Social gaming coming into its own

SAN FRANCISCO--When you're one of the earliest adopters of a new technology, or one of the first companies into a new space, you tend to be very bullish on its future.

That energy was very much in evidence Thursday at InterPlay, the first-ever conference solely devoted to social gaming.

If you're not familiar with the concept of social gaming--small, casual game applications designed to be played on social networks like Facebook--you soon will be. That's because there is a lot of interest--and a growing amount of venture capital--being focused on the young space.

Examples of the early enthusiasm for the space include $15 million in funding for the Social Gaming Network from Greylock Partners, the Founders Fund, Columbia Partners, and Novak Biddle Venture Partners and $10 million of investment from venture capitalists including Union Square Ventures.

"There's significant recognition that social-gaming applications, at least on Facebook, are displaying high engagement and virality (rates)," said Dave McClure, the author of social media blog 500 Hats and one of the lead organizers of the Web 2.0 conferences.

McClure said the nascent space caught his attention after a student of his built a social game and quickly got significant financial interest in it from two different companies.

Still, McClure, who moderated a panel at InterPlay Thursday called "Funding the social game sphere," said he isn't entirely sure if there really is a lot of money to be made yet with such games.

"Can you translate user engagement and virality into monetization?" McClure said. "There's lots of potential, but lots of questions about monetization."

Such uncertainty, he said, is due in part to the fact that there is no universally respected system for collecting payments for the small financial transactions that could be a big part of the process. McClure also noted that it's going to be hard for anyone to take on the dominant player in the space, Facebook.

"Hopefully, some of those things will change over the next 6 to 12 months," McClure said.

At InterPlay, there was a healthy crowd of several hundred people, many of whom had paid $199 to be there. That's a low price for a conference, but it's unlikely people interested in this industry will be able to attend such confabs for such a small fee much longer.

In fact, the second such gathering, the Social Gaming Summit, will be taking place next month, also in San Francisco. The fee for that event is $399.

But back at InterPlay Thursday, attendees chose from a series of panels, including McClure's and others like "The future of online social gaming," "Gaming on the social platforms," "Advertising and marketing on social games" and "Micro-transactions and virtual goods." There were also some workshops on how to make money with social-gaming applications and a talk about metrics in the space.

And while panels at conferences like this are always a big draw, there's equal interest amongst attendees in getting the chance to network with each other and meet the industry's leaders.

One interesting question about social gaming is where the big video game publishers are.

"You see a lot of traditional game companies sitting on the sidelines," said Dean Takahashi, who writes for VentureBeat. "It could be costly for them to wait. If Electronic Arts waits too long (to create their own social games), it may be that they'll have to buy one of these companies for $100 million."

Yet, it's also possible that this is all much ado about nothing, Takahashi seemed to be saying.

"It is hard to understand why people are getting so excited about some simple games," he said, "that don't take armies of people to create."

The answer, he suggested, is that social networks like Facebook have demonstrated that it is possible to make mundane activities like messaging fun by applying game mechanics.

To some at the conference, being there is a function of necessity for those who want to make the social-gaming industry a powerful force.

"We're so early in a new industry," said Kristian Segerstrale, the CEO of Playfish, "to have some of the companies in a room to talk about shared issues."

Further, Segerstrale said, the point of an early conference like InterPlay is to help get the word out about some of the metrics that are important to a new industry, but which the rest of the world has yet to understand.

For example, he pointed out that in the social-gaming space, one of the most important metrics is total monthly minutes spent on a service by users.

That was also one of the two most important metrics mentioned by Jeremy Liew, a partner at Lightspeed Venture Partners, in the panel on funding social games.

"Two of the most useful metrics are page views and time spent in the game," said Liew. "I like to see numbers of 100 million minutes spent per month."

Those are big numbers, of course, but there do seem to be a number of social games that have been able to get that kind of user interest and engagement.

And that's why, in the end, the space seems primed for a lot more investment and lot more new companies getting involved.

"Everyone here is thinking there's an opportunity here that the game companies aren't exploiting," Takahashi said, "'Why don't we, the social media community, exploit it?'"

On June 10, Geek Gestalt hits the highways for Road Trip 2008. I'll start in Orlando, Fla., and visit many of the South's most interesting destinations. Stay tuned, and be sure to keep up, both now and during the trip, with what I'm doing on Twitter.