Social Network Hi5 Gets Its Game On

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Facebook spokeswoman Malorie Lucich says the social network has incorporated "the tools developers need to be successful," including the ability to update users on the progress of their games when they sign in. She says the company also hosts events to educate and encourage app makers, and provides funding to promising developers through the fbFund program—which divvies up a total of $10 million from the venture capital firms Accel Partners and Founders Fund.

Sharing Ad Revenue

To succeed, hi5 will need to convince more developers that the next great success story in social gaming can be created on a site other than Facebook. "Social media sites didn't try to make the equivalent of an Apple App Store—to do a good job of marketing and promoting the good [apps]," says St. John, who helped create Microsoft's DirectX programming language for game developers in 1995 and led efforts to evangelize and attract game makers to Windows. "There's a lot of work to be done."

The bearded, cigar-loving gaming fanatic made an appeal to programmers on Mar. 10, at the Game Developers Conference in San Francisco. For a limited number of high-quality game makers, hi5 will post free banner ads and other promotions throughout its site and share any ad revenue generated by graphical ads placed alongside games. Such benefits will be bestowed upon three companies—Detonator, Immortal Games, and Exponential Entertainment—beginning in March, as well as about one new developer each month this year, St. John says.

The hand-holding approach to building a stable of developers stands in contrast to the relative free-for-all on Facebook. Since anyone was allowed to develop software applications for the social network in 2007, thousands of programmers have helped stock Facebook's site with all manner of free apps—from bite-size games for showing friends your likes and dislikes, such as LivingSocial's Pick Your 5, to expansive simulators like FarmVille.

"Facebook Independence"

But even as companies like Zynga soar, developers say it's getting tougher to find profits on Facebook and are starting to look for new outlets for their apps on the Web. "We all need to get some Facebook independence," says Lisa Marino, chief revenue officer for RockYou. She says about 85% of the Web widget maker's revenues come from virtual goods and in-app advertising on Facebook—the remainder comes from hi5, News Corp.'s (NWS) MySpace, AOL (AOL)-owned Bebo, and Orkut, the social site run by Google (GOOG). Some of Facebook's recent policy changes for developers—like forbidding them from promoting apps within the social network's notification system—have caused RockYou to consider upping its presence on sites like hi5. "Facebook is going to tighten up a little bit and the others are going to open up a little bit," Marino predicts.

Another reason that app makers are shying away from Facebook is the difficulty of vying with Zynga. "Zynga is aggressively trying to find anybody who makes any headway on Facebook and buy them up or get them into Zynga's publishing group before they get any traction on their own," St. John says. San Francisco-based Zynga has added hundreds of employees in the past year, and many of them came on after their games were acquired by Zynga. "It's going to be hard to compete with Zynga," says Detonator's Wilson. "Either you have to partner with Zynga or you have to match the level that Zynga is at." Zynga spokeswoman Shernaz Daver declined to comment.

Will the efforts work? Given St. John's track record, the chances are strong that hi5 will build more loyalty among users, says Michael Pachter, analyst at Wedbush Morgan. "What Alex is trying to do is make hi5 stickier," he says. "Apps are the glue."

Douglas MacMillan is a staff writer for Bloomberg BusinessWeek in New York.

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