Social Gaming in a variety of forms has been around since the early days of the internet albeit in simpler fashion.  When Facebook launched its developer’s application platform in 2007, gaming quickly became the most popular category.  Today, Mafia Wars, Farmville and Texas hold em’ are just a few of the names dominating App traffic on FB.  Just this week, Google announced a $200 million investment in Zynga, billed as the world’s largest social gaming developer.   Aside from the games themselves, an entire ecosystem has emerged from sites that rank the top games, content sites that offer insight and even developer conferences focused in this fast moving arena.

But beyond Facebook and the Mega deals of Google are many smaller players making big splashes in this arena. These companies are building great games and sustainable revenue streams. Idle Media Inc, a small development company in Pennsylvania launched Prison Block which quickly grew to 50,000 users! Most companies in this space drive revenues by allowing for the purchase of premium items. In Prison Block for example you can buy “respect” for favors from the warden which can be exchanged for such items as a flat screen tv for your cell. Lindsay Lohan may want to sign up to get some tips for her upcoming incarceration!

The challenge for these companies is keeping fresh content within games and launching new ones. Marcus Fraser, President of Idle Media is well aware of this: “This is a challenge we met and overcame with our first successful game, Prisonblock, and we plan to bring all we’ve learned to the wildly-popular Facebook platform. We have plans to launch at least 2 new Facebook games this year.”

In terms of investment and M&A we believe there will continue to be a lot of movement here. Major consumer brands are trying to understand how they can tap this resource while gaming companies that traditionally focused on platform launches such as Xbox are salivating over the speed at which these games gain market share. The Music Industry, witnessing eroding sales, is looking to the gaming industry as a promotional tool and revenue stream. NightClub City launched on facebook in April 2010 and has gained 4.5 million users. We also see a likely talent war emerging as the demand for resources outstrips the supply of game development talent. Acquisitions for talent are as likely as those for EBITA and traffic.

It will be a fun space to watch over the next couple years!