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Last Friday Lazard analyst Colin Sebastian hosted a conference call where he interviewed Peter Relan, Chairman of Crowdstar, one of the newer entrants to the top tier of social games publishers. Here are the Lazard notes from the call, republished with permission from Colin:

LCM Online Game forecast

On Friday we hosted a conference call with Peter Relan, chairman of CrowdStar, which is one of the top social game companies with more than 60M monthly users, primarily on Facebook.  CrowdStar’s games include Happy Aquarium, Happy Pets, and Happy Island.

Facebook platform remains the core focus for social game developers. Mr. Relan indicated that distribution on Facebook remains the focus for social game developers given the platform’s scale, growth, and monetization potential.  The iPhone on the other hand serves more of a product extension for social games until there is more functionality to facilitate micro-transactions and virtual goods.  Regarding Apple’s iPad, Mr. Relan expects to migrate the company’s iPhone games to the new platform, while the larger screen will allow for a new breed of casual and social game applications.

Expect widespread launch of Facebook Credits. CrowdStar’s Happy Aquarium was one of the first social games to use Facebook Credits as a payment platform, and Mr. Relan indicated that FB Credits would launch throughout the site in the coming months.  The launch of FB Credits is expected to generate a sizeable take rate for Facebook in the 30% range vs. 5%-10% for alternative payment options.  However, CrowdStar expects that diminishing payment friction and increasing conversion rates will ultimately offset the loss in revenues.

Plenty of runway for growth for social game industry. Mr. Relan indicated that typically 1%-3% of social game users convert to paying customers, and the #1 paying demographic in Happy Aquarium is women aged 35+.  As a result, we believe that there is significant runway remaining for social games to grow assuming continued distribution growth (on Facebook, smartphones, browsers and other social networks) and increasing conversion rates in other demographic groups.  We currently forecast social game revenues (virtual goods, advertising and offers) to nearly double in 2010 to $1.3B worldwide.

Console properties may not be as relevant in a social game context. Mr. Relan highlighted that risk exists when attempting to migrate console game properties to a social game environment as the user demographics are very different.  Also, social game users care more about the social mechanics of a game instead of the depth and quality of game play, which is inverse to console game players.  Other than EA, we note that legacy game publishers have very little penetration in the social networking segment of the market and are likely to invest in these platforms this year.

Application fatigue is a key risk. Given the relatively simple game play, the sometimes fickle users, and the social dynamics of the game play, application fatigue is a key risk for social game companies unless companies focus more on innovation and game quality.   

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    That’s so funny! My girlfriend is obsessed with Happy Aquarium. Every night when i come home i have to listen to her talk about how she has to feed her fish. I’m like babe we don’t have any fish. Thanks Happy Aquarium! Well credit systems for games are a very inventive way in creating more long term users and traffic for that game. Well done!!

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  • timeload

    it’s funny I can’t find any contact information on the crowdstar company not even a real address or phone number makes it hard to dispute anything with them doesn’t it.

  • Robyn

    Same here, I want to lodge a complaint with them about their frauding on a large scale with their customers on Taggeds Happy Aquarium game. They have been selling virtual gifts, taking peoples money for what can only be considered a long time (7 months it is reported on their forum boards ) without crowdstar providing the merchandise that the consumer paid for. The gifts that are delivered are defective and will not open once purchased. They have continued to sell these gifts on a daily basis in the full knowledge that they are defective and that in fact, purchasers will not recieve them….So intent to fraud is clearly evident.