As soaring mobile ad sales lead Facebook (FB) to deliver tremendous revenue growth for a company of its size, there's been one blemish for its otherwise stellar top-line numbers: Non-advertising revenue, largely driven by PC gaming activity on its site, has been slowly declining as more and more Facebook usage shifts to mobile devices.
With smartphone gaming activity dominated by standalone iOS and Android games for which Apple and Google, rather than Facebook, get a 30% cut on in-game purchases, Facebook has had few options for halting the gradual decline of its gaming revenue. Until now.
Instant Games, an HTML5-based gaming solution launching on Tuesday in 30 countries, lets users load full-screen games directly from their Facebook news feed -- either on PCs or mobile devices -- or Facebook Messenger's mobile apps. They can be accessed on Messenger by tapping a game controller icon, and on the news feed either by clicking or tapping a Play button on posts promoting a game or by accessing a dedicated Instant Games bookmark.
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Instant Games is launching in "closed beta" mode, and for now is only available to select developers. Seventeen casual games are initially supported, including arcade hits Pac-Man and Space Invaders.
Plenty more should arrive in time; developer partners include Zynga (ZNGA) , Activision's (ATVI) King Digital unit and Konami, and studio Big Viking Games has already launched a $10 million fund to finance Instant Games.
Though no one will confuse their graphics with those of a new Xbox One title, those initially testing Instant Games have generally been pleased with graphics quality, as well as the speed at which games load.
For casual game developers, the logic behind launching supporting Instant Games is pretty simple: More than a billion people use Messenger each month, and even more use Facebook's core services. And these users tend to spend a lot of time on the services. Earlier this year, Mark Zuckerberg disclosed the average Facebook user spends 50 minutes per day between Facebook proper, Messenger and Instagram.
Meanwhile, analytics firm Flurry estimated last year that gaming accounted for 15% of all the time spent by consumers on smartphones (Facebook, for those wondering, made up 19%). There's a big opportunity to engage mobile gamers, including ones who once played PC Facebook games but no longer do so.
Moreover, Facebook, with its sharing tools and multi-player gaming support, can provide smaller game developers struggling to stand out in the App Store or Google Play another vehicle for achieving mainstream success. Over in Asia, messaging apps WeChat and Line (LN) have seen strong uptake for their gaming platforms.
For now, Instant Games aren't being monetized via ads or in-app purchases. But Messenger chief David Marcus, who was once in charge of PayPal (PYPL) , promises developers will have monetization options in time.
Facebook, for its part, could profit both from taking a cut on in-game purchases and ad sales, and -- given app install ads for traditional iOS and Android games have long been a big business for the company -- by selling news feed ads to developers looking to promote their games.
A 30% cut on Instant Games-related purchases would provide a lift to Facebook's Payments and Other Fees revenue, which fell 3% annually in the third quarter to $195 million (3% of total revenue). At its peak, Payments and Other Fees produced over $250 million in quarterly revenue.
There could be some ancillary benefits as well. Facebook, needless to say, wants consumers spending as much time on its apps as possible. Even if many of these consumers don't spend money while playing games within Facebook's apps, there would be value in getting them to log in more often, and presumably see more ads along the way.
Also: Instant Games adds to Facebook's push to turn Messenger into a platform relied upon for much more than just communicating with friends. A Messenger chatbot platform was launched to much fanfare in April (user reactions have been mixed), and the platform began supporting payments in September.
And while Messenger monetization is still limited, Facebook did recently begin letting businesses buy "sponsored message" ads that let them reach Messenger users they've already interacted with.
In addition to Instant Games, Facebook is hoping its Gameroom platform, which launched a month ago and provides a dedicated Windows app for accessing games from various developers, will increase gaming Facebook-related gaming activity. But Gameroom faces competition from entrenched rivals such as Valve's Steam, and even if it gains a following, the fact remains mobile now claims a dominant place in the casual gaming landscape.
It probably would've been better if Facebook launched something like Instant Games earlier, before "native" iOS and Android games had exacted such a steep toll on the company's non-advertising revenue. But the giant user bases and sky-high daily usage rates claimed by its core app and Messenger should do a lot to help it play catch-up.
