Social Media March 12, 2010, 1:48AM EST

Social Network Hi5 Gets Its Game On

To tap the market for virtual goods, hi5 is recasting itself as a site for social games and courting third-party developers as a choice besides Facebook

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Hi5 is getting in touch with its inner gamer. After a multiyear struggle to keep users from defecting to rivals, the social network is reinventing itself as a social gaming and entertainment site.

Founded in 2003, hi5 will keep letting users interact with friends and family. It will also place greater emphasis on such games as pool, bingo, and Demolition City, which involves blowing up buildings around the world. Many of the pastimes include purchasing so-called virtual goods, in-game products that help a player accomplish tasks and graduate to higher levels.

By changing tack, hi5 is trying to tap the large, growing market for virtual goods, expected by ThinkEquity analysts to be worth more than $5 billion globally in 2010. The move also underscores the growing popularity of Facebook and microblogging site Twitter at the expense of rivals such as hi5 and MySpace, which itself is expanding music, gaming, and entertainment features. In January, hi5 had 47 million unique visitors worldwide, a 22% decline from a year earlier, according to ComScore (SCOR). Over the same period, Facebook's traffic doubled to 471 million, while Twitter grew more than tenfold to 73.5 million. Games are "an interesting model" for hi5, says Atul Bagga, an analyst at ThinkEquity. "I don't think hi5 or other networks can compete with Facebook, so they're trying to position themselves as an entertainment-focused social network," Bagga says.

Courting Game Developers

To halt the slide, San Francisco-based hi5 last year brought in a new management team, including gaming veteran Alex St. John, who worked in the game developer program at Microsoft (MSFT) in the 1990s, to serve as president and chief technology officer. One of St. John's chief challenges is enticing third-party software developers to create games for hi5 when some would rather program for Facebook, which gave Zynga's FarmVille a platform for generating millions of dollars from sales of digital crops and tractors.

An early convert was Matt Wilson. After leaving his day job at Sony (SNE) last year, Wilson created a startup, Detonator Games, with the intention of building games that could be played on Facebook. Detonator's first program, BlastCards, was ready for release on Facebook in the second half of last year.

Enter St. John, who worked with Wilson at Microsoft. St. John wanted his former co-worker to write games for hi5 and made his pitch during an informal December meeting between the two in Seattle. The proposition: leave Facebook to develop exclusively for hi5, and in return, BlastCards and other apps would receive more exposure on the social network and Detonator would get VIP treatment from staff. Compared with the prospects for doing business with Facebook, the choice was easy, says Wilson: "With Facebook, who knows if I can even get my phone call answered?"