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Researh Report on Social Games by GP Bullhound

GP Bullhound has published a short research report on social games. The PDF report can be viewed here.

Looking forward, we believe growth drivers of the social gaming industry will be: i) Internet penetration, ii) social networking penetration, iii) gaming penetration, and iv) ARPU.

Growth in Internet penetration lays the fundamental building block for growth in the overall social gaming industry.  According to Forrester, the number of Internet users is expected to increase 3% to over 280 million users globally.  This equates to a global Internet penetration rate of 77%. We expect the growth in Internet penetration to flow directly downwards to social network penetration, and for social networks to continue to penetrate existing Internet users.  Accordingly, ThinkEquity predicts that by 2012, social network penetration will increase from 63% to 70%.

Again, we believe that social games will gain momentum with both new and existing social network users.  Estimates predict that social network users will grow by 10%, or 30 million users, within the next two years.

Lastly, we believe that strong ARPU rates will contribute to growth in the social gaming marketplace.  Although ARPU rates for social games currently lag behind their traditional game counterparts, we expect new payments initiatives will close the gap.  Facebook is currently testing a universal payments system, which would allow users to buy credits and spend them across multiple games.  A highly anticipated release, John Pleasants has equated this system to the impact of 1-Click Ordering for Amazon.

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