SGN, on quest for social gaming revenue, raises $15 million

Social Gaming Network, or SGN, is one of the more promising companies exploiting Facebook’s platform. It builds “social games” — online games that use friend relationships and other social data from social networks to deliver more compelling games.

It’s promising because it wants to straddle the lucrative world of video games and the not-yet-lucrative world of social networks. It is one of many companies with ideas for how to turn social gaming, sometimes called “funware,” into a big business — even as big video game makers like Electronic Arts, stay out of the picture.

The Palo Alto, Calif.-based company, which is located in the building formerly occupied by PayPal and Google, sees itself as unique because it focuses on creating its own games, as opposed to copying others. Example: Warbook, a Facebook-based fantasy style game that came out last year, that today has 34,658 daily active users, four percent of the 784,050 who have installed it — these games have life cycles. SGN has since developed its own repertoire, including a smaller but rather active sequel to Warbook. It has also purchased smaller rivals, like game developer company Esqut.

The company has just raised a big $15 million round from Greylock Partners, Founders Fund (both of whom are investors in Facebook), Columbia Capital and Novak Biddle Venture Partners, to help it on its quest.

Pishevar hopes to create what he calls a “gaming graph,” where SGN learns what people like through what they play and what they do. He hopes to create “amazon-like” intelligence where the company can make recommendations to its users about games they’ll like and who they’ll enjoy playing against. Like many other Facebook developers, he is working on taking SGN games to other social networks, like MySpace, as well as to the web.

To this end, the company also offers a “social bar,” a window at the top of its applications that shows you things like when your friends are playing SGN games online. As we’ve covered, this is also what SGN calls a “social gaming network,” where independent game developers can run this bar on their own applications, and cross-advertise games to users between their applications and SGN.

The battle for social gaming

SGN isn’t the only company to come out with a social gaming bar and social gaming network. Its most immediate rival, Zynga, has nearly simultaneously come out with its own versions of these features.

It’s not clear how big a deal either feature is, though. Pishevar says that 70 independent game application are running on its network so far, but he isn’t providing more detail on traffic that the features drive.

In total, SGN-owned games have been installed a total of more than 51.5 million times, representing a total of nearly 40 million unique Facebook users, according to chief executive Shervin Pishevar. Zynga has grown to more than 43.3 million total installs.

SGN today has more than 800,000 daily active users on Facebook, according to Adonomics, down around 200,000 daily active users from a month ago. Then, before it incorporated Esqut, it had more than one million. Zynga, meanwhile, has grown around 200,000 daily active users in the last month and today has more than two million. Like SGN, it has bought smaller companies; it has also more openly emulated existing games, like poker, rather than just focusing on original titles.

The promise of social gaming is high engagement among its existing users — not so much total installs, nor even daily active users (although both are necessary, of course). If you, a game developer, can get a user to spend hours per day just playing your game (or game network), you have all sorts of opportunities to sell them branded virtual goods, ads that are closely tied to users gaming profiles, online sales of real goods, and other ways of making money.

Slide and RockYou, the two largest Facebook application companies, are building increasingly complex applications that resemble the more complex games built by companies like SGN and Zynga. Pishevar says that he welcomes the competition, calling these companies “frenemies.” Like many startup-up entrepreneurs I talk to, he says that more competitors means more innovation among the companies as well as heightened awareness from users.

RockYou and Slide focused on growing big through simple applications like being able to send simple, nonverbal messages to people that emulated Facebook’s “poke” feature. As Pishevar tells me, now Facebook applications are about “engaging users and bringing them back — where they get a positive experience, not bombarded” with invites, email alerts, etc.

As we’ve written, the large and increasingly well-funded companies including Slide, RockYou, Zynga and now SGN increasingly have the means to cross-promote their own apps and allied apps — and buy apps — which means that its getting harder for smaller, less experienced, less-funded developers to get users and create businesses on Facebook. This may have already contributed to the drop-off in application growth and developer activity on Facebook.

SGN’s funding is just another step in the market maturing. The missing piece, as usual, is revenue numbers. Like most social application developers, Pishevar refused to give me any details about ways that the company is making money, or how much money it is making.

Funding notes: Columbia Partners and Novak Biddle were previously investors in the company that SGN was spun out of, Freewebs. Meanwhile, as mentioned, the investor connections in the Facebook world are drawing tighter, too. David Sze, a partner at Greylock, is joining SGN’s board of directors — he’s also an observer on Facebook’s board (and he also sits on LinkedIn’s and Digg’s boards).

Investors also include Amidzad and angel investor Aydin Senkut, both of whom have separately invested in Webs.com, the company formerly known as Freewebs, which SGN was spun out from. [Disclosure: Both of the latter two investors are also angel investors in VentureBeat.]

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