SAN FRANCISCO (Reuters) - A focus on games could be Google Inc’s (GOOG.O) ticket to entering the social networking arena, as the Internet giant seeks to overcome a string of lackluster initiatives that have left it on the sidelines of the booming market.
Although Facebook lords over social networking, industry insiders say Google is well-positioned to play a bigger role by wooing developers of games hungry for alternative venues.
Google is looking for talent to head up this nascent drive, and seeking to partner with gaming giants keen to work off Google’s huge Web presence to get into social gaming, industry insiders say. Electronic Arts ERTS.O and Walt Disney Co (DIS.N) have paid hundreds of millions of dollars to bankroll a foray into the market, and more are waiting in the wings.
“It’s clear that a lot of social gaming companies would love to have more than Facebook,” said Norwest Venture Partners principal Timothy Chang, an investor in Playdom, the social game company by Disney paid $563 million for last month.
Social games that are free to play are one of the most popular activities on Facebook. Games such as Zynga’s FarmVille invite users to interact with each other by buying imaginary land, growing crops and expanding their farms. The games generate revenue through the sale of virtual goods or services.
In the wake of recent changes by Facebook that made it more difficult for game companies to do business on its 500 million-member social network, Chang and others say that game firms are increasingly interested in hearing what Google has to offer.
The Web search leader is already increasing its presence in the social game industry.
“You see them everywhere, at all the conferences that are out there. We know they are searching for people to lead their games unit,” said Net Jacobsson, a former Facebook executive who now runs a social game firm called PlayHopper.
“All developers are anticipating Google getting into social gaming,” Jacobsson added. “But we are all kind of wary of will it actually work, because gaming has nothing to do with Google’s core business, which is search.”
Google has struggled to find the right touch in the burgeoning social media sector. Two recent high-profile social products, Google Buzz and Google Wave, have flopped, say analysts. On Wednesday, the company officially declared Wave’s demise, saying it will no longer continue developing the online multi-communication tool as a standalone product, though it will keep the site running at least till end-2010.
And Orkut, Google’s early online social network, has failed to catch on outside of Brazil and India.
But gaming offers Google something of a do-over in social media. Last month, it invested more than $100 million in No. 1 social games maker Zynga, according to TechCrunch. The Wall Street Journal reported Google is in discussions with various game makers to develop a social networking service.
And on Wednesday, Techcrunch reported that Google had paid $182 million for Slide.com, a maker of plug-in widgets for social networking sites, in a move the blog said would anchor its new social networking drive.
Google said it does not comment on rumor or speculation, but analysts say it is not hard to see why they would be interested. Games like Zynga’s FarmVille and Playfish’s Pet Society have become phenomenons on Facebook.
According to Nielsen, online games displaced email to become the second-most popular activity among U.S. Web surfers in June. ThinkEquity analyst Atul Bagga estimates social games revenue in the United States will more than double to nearly $1 billion this year, mainly from the sale of virtual goods.
Despite Google’s spotty track record, game industry insiders note the Internet search company brings attractive assets the table.
“At the end of the day, this is a competition for time spent on the Web, and people do spend a lot of time on Google,” said Sebastien de Halleux, co-founder of Playfish, acquired by Electronic Arts in 2009.
De Halleux, now vice president of business development and strategic partnerships at EA Interactive, would not comment on any plans Google might have, but noted that Playfish and Google have a longstanding relationship: the company provides games for mobile products based on Google’s Android mobile software as well as on the iGoogle Web page.
Others point to Google’s forthcoming online apps store for its Chrome Web browser and Google-owned video site YouTube as valuable assets with natural potential for social games.
Google’s timing could not be better: tensions have grown between game developers and Facebook. Recent changes limiting developers’ ability to pitch their wares using Facebook status updates, and a 30 percent revenue cut that Facebook now takes from game companies that use its virtual currency, have provoked grumbling.
The level of trust between Facebook and game developers has declined, said PlayHopper’s Jacobsson. But he added that Facebook remains the easiest and cheapest way for a developer to launch a new game.
Indeed, Facebook has moved to cement ties with gamemakers, announcing deals in which the likes of Zynga and Crowdstar commit to offer games on its site, or in certain cases agree to use Facebook Credits exclusively.
“More than 200 million people play games on Facebook every month and we believe we’ve established, and continue to develop, a platform where developers around the world can build high-quality applications and create long-term, sustainable businesses,” Facebook said in an emailed statement.
And some observers predict the sting of Facebook’s 30 percent revenue split will fade if developers find that the Facebook currency compels consumers to shop more and increases the overall volume of virtual good transactions.
Lightspeed Venture Partners’ Jeremy Liew, who also invested in Playdom, said a proven, money-making venue for social games like Facebook is something that will be hard to replicate.
“You never bet against Google,” he said. “But at the same time, Facebook is really good at what they do.”
Editing by Edwin Chan and Matthew Lewis