Hi5 announced it just closed a new round of funding of $14 million led by Crosslink Capital. The new funding will be used to continue to expand into virtual goods and creating a viable platform for social games. In other words, Hi5 wants to stop competing with Facebook as a social network but instead to compete with Facebook as a social gaming network.

Hi5 has 60 million compared to 500 million users that Facebook has. Going big on social games is a good move to the degree that Facebook is making it harder for games companies to make money on its platform and social game companies are looking for new distribution channels for its games.

The challenge for Hi5 is that they are not only competing against Facebook, but competing against all the companies that want a piece of Facebook’s social games pie, which now includes Google, Yahoo!, Tagged, My Yearbook, and that is just in the US alone!

Perhaps Hi5’s strategy is to create a viable enough social games platform and distribution channel to sell to one of these big contenders. It’s an uphill battle, but more viable than unseating Facebook itself.

For more details, check out the story at VentureBeat.