Playdom CEO John Pleasants: why "social gaming" will die

John Pleasants is in the spotlight as chief executive of Playdom, the third-largest social game publisher on Facebook and the No. 1 game publisher on MySpace. The company has had hit games from Mobsters to Social City, and it has more than 41 million users on Facebook. He has been acquiring about one game development studio per month. Before joining Playdom last year, he was chief operating officer of Electronic Arts. At the time, many saw that move as a validation of the social game market, which has only grown further. We interviewed him on Tuesday, before news broke on Thursday night that Disney might be in negotiations to buy Playdom for more than $600 million. Playdom has raised $76 million to date.

VB: This industry is changing so fast. You are on a fast acquisition pace. You’re in a rush, doing an acquisition every month. Why the hurry?

JP: Acquisitions are part of our strategy to grow. Most of our acquisitions have been for people and talent. Some have been for products or systems. More of our growth in people has come organically than through acquisitions. We do the deals because we think there are assets that are undervalued. If they were in our system, we could leverage them to create more studios or more publishing capabilities in this fast-growing market.

VB: This industry is at its ground floor. What does it remind you of?

JP: I can answer that in two ways. On the high level, it feels to me like the start of iTunes, the beginning of the Nintendo Wii, and early days of web-based email. They were really big and transformational to how people enjoy music, play console games, and use email. This industry is so interesting for what it is doing to traditional games. It is re-democratizing it. All games are social. We used to play peekaboo. Or tag. Or hide-and-seek. There was always more than one person. Video games became single-player activities. It was you against the computer. With social networks, we are reacquainting people with the idea of doing social games. It is transformational from a human gut level, but it’s also going back to the beginning.

VB: What’s driving this?

JP: The three things that are driving this are the combination of social and gaming. Also, the introduction of the live service. These are changed every day. And everything we make is free-to-play. Those three tent poles are changing everything in interactive entertainment. Social gaming is going to die. That is, the term will become meaningless, as all games will become social. They will be on Facebook and MySpace and on phones and online and everywhere else.

VB: What do you think of the falling numbers for the console game sales? In June, sales fell even though the slimmer Xbox 360 launched. In May, sales fell from a year ago even though Super Mario Galaxy 2 and Red Dead Redemption launched. Does this mean there is a shift going on toward social games?

JP: I don’t follow the numbers like I used to. As best I know, the global gaming business is about $50 billion. The console and handheld part is declining around 10 percent. Online is growing 30 percent and is now fully a third of the total pie. You can see within five years, more than half of the business will be online. The fastest growing part of online is social gaming.

VB: That trend is irreversible because of the gut-level change?

JP: It’s irreversible. I believe that console games will be distributed digitally, starting this year. Boxed product will not need to exist anymore in five to ten years. At that point, a publisher will have a connection to an individual rather than to a retailer. Once publishers have that, there is no reason they couldn’t continuously modify the products or change the way they charge for them. It is unstoppable. The whole $50 billion is going to change.

VB: It’s easy to see that GameStop, the big game retailer, will be disrupted as stores move online. Will the big game publishers also be disrupted?

JP: I’m no expert on that. I think that the idea that there are entertainment-specific systems that sit in homes that enable you to do more things with entertainment software will probably still exist. So the consoles will still exist. I am a pretty big fan of Microsoft Kinect and [believe] that it will be successful.

VB: So the traditional game companies can adapt to online?

JP: I think so.

VB: The pace of acquisitions is fast. Is it because Zynga is after the same companies?

JP: Yes. It’s a hot market. A year ago, when I came on board, we were 60 people. We were competing with companies like Zynga, which then had more than 600. We wanted more people, systems, and production capability. At the same time, there happened to be a lot of smaller shops that didn’t have the capital, marketing budgets, or publishing platforms that they needed. They were running into tough times. We leveraged our balance sheet, found the talent, and helped them get to a place where they are more successful.

VB: Are those developers still plentiful? Is the price to buy them going up?

JP: I don’t know. If you go back 18 months [and look at who] were making the top 25 games on Facebook, there were 14 indie companies. Today, that number is five. There are 250,000 apps on Facebook. There are 250 games launching a day on Facebook. It is very difficult for small companies to break in. It’s near impossible. And in that context, the deals are cheaper. We are at a scale now where we are comfortable. I don’t think you will see a continued pace of acquisitions.

VB: I recall that Wild Tangent built its web game business and then decided it didn’t need internal game studios. Is that an option for you?

JP: That is not part of our strategy. We want internally produced games. We do outsource work outside too. But we want internal studios.

VB: The valuations in this market look interesting. There are reports that Zynga is worth $4 billion or $5 billion. Do you believe that and therefore extrapolate that for your own company?

JP: I don’t know anything about Zynga’s numbers. Nor am I equipped to value their company or our company. I have heard the same things you have heard. I would not be surprised that is a sound set of math in the industry. They are the biggest and were one of the earliest and helped build social gaming. As the leader, I imagine they are a multibillion dollar company.

VB: So it would not surprise you if their value or your own company’s value becomes bigger than Electronic Arts’ value? Do you want to go there?

JP: We remain pleased with where we are. We are a small company and don’t even belong in the same sentence as EA right now. We love our growth prospects. I am sure EA is bullish on theirs now. We are just trying to execute.

VB: There are a lot of obstacles in social gaming. How do you look at them?

JP: You have to make good games. That’s hard. No one knows what a hit will be. It’s a hit-driven business. You also have to have very sound distribution. You need an existing user base you can market to. You need relations with multiple social networks. It helps if you are in multiple countries. It’s a big world, and that requires localization. It helps if you are on multiple devices, like iPads and iPhones. You need the right payment systems. If there is another, I would say it is identifying and recruiting the right people in the right roles. There is a staffing challenge to try to stay current and successful.

VB: Will brands become more important to Playdom?

JP: There are brands like Bourne Identity on the one side, and Facebook game brands like Restaurant City, Social City and FarmVille. (Social City was created by Jeff Tunnel, pictured with Pleasants). The point is that the brands will move in both directions. In the second half of this year, you will see major brands make a big push into our category. We have partnered with ESPN as one of the major brands that we will be coming to market with. You will also, in the coming 18 months, see brands come from social into traditional media. You will see TV shows, movies, or small webisodes spawning out of social games. It makes sense to leverage a brand that is loved by tens of millions of people. I’m more excited about that than brands coming to our space.

VB: So it’s not about the brands coming into social games to crush everybody who is already there?

JP: It hasn’t happened to date and there is a reason. A brand alone is not enough. That’s like saying art is good enough to make a great game. It’s not. You need great art, game design, ubiquity across devices, game play and music. Brands help, but they do not make success a fait accompli.

VB: You have done some very nimble moves. One was going from Facebook to MySpace and then expanding back into Facebook. And you have acquired a lot of companies.

JP: We still hustle. We don’t feel like we are winning the race. I don’t think any one company wins the race. I think a handful of companies will be in the front pick. There will be an A list, and we want to be firmly in the pack. We could lead the pack, but that may be a ways off, given the size of our large competitor. We have got some very smart people, great founders, and we are very data centric in our DNA. We have business intelligence systems that help us monetize and run a game successfully. We have made some good acquisitions that have given us great talent. We have built some great games. We treat our users well. We are going international. We have made our mistakes along the way.

VB: It looks like you need¬† to do a new game that accumulates all of the wisdom that has come from these acquisitions you have done. Zynga’s FrontierVille is made by a team led by Brian Reynolds. That has been a success, and you could describe it as their next-generation game. It came from acquisitions and talent hires. Is that what you want?

JP: Exactly. We put out a game called Market Street today. That was internally produced. Last week we put out the Fanglies. That came from an acquisition. Verdonia came from an acquisition. Two of our last three came from acquisitions, and they’re very good products.

VB: Is there such a thing as a next-generation social game?

JP: Yes. But I don’t know if there is a line in the sand. A year ago, the leading games were spreadsheet games, text-based role-playing games. They had 5 million daily active users. Now there are tens of millions of daily active users. We have isometric views of games with good graphics. There is synchronous game play. That is a lot of functionality that came in the last 12 months. I feel the bar moved in a material way, and that happens every 90 days. You may have social games 1.0, 2.0, 3.0 and 4.0 all in one year. Is there a bigger next generation? Yes. I think there will be brands, higher production values, higher quality upon release, greater game depth, complete integrated mobile tie-ins and not just ports of products, more demographic targeting, more genres, and a fleshing out of whether a game is asynchronous (one move at a time) or synchronous (everybody moves at the same time). You will also have a better sense of who your friends are and who your game friends are. In any game, you will play well in either an asynchronous or synchronous mode.

VB: But we aren’t just going to follow the evolution of games on the PC or console, with better and better graphics?

JP: That was the graphics chips versus microprocessor battle, for generation after generation. But our games can evolve in a different way. Our games need to become more social. If you want a big headline, the games of the past three years have been about virality. The games of the next three years will be about engagement and retention. The weighting will shift in terms of what is important.

VB: Games will hold your attention for a longer time.

JP: And that will lead to virality. Innovation is driving retention, and retention drives virality. So that is what you focus on.

VB: But you are not turning casual gamers into hardcore gamers?

JP: No. But everyone is marching down the path toward being a gamer a little bit. People who played downloadable games are playing things that are more intricate than Word Womp. People are spilling into games that are more complex. The games are becoming more accessible. The comfort zone for each gamer is growing.

VB: So you are optimistic about the future?

JP: I am extremely optimistic about the future. I am as bullish as ever. In the West, it will go from a $1 billion market to a $5 billion market in the next four or five years. It’s a very fast growing business. It all goes back to those three things: free to play, live service and social games. Those things are transformational, and the tent poles are ripping into everything else.

VB: That explains why you are in such a rush and you send four emails to your employees at once?

JP: Maybe I do that after I’ve gotten off an airplane. We are in a race. There is a sense of urgency.

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