paper. As noted by paidContent, when EA acquired Playfish for $275m (plus up to $100m in earn-outs), it took possession of a company with 60m active monthly users. For half a billion dollars plus, Disney is getting a company that apparently has a more modest 38m monthly active users.

Such a comparison, however, is probably not the best way to look at this deal, and before we scream 'Bubble!', it's worth considering that Playdom, like most of the large social gaming companies, is a profitable business; it said last year that it is doing more than $50m in revenue annually.

Unlike, say, the heady days of the social networking craze and ill-fated acquisitions like Bebo, the virtual currency market is a proven moneymaker and shows no signs of slowing down. But make no mistake about it: this acquisition is not really about money. It's about the future. As Playdom CEO John Pleasants noted in the acquisition press release, "We are at the start of a once-in-a-generation opportunity to transform the way people of all ages play games with their friends across devices, platforms and geographical boundaries."

If multi-platform entertainment companies like Disney are going to thrive in the future, they can't ignore important entertainment trends like social gaming, and acquisitions like this offer an opportunity to execute against those trends. The question now is whether Disney will do more than simply write a big check and think 'game over.'

Patricio Robles

Published 28 July, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (1)

Ashley Friedlein

Ashley Friedlein, Founder, Econsultancy & President, Centaur Marketing at Econsultancy, Centaur MarketingStaff

I can see how the theory / business case / numbers could stack up for Disney. But a lot of it is about execution in the end - and how management handle things. There was nothing particularly wrong with Bebo but AOL killed it. There was nothing particularly wrong with FriendsReunited but ITV killed it. Etc. etc. Big companies are good at writing big cheques but always so good at maintaining the positive energy and velocity of the smaller companies they acquire.

about 6 years ago

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