Social gaming via Facebook (FB) was the Next Big Thing last year.
This year? Not so much.
Zynga (ZNGA), the top supplier of games wherein players enlist "friends" they're connected with on Facebook in order to score points and achieve goals, saw expenses grow twice as fast as revenue in the second quarter. Adjusted profits came in at just a penny per share, well below the $0.05 Wall Street was expecting. The stock fell by as much as 42% following the report and is off more than 67% year to date.
Yet Amazon.com (AMZN) is entering the business anyway. Why does the company believe it can do any better?
The e-tailer's new game is called Living Classics. Picture a kid-friendly adventure starring a family of foxes who've wandered into familiar tales such as "Alice in Wonderland." Players find and collect moving objects to complete quests and collect rewards, getting help from friends as needed.
It's an Overnight Sensation! Literally
Facebook says Living Classics has already accumulated more than 10,000 monthly active users, which, according to game tracker AppData, puts the game well out of reach of top names such as FarmVille and its 39.2 million monthly users.
But that number came out Tuesday, when the game was just one day old. The history of social gaming shows that hits come fast, so it wouldn't be surprising to see Living Classics serving 10 million or more players within a few months.
Facebook's capacity to produce instant hits could explain why Amazon wants in despite Zynga's troubles. Electronic Arts (EA) is after the same slice of pie, and the company is willing to go to court to fight for its share. EA has sued Zynga for infringing copyrights it claims protects its popular Sims gaming franchise, including a popular Facebook version called The Sims Social.
As of this writing, the alleged copycat, which Zynga calls The Ville, tops AppData's chart with 47 million monthly active users. The Sims Social has about a third of that total. Living Classics will be lucky to get close to either.
Putting Together Games and Faces
For Amazon, this is about more than getting into the games business. With Kindle books, Instant Video, and now online games, Amazon is setting up to process and manage an ever-increasing portion of the digital transactions created by the new world of Web-driven entertainment.
Expect Amazon to do all it can to make good. The new unit, called Amazon Game Studios, is hiring an expanded team to focus on "creating innovative, fun and well-crafted games," the company said in a blog post announcing the new business.
Of all the players in social gaming, Facebook looks like the biggest winner. Amazon chose to launch Living Classics on Facebook. That doesn't bode well for Google's (GOOG) efforts to transform Google+ into a viable host for social games.
But Google has also been failing on this front for a while now. Only 42 games are available on G+ as of this writing. Facebook, by contrast, was hosting more than 3,000 on its platform as of a year ago. The social network has added more than 200 million monthly active users over the past year. Amazon had little choice but to launch to Facebook first.
If You Build It, You Can Only Hope They Will Come
We'll have to wait to judge whether Living Classics is a winner, though having access to a user base that's almost 1 billion strong is sure to help. Just remember that even the most popular game -- Zynga's controversial The Ville -- only nabs 5% of the addressable audience on a monthly basis.
That's both a warning and an opportunity for Amazon. Make Living Classics and other titles engaging enough to expand Facebook's gaming audience, and the profits will follow. Fail even a little, and the e-tailer could find itself in the same purgatory that Zynga occupies right now.
At the time of publication Motley Fool contributor Tim Beyers owned shares of Google. The Motley Fool owns shares of Facebook, Amazon.com, and Google. Motley Fool newsletter services have recommended buying shares of Google, Facebook, and Amazon.com.