After Zynga's (NASDAQ:ZNGA) share price collapse in 2012, and King Digital's (UNKNOWN:KING.DL) lackluster performance since its March initial public offering, social game companies have had a difficult time proving their sustainability to investors. Despite monstrous hit games like Farmville and Candy Crush Saga, players abandon games just as quickly as they flock to them, and a lone developer can make a game like Flappy Bird that has the same success as one made by a multi-billion dollar company.
And unfortunately for these companies, Apple (NASDAQ:AAPL) is now coming down on one of their critical growth strategies. This change could mean the end of "social" gaming.
No more social gaming
As TechCrunch reports, game developers are receiving new notices from Apple about rejected App Store submissions that have previously been approved. The new enforcement appears to restrict many common practices that have helped promote game downloads and advertising revenue. In short, applications can't promote a different developer's applications, can't offer in-game credits to watch videos for another developer's applications, and can't offer rewards for posting to Facebook.
This could mean no more free lives for sharing Candy Crush with your Facebook friends. And the decimation of a large aspect of social game growth and potential revenue.
While King Digital relies on revenue from in-game purchases, 21% of Zynga's revenue in the last quarter came from advertising. Both might need to revamp growth strategies in Apple's new policy wake.
A new strategy for mobile gaming
It would be impossible to tell just how much of any single game's growth came from the avenues that Apple is now restricting. However, it does give game developers an opportunity to focus on creating games that spread virally themselves instead of through incentives, and focus on driving revenue from different sources.
Zynga is familiar with changing strategies. It was grilled for copying games in the past, but it seems Zynga has since looked beyond its next flailing step to realize a strategy that could pay off in the long-term with its acquisition of NaturalMotion. NaturalMotion gives Zynga superior animation technology that it can use to not only separate its games from the rest, but license out.
King Digital will need to demonstrate that it can pivot just as smoothly under Apple's new rules. Only a few percent of users actually buy in-app purchases, and the traditional strategy of casting a wide net among a gamer's social network may not have been the best approach.
Continue? 5, 4, 3...
While immediate prospects for social gaming looks worse from Apple's new stance, it does give game developers a chance to not only create better quality games that have a higher chance at being an organic viral hit, but also come up with a more sustainable strategy of targeting those few percent who actually spend money on their games.
Dan Newman owns shares of Apple. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.