Playdom predicts the end of social games and a $5 billion social games business in the future

John Pleasants was prolific this past week at Casual Connect. He gave Dean Takahashi, a very in-depth interview on GamesBeat, where he predicted the end of social games since every game will be social. He also gave an insightful presentation on how social games can grow into a $5 billion a year business by the year 2012 and beyond (think scale).

In this interview, Mr. Pleasants confirms my suspicions about their aggressive acquisition strategy: they are purchasing game companies for their development talent at low costs:

“We do the deals because we think there are assets that are undervalued. If they were in our system, we could leverage them to create more studios or more publishing capabilities in this fast-growing market.”

Of the last three games that Playdom has released (Market Street, Verdonia, Fanglies), the latter two were as a result of an acquisition.

Other interesting tidbits:

• Mr. Pleasants believes that the term “social games” will die because every game in the future will be social. I whole-heartedly disagree – some people want to play games by themselves and just completely escape. I would say that half the games will be standalone games, the other half social games, in the future.

• He compares the social games space today to the early days on the iPhone and Wii, which is funny, since that was just…two years ago?

• He admits that it’s tougher for a indie gamer on Facebook these days. Whereas 18 months ago, there were 14 indie games in the top 25, now there are only 5. With 250 new Facebook games launching a day (not sure where he got that number but sounds right), it is increasingly difficult to get noticed.

This last point ties into the session that Mr. Pleasants gave at Casual Connect last week that I attended about what will social gaming look like in the year 2012 and beyond. His main points were:

• He predicted that virtual item revenues will grow from $1 billion today to $5 billion in the future (whoa!) and this does not include Asia (just the West)

• There are many factors in play (virality, retention, brands) but the biggest factor is our ability to convert free to paid players of social games. Whereas the conversion rate today is 1 – 3%, in the future it needs to be 2 – 4% and beyond (10%).

• To make that happen, you have to invest big in cloud gaming services and technology. He posted a technology slide which had about 20 boxes all stacked and connected together to show what the technology piece will look like to turn social gaming into a $5 billion a year business.

Looking at the technology slide, I had two thoughts: One, unless you are Zynga, Electronic Arts, or Playdom, there is no way you would have the money or technical expertise to invest in the technology to grow social games into a profitable business (which I guess was his point).

My other thought: I don’t think Playdom has the funds in place to make it happen as of now. I am not even sure Zynga can pull it off given their technology scalability woes they have had in the past.

The $600 million Disney acquisition rumors makes a lot more sense in light of this interview and his presentation. Or surely, another major round of funding.

Joel Brodie