I N DE P E N DE NT T E C HN O L O G Y RES E A R C H

Sector Update
SOCIAL GAMING: THE FASTEST GROWING SEGMENT OF
March 2010
THE GAMES MARKET
Games & Social Media

Social gaming sector showing tremendous promise

Taking advantage of the behavioral and social dynamic that people like to interact and
play games with their friends online, social games have proven to be viral and
extremely sticky with a broad, mass-market audience. Within the last year, social
games have exhibited explosive growth, cementing their place as an important and
rapidly-growing sector within the $50B global games market.

Trends indicate explosive growth in near-term

Our interviews with social gaming companies suggest that the social gaming sector is
well-positioned for record growth in 2010. Bolstered by increasing Internet usage by the
mass-market, broad social network penetration and strengthening ARPU rates, we
believe that the social gaming market will continue to grow through greater participation
from existing users and viral participation from new users. Based on industry sources,
we estimate the global social gaming market to grow from $1 billion in 2009 ($600
million from the US) to just over $3 billion in 2012, representing a CAGR of 45% over
that time period.

Poised to gain share from traditional gaming avenues

As consumer discretionary income continues to recover from the financial downturn
and the quality and breadth of social games continues to improve, we expect that
traditional console and PC gamers will look toward social game alternatives to the
more costly and hardware-intensive traditional game segments. Given the relatively
nascent stage of the social games sector, we expect significant improvements in game
play and functionality as developers gain more experience on social media platforms
and social game development budgets expand.

The big social game players will continue to get bigger

Given the importance of diversification and marketing budgets to drive user and traffic
growth, we expect the larger players like Zynga, Playfish and Playdom to continue to
Alec Dafferner extend their leads over smaller players through market share growth and acquisitions.
alec.dafferner@gpbullhound.com Several medium-sized and smaller players such as Lil’ Green Patch, Trippert Labs and
San Francisco: +1415 986 0168 Serious Business have already combined with larger players with greater resources.

Justine Chan Look to traditional game and media companies to acquire

justine.chan@gpbullhound.com
Traditional game and media companies will look to gain expertise through acquisitions,
San Francisco: +1415 986 7480
as seen by Electronic Arts’ (EA) acquisition of Playfish in November 2009. EA has
already begun to launch lighter, social network-based versions of its popular Madden,
Remy Valette
NCAA, and Tiger Woods games, and we expect other companies will look to diversify
remy.valette@gpbullhound.com
revenue streams and follow suit.
London: +44 207 101 7565
SOCIAL GAMING: TRENDS AND OUTLOOK

INTRODUCTION

What are Social Games?

We define social games to be web-based games, or applications, that are similar
in complexity to casual games and integrate the community-based attributes of
social networks.
Social games integrate social features to allow players to track the progress of
their friends, or other members of their social graph, and play with those who may
be online or offline at that time (synchronous versus asynchronous game play).
Since members are aware and affected by the actions of other friends in the
game, the social networking or media platform used in social gaming contributes
to the game’s virality and generates social camaraderie, often making social
games stickier than traditional casual games.
Social games occupy a unique niche within the broader gaming ecosystem.
Unlike most traditional console or PC games, social games are driven by social
interaction, rather than strategy, are graphic light and have no hardware
requirements. While more akin to casual games, social games feature stronger
community interaction and iterative development processes. As we will discuss,
the unique social gaming business model efficiently addresses the advantages
and challenges of operating within a social network platform.
The majority of social games today are played using Facebook. Facebook is
currently the world’s leading social networking site, with over 400 million active
users (70% from outside the US) and growing. Developers today design their
games specifically for the Facebook platform, as it is widely regarded as the hub
of users and attention.

Games for Everyone

Broadly, social games are targeted towards all users (i.e. the “mass market”) of
social networking platforms. However, typically social games more specifically are
designed with users aged 18 to 35 in mind, as they represent the most active
social network users.
Low production costs, relative to other forms of games, allow social game
developers to produce a diverse range of games to address users across
different demographics. For example, Mobsters appeals to men, while Sorority
Life appeals more towards women. Moreover, the iterative development nature
of social games allows developers to adapt the games to the behavioral trends of
their users after its release.
Interestingly, a recent study by the Information Services Group found that the
average social gamer is a 43 year-old woman, breaking longstanding stereotypes
surrounding gamers. The study also found that the majority of all social gamers
are female (55%) and that women are more likely to play social games multiple
times a day (38% of females vs. 28% of males). Attributing to the strength of
social networking, the same study revealed that women are more likely to play
with people they know.

GP Bullhound Ltd. March 2010

SOCIAL GAMING: TRENDS AND OUTLOOK

Exhibit 1 – Breaking Traditional Gaming Stereotypes

38% of Women 29% of Men Play

Play Social Social Games
Games Multiple vs. Multiple Times
Times per Day per Day

68% of Women 56% of Men Play

Play Social Social Games
Games with vs. with People they
People they Know Know

Source: GP Bullhound, Information Services Group, Mashable

The Social Gaming Model

The economic and risk profile of the social games model differs significantly from
that of traditional games.
Exhibit 2 – Gaming Market Landscape

High
AAA
Social
Games
MMORPG

Revenue
Potential
iPhone AA

Low
Low High

Cost of
Development

Source: GP Bullhound

As shown by the above exhibit, social games are significantly less costly to
develop than traditional console and PC games. Whereas top PC / console triple-
A “mega titles” and MMORPGs (Massively Multiplayer Online Role-Playing
Games) may take $50-100 million to develop (not including marketing budgets),
social games today typically cost $100–200K to develop and can be produced in
3–6 months. While there will always be a solid market for big budget triple-A titles

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such as Call of Duty (which had an estimated development cost of $40 - $50
million and generated sales of over $1.0 billion in the first two months, according
to the Los Angeles Times), these games are also much riskier, as they may not
produce a hit but have large budgets. Over time, we expect to see much of the
investment capital funding the double-A and single-A titles to move toward lower
cost platforms like iPhone and Social where development costs and risks are low
but revenue potential is still strong.
The deployment of social games through social networks enables their
development to be iterative throughout the game’s life span. In contrast to the
multi-volume franchises common to traditional games, social games can
continuously issue updates and upgrades with minimal additional capital
requirements. These iterations ensure that games remain exciting and relevant
to their constantly expanding audience while also improving monetization.
This iterative approach to game development and improvement means that
marketing budgets can cost anywhere from 50% of the cost of development for
less successful games to millions of dollars over many months for more
successful games. According to its CEO, Mark Pincus, Zynga, for example, spent
a couple million dollars just marketing the launch of FarmVille. Many social game
companies focus on the cost per install as a key metric for user acquisition. Cost
per install of 50 cents is the industry average with some of the larger players
reaching $2 to $3 per install for top games with large marketing budgets and good
monetization rates.
The existence of social games within social networks allows them to tap into the
viral nature of social media. Kristian Segerstrale, CEO of Playfish recently stated,
“Over 95% of our growth is viral. In fact, when we launched our first title…, we
started by inviting 100 of our own friends, and we’ve grown from there to over 60
million registered players across our games organically.”
Exhibit 3 – Social Gaming Viral Marketing Model

Game offers incentives to

bring in new users:
• Level / status
improvement by adding
User joins social game friends
• Report accomplishments
via newsfeed
•Virtual goods offers for
new users

Source: GP Bullhound, Facebook

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SOCIAL GAMING: TRENDS AND OUTLOOK

Social games generate user stickiness by allowing users to develop a virtual life
within the game, as farmers, mafia heads, or even builders of a virtual world. As
gamers interact within the game, they build stronger connections with both the
game itself and the other users, integrating their virtual world with everyday life.
According to industry sources, many users of FarmVille set alarms to wake-up at
the right time for harvesting.

Viral Factor

One key component to a social games’ success is its viral factor, the term used to
describe the growth rate, or distribution, of viral applications. A social game
having a viral factor of 1 is in a "steady state” of neither growth nor decline, while
a viral factor greater than 1 indicates exponential growth and a viral factor less
than 1 indicates exponential decline. This viral factor distribution measures how
many additional users, on average, a social game or application will gain from
each new user it acquires. For a game to be successful, it needs to have a viral
factor greater than 1 in order to take advantage of viral distribution which drives
exponential growth. A game’s viral factor, in addition to its retention rate and
ARPU are key components in determining a consumer’s lifetime value.

Success Factors
While the success of social games remains difficult to predict, we believe that the
following underlying factors are key to creating successful social games.
First, a simple game concept is a key factor for social game player acquisition.
Social games are appealing to many, particularly non-gamers, because of low
levels of complexity. Keeping games simple allows for easier viral distribution
within social networks because potential players are not alienated on the basis of
gaming skill level.
Second, games must leverage the “social” nature of social networking. Key to the
game’s viral marketing, the game should allow players to share their experiences
and interactively play with their friends.
Third, games should successfully build a dialogue with the player. That is, games
should provide live updates and drive users to incrementally check into the game.
Doing so will help keep the game front of mind for the player, helping to increase
stickiness.
Finally, we believe that social game developers must take advantage of the online
deployment model to continuously adjust and upgrade games so that they
continue to capture and maintain user interest. The ability for iterative
development remains a key distinguishing feature for social games, and
developers must leverage this advantage to keep titles fresh and relevant.

Facebook has Become the Dominant Platform

Going back 18 to 24 months, many social game developers were producing
games for multiple social media platforms including Facebook, MySpace, Hi5,
Bebo and others. However, with the emergence of Facebook as the dominant
global social media platform (400 million users projected to grow to 800 million in
the next few years) and the concurrent decline of MySpace, many social games
5

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developers have abandoned all other platforms except Facebook. As a result,

many of the other social networks such as Hi5 and Bebo have adopted the
Facebook API in order to remain competitive by providing greater distribution for
games on their networks.
One of the top social game companies, Playdom, started its life developing
games predominantly for MySpace. However, it quickly realized the changing
market dynamics and shifted its development focus over to Facebook. It also has
aggressively pursued acquisitions to help bring more Facebook games and
development expertise in house. After raising $43 million in November, 2009, the
company immediately announced the acquisitions of Lil’ Green Patch and Trippert
Labs, both of which had successful Facebook games and development talent. In
March 2009, almost 100% of Playdom’s traffic was from MySpace while now 75%
of their traffic comes from Facebook.

Competitive Landscape
An early pioneer in Facebook social gaming, Zynga currently dominates the
social games sector, with over 66.4 million daily active users and 42 social games
available on Facebook.
Exhibit 4 – Social Gaming Competitive Landscape for Market Leaders

70.0
In Millions of Daily Active Users

60.0

50.0

40.0

30.0

20.0

10.0

0.0
May-09 Oct-09 Mar-10

Zynga EA Crowdstar Playdom

Source: GP Bullhound, AppData

Zynga’s foothold as the leading social games developer is clear, as the

company’s monthly active users on Facebook account for 60% of the top ten
developers’ aggregate monthly active users on Facebook. Nevertheless, Zynga
has continued to grow organically and through acquisitions such as Serious
Business, with monthly active users on Facebook up 889% since May 2009.
Trailing Zynga by approximately 58 million users are Playfish/Electronic Arts (EA)
and Crowdstar, with 10.3 million and 9.4 million daily active users on Facebook,
respectively. EA holds a portfolio of 30 Facebook games, and has leveraged its
acquisition of Playfish to launch popular console and PC brands, such as Madden
Football, Tiger Woods PGA Tour, and NCAA Football, in social game formats.
Relatively new to the social gaming scene, Crowdstar has experienced explosive

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success, with Happy Aquarium, Happy Island, and Happy Pets accounting for
97% of its daily active users from its 12-game offering.
With over 6.5 million daily active users and 17 games currently available on
Facebook, Playdom remains a strong competitor within the social gaming
marketplace, fueled by its acquisition of Lil’ Green Patch and Trippert Labs in
November 2009.
A macro look at the competitive landscape shows that these top game providers
account for a disproportionate share of active users and top games.
Exhibit 5 – Dominance of Major Social Gaming Players on Facebook

Rock You!
Playdom (3.8m)
(6.5m)

Crowdstar
(9.4m)

EA
(10.3m)

Zynga
(66.3m)

Rank Game Daily Active Users Developer

1 FarmVille 30.5M Zynga
2 Café World 9.0M Zynga
3 Mafia Wars 6.8M Zynga
4 Texas HoldEm Poker 6.6M Zynga
5 FishVille 4.9M Zynga
6 PetVille 4.8M Zynga
7 Happy Acquarium 4.6M CrowdStar
8 Pet Society 4.5M EA
9 Restaurant City 3.6M EA
10 MindJolt Games 3.4M MindJolt

Source: GP Bullhound, AppData

Nevertheless, as evidenced by the success of Crowdstar, we believe today’s

consumers remain relatively brand agnostic, leaving significant opportunity within
the social gaming sector to become a leading market player.

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CURRENT STATUS OF SOCIAL GAMING MARKET

Market Opportunity and Sizing

According to comScore, social network users make up more than two-thirds (and
growing) of total Internet users. We believe that the rapid growth in users makes
social networks a strong platform for social game developers to build awareness
and acquire players. According to ThinkEquity, the current penetration of games
on social networks remains less than 10%, suggesting significant room for
growth.
The social gaming market is particularly well-positioned to broadly capture users,
due to their viral nature and universal long-tail appeal and availability/accessibility.
Compared to console or PC games, which typically are distributed in physical
media format and often require additional hardware platforms, social games can
be accessed by anyone using a social networking site anywhere in the world with
an Internet connection. As such, we believe the traditional media-oriented games
segment is much more limited than social games as illustrated in Exhibit 6.

Exhibit 6 – Social Gaming Market Opportunity

Source: GP Bullhound

Based on recent interviews from industry executives and supporting market

research, we estimate the global social gaming market generated revenues of $1
billion in 2009, with $400 million coming from outside the US. We expect this
market to grow at a compound annual growth rate (CAGR) of 45%+ for the next
three years. As the market for social games in China and Asia continues to grow,
we expect the social gaming market outside the U.S. to account for a greater
share of the overall social gaming industry.

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SOCIAL GAMING: TRENDS AND OUTLOOK

Exhibit 7 – Global Social Gaming Market Growth

Million
$3,500
International
$3,000
US
$2,500

$2,000

$1,500

$1,000

$500

$0
2009 2012

Source: GP Bullhound

Monetization Strategy
Most social games currently operate using a free-to-play model and generate
revenues through i) micro-transactions, ii) lead generation, iii) advertisements,
and iv) subscriptions. However, micro-transactions are the top monetization
strategy across the industry, accounting for approximately 80-90% of revenues for
the top players, according to industry sources. Examples of micro-transactions
include purchase of digital gifts, clothing or level increases.
The conversion rate from playing to paying users of social games remains
relatively low compared to more traditional games. Whereas most MMORPGs
report conversion rates of 5-10%, current conversion rates for social games lie
between 1-6%, with rates of 2-3% being considered “Average” and 5% or higher
considered “Good”.
Exhibit 8 – Social Gaming User Monetization

Monetized Users as a % of Total Rating
1% Poor
2‐3% Avera ge
4‐5% Good

Source: GP Bullhound

We believe that the monetization curve is concentrated within the top players.
Looking forward, we believe that new payment initiatives, such as Facebook
credit, mobile micropayment systems, and broader availability of prepaid cards
will help to boost micro-transactions rates.
Social game developers also derive a portion of revenues from lead generation
schemes within their games. Lead generation advertisers, such as TrialPay,
Offerpal, SuperRewards and Gambit, pay developers for the opportunity to
advertise within the game. Gamers are often given in-game incentives, like
virtual currency or goods, for accepting these offers / surveys. Research indicates

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SOCIAL GAMING: TRENDS AND OUTLOOK

that the lead generation market within social games is currently worth
approximately $200 million and is estimated to grow to $363 million in 2012.
Exhibit 9 – Social Gaming Lead Generation Growth

$400

$350

$300

$250

$200

$150

$100

$50

$0
2009 2012

Source: GP Bullhound

According to research by ThinkEquity, there are currently 47 million ad-supported

users within the social gaming marketplace. The same research estimates that
these users are served approximately 250 billion advertisements in total over the
course of a year. Advertising revenues are expected to nearly double by 2012,
as the number of users and the cost per advertisement increases.
Subscribing players currently account for approximately 3% of the total social
gaming population, according to research by ThinkEquity. At present time, the
free-to-play model does not strongly incentivize players to adopt the subscription
model. Accordingly, the proportion of subscribing users is expected to expand
only marginally to 5% in 2012.

Risks
While Facebook’s large market size and ease of distribution benefits social game
developers, the dominant use of Facebook as the social gaming platform leaves
developers vulnerable to systemic changes. We believe the current symbiotic
relationship between Facebook and social game companies will become more
and more competitive over time. For example, Zynga is expected to generate
approximately $400 – 500 million in revenues in 2010 compared to $1 billion for
Facebook. In our view, Facebook will, at some point, need to begin charging a toll
or forcing social game companies to use their payment platform so they can
begin sharing in the spoils of revenues generated on their platform. To offset
some of these risks, developers should look to broaden their distribution
strategies, by deploying games and associated goods through large-scale
distribution channels.
Due in part to the rapid expansion of the industry, the demand for social game
developers currently outpaces the supply of strong talent. This developer
deficiency has spurred industry consolidation, as evidenced by Zynga’s
acquisition of Serious Business and Playdom’s acquisition Lil’ Green Patch.

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Lead generation revenues have recently been the subject of controversial debate,
as developers were criticized for “scamming” users into divulging personal
information or accepting disreputable marketing offers, in exchange for in-game
currency or virtual goods. Nevertheless, legitimate businesses, such as Netflix,
also use the same lead generation scheme to acquire users. Despite widespread
debates amongst the technology community surrounding lead generation, it is
difficult to discern whether the game players themselves hold a strong opinion on
the subject, and whether social games are actually losing players who have
become frustrated with the scheme.

FUTURE OUTLOOK
We expect the social gaming market to continue in a strong growth trajectory in
the near term. As the market expands, we anticipate further industry
consolidation, mirroring that of the traditional games industry.

Market Growth
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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Games will Improve

With increasing competition among social game players competing for users and
traffic, we expect the market to expand with richer game play experiences which
cost more and take longer to develop. We see a two central social game models
evolving and taking the lion’s share of users and revenues i) simple games
focused more around social interaction than true game play, and ii) more robust
games with rich user experience and sophisticated game play elements.

Exhibit 10 – Social Gaming Lead Generation Growth

Rich Longer /
Game Play Higher
Experience

Spectrum
Time and
of Social
Cost of
Gaming
Development
Elements

Social Short /
Interaction Low
Today Future

Source: GP Bullhound

Industry Consolidation
In the upcoming years, we anticipate the social gaming industry to undergo
significant consolidation. Already, we have seen traditional gaming companies
address social gaming needs through acquisitions, as evidenced by EA’s
acquisition of Playfish. Additionally, we have seen social gaming companies
acquire other social gaming companies to achieve rapid growth, recruit developer
talent, obtain notable game titles, or gain experience in other platforms
(Facebook, Myspace, iPhone).
On a broader horizon, we expect industry consolidation within the social gaming
industry to mirror the consolidation that previously occurred in today’s traditional
gaming marketplace. Ultimately, we anticipate the social gaming sector will be
dominated by a select group of leading players, similar to the current broader
gaming sector.

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SECTOR VALUATIONS

Selected M&A Activity

Transaction
Value EV / EV /
Date Target Acquirer (USDm ) Revenue EBITDA Target Business Description
Mar-10 Tapjoy Offerpal Media, Inc. - - - Develops monetization and distribution service for
iPhone, Android and other mobile platforms

Feb-10 Big Six Games, Inc. hi5 Netw orks, Inc. - - - Engages in development of social games and designs a
social gaming platform

Feb-10 Serious Business, Inc. Zynga, Inc. - - - Operates as a social gaming platform and produces
online games for the users

Jan-10 Mochi Media, Inc. Shanda Games Limited 80 - - Provides tools and services to support game developers
(NasdaqGS:GAME)

Nov-09 Trippert, Inc. and Green Patch, Inc. Playdom, Inc. - - - Offers social games through the Internet and iPhone

Nov-09 Playfish Limited Electronic Arts Nederland B.V. 391.26 5.3x - Develops and publishes video games for social netw orks

Sep-09 MatchMove Games Pte. Ltd. Vickers Venture Partners - - - Provides online game services for computer gamers in
Southeast Asia by sourcing game content, operating
game tournaments, enabling social gaming netw orks, and
processing online payments

Aug-09 Tw oFish, Inc. Live Gamer, Inc. - - - Develops data platforms that manage virtual economies
for social, gaming, and entertainment markets

Apr-09 iSports, Inc. NTN Buzztime Inc. (AMEX:NTN) 0.2 - - Provides mobile social gaming solutions for iPhone and
iPod Touch devices

Jan-07 eCRUSH.com, Inc. Hearst Magazines International - - - Operates a netw ork of entertainment and community
Websites for teens and young adults, including eSPIN-the-
Bottle, a profile-based social gaming site for teens

Source: Capital IQ

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Selected Private Placement Activity

Deal size
Date Target Investors ($m ) Business description
Mar-10 MindJolt, Inc. Austin Ventures na Operates as a game portal for social netw orks

Jan-10 Drimmi Mangrove Capital Partners; ABRT Venture Fund na Develops and publishes social games

Jan-10 6w aves Inc. InSight Venture Partners 17.5 Develops social gaming applications on the Facebook platform

Dec-09 Zynga, Inc. Tiger Global Management Digital Sky Technologies ; Andreessen Horow itz 180.0 Operates as an online social gaming company

Dec-09 Five Minutes DFJ DragonFund China 3.5 Develops and operates online social games

Dec-09 gWallet, Inc. Adams Street Partners, LLC; Trinity Ventures 10.5 Operates a virtual currency platform for social media developers

Nov-09 Atakama Labs Inc. Austral Capital 4.0 Online social gaming company

Nov-09 Playdom, Inc. New Enterprise Associates; Norw est Venture Partners; Lightspeed Venture Partners 43.0 Operates as a social game developing company

Oct-09 PopCap Games, Inc. MeriTech Capital Partners 22.5 Develops and publishes casual and puzzle games

Sep-09 Booyah, Inc. Kleiner, Perkins, Caufield & Byers 5.0 Online social games based on real-life achievements

Jun-09 GameRing Online Ltd. Sequoia Capital Israel 4.1 Operates as a personalized social gaming dashboard for Web

May-09 WonderHill, Inc. Charles River Ventures; Shasta Ventures 7.0 Designs and develops online social games to play w ith friends and family

Mar-09 ngmoco, Inc. Kleiner, Perkins, Caufield & Byers; Norw est Venture; Maples Investments 10.0 Develops games and entertainment experiences for the iPhone

Jan-09 Ohai, Inc. August Capital; Rustic Canyon Partners 6.0 Develops multi-player online games and combining w ith the social gaming

Jan-09 Meez, Inc. Anthem Venture Partners na Offers online virtual w orld, avatars and games

Dec-08 Scoreloop AG Target Partners GmbH na Operates as a social gaming platform for the mobile devices

Oct-08 Playfish Limited Accel Partners; Index Ventures 17.0 Develops and publishes video games for social netw orks

Oct-08 Booyah, Inc. Kleiner, Perkins, Caufield & Byers 4.5 Online social games based on real-life achievements

Sep-08 Challenge Games Globespan Capital Partners; Sequoia Capital 10.0 Offers multiplayer Web-based fantasy games

Jul-08 ngmoco, Inc. Kleiner, Perkins, Caufield & Byers; Maples Investments 5.6 Develops games and entertainment experiences for the iPhone

Jul-08 Zynga, Inc. Kleiner, Perkins, Caufield & Byers; Avalon ; Union Square; Foundry GP 29.0 Operates as an online social gaming company

Jul-08 Challenge Games Sequoia Capital 4.5 Offers multiplayer Web-based fantasy games

Jun-08 Mochi Media, Inc. Accel Partners; Shasta Ventures 10.0 Provides tools and services to support game developers

May-08 Social Gaming Netw ork, Inc. Columbia Capital ; Greylock; Novak Biddle; Amidzad; The Founders Fund 15.0 Offers social gaming platform that leverages people’s social connections

Apr-08 Serious Business, Inc. Lightspeed Venture Partners 4.0 Operates as a social gaming platform

Apr-08 cooee GmbH Aurelia Private Equity GmbH na 3D Internet platform for social gaming application

Feb-08 Sparkplay Media, Inc. Prism VentureWorks; Redpoint Ventures 4.3 Develops and publishes brow ser-based casual-ish MMOs and social games

Jan-08 Slide, Inc. T. Row e Price Group ; Fidelity Management & Research 50.0 Offers online application for social netw orking w ebsites

Jan-08 Zynga, Inc. Avalon Ventures; Union Square Ventures; Foundry Group 10.0 Operates as an online social gaming company

Sep-07 Emote Games Ltd. Acuity Capital Management Ltd. 8.0 Oerates as an online & social games publisher

Jun-07 BLUE LION mobile GmbH Bertelsmann Digital Media Investments na Social gaming application for mobile phones

May-07 Mochi Media, Inc. Accel Partners 4.0 Provides tools and services to support game developers

Dec-06 Bigpoint GmbH United Internet AG Investments 8.3 Develops and operates brow ser-based online games

Nov-06 Slide, Inc. Mayfield Fund; BlueRun Ventures; The Founders Fund; Khosla Ventures 8.0 Offers online application for social netw orking w ebsites

Jun-06 Bigpoint GmbH Aurelia Private Equity GmbH; European Founders Fund na Develops and operates brow ser-based online games

Aug-05 Midasplayer.com Ltd. Apax Partners Worldw ide LLP 41.6 Operates King.com , a skill gaming site

Jul-05 Bigpoint GmbH Aurelia Private Equity GmbH na Develops and operates brow ser-based online games

Source : Capital IQ

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SELECTED COMPANY PROFILES

6Waves was founded in 2008 and is headquarted in Hong
Kong. The company is a leading Asian social games
developer for Facebook, with 2.2 million daily active users
on Facebook across 130 applications. In January 2010, 6Waves received a $17.5
million investment from Insight Venture Partners to help consolidate Asian market share
and expand into European and Latin American markets. 6Waves’ notable titles include
Give Hearts, Drink it up!, and Happy Hotel.

Formerly known as e-sport , the company

changed its name to Bigpoint in 2007. The
company was founded in 2002 and is based in Hamburg, Germany. Bigpoint develops
and operates browser-based online games. It provides Bigpoint.com, an online games
portal that enables community to play games and exchange ideas, make friends, set-up
guest books and keep an online diary in blog form. The company is backed by APEN
AG, GE Equity, GMT Communications Partners and Peacock Equity Fund.

ELEX was founded in 2005 and is headquartered in

Beijing, China. ELEX operates as a joint venture
between Beijing University of Aeronautics and
Astronautics and a global leading venture capital institution. The company holds 3
million daily active users on Facebook, with an additional 8 million daily active users on
Chinese and Russian platforms. Elex is best known for its Happy Harvest, Happy
Harvest II, Casino, and Happy Pet titles

Crowstar was founded in 2008 and is headquartered in

Burlingame, California, USA. Approximately 9.6 million
daily average users on Facebook currently play the
company’s games, with 9.4 million users playing their top three games, Happy Aquarium,
Happy Island, and Happy Pets. Crowstar has received less than $100,000 in seed
funding from its chairman, Peter Relan. The company currently has 20 employees, who
are all focused on releasing a new Facebook game each month. Crowdstar aims to
monetize through direct sales of virtual goods in its games.

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Meez* operates as an online social community. It offers

virtual worlds, homepages, forums, avatars and games,
as well as provides an environment for users to personalize identity, connect with
friends, socialize, and share media. The company operates as a subsidiary of
Donnerwood Media and is based in San Francisco, California.

Mindjolt was founded in 2007 and is headquartered in Simi

Valley, CA, USA. In March 2010, Myspace founders,
DeWolfe, Colin Digiaro, and Aber Whitcomb and Austin
Ventures acquired Mindjolt from private investors. Mindjolt
operates as a platform where developers can submit their games to be posted on
Mindjolt.com, Facebook, Myspace, Bebo, Hi5, and Orkut. Developers, in turn, receive a
cut of advertising revenues. Through its developers, Mindjolt currently generates over
3.4 million daily active users on Facebook.

Midasplayer.com*, also known as King.com, is a skill gaming

site. The company provides online games, including puzzle,
action, strategy, card, sports, and word games in various
languages and currencies. The company was founded in 2002 and is based in London,
with additional offices in Los Angeles, Stockholm, and Hamburg. King.com is backed by
Apex Partners and Index Ventures.

ngmoco was founded in 2008 and is headquartered in

San Francisco, CA, USA. ngmoco develops social
games and entertainment for the iPhone. The
company is currently supported by over $40 million from Institutional Venture Partners,
Kleiner, Perkins, Caufield & Byers, Maples Investments, and Norwest Venture Partners.
ngmoco’s portfolio of games includes Godfinger, We Rule, and Touch Pets.

Playdom was founded in 2008 and is headquartered in

Mountain View, CA, USA. In November 2009, Playdom
completed a $43.0 million round of venture financing to
facilitate acquisitions. The round was financed by Lightspeed Venture Partners, New
Enterprise Associates, and Norwest Venture Partners. In November 2009, Playdom also
acquired Trippert, Inc. and Little Green Patch, Inc., for an undisclosed amount. Trippert
is an iPhone and social game developer. Lil’ Green Patch offers social games through

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SOCIAL GAMING: TRENDS AND OUTLOOK

the Internet, and is best known for its game, Lil’ Green Patch. Playdom’s key products
include games, such as Overdrive, Sorority Life, and Poker Palace, which can be played
on Facebook, Myspace, and iPhone.

Playfish was founded in 2007 and is headquartered in London,

the United Kingdom. In November 2009, Playfish was acquired
by Electronic Arts for over $391 million, of which approximately
$100 million consisted of possible earnouts. Playfish designs
games for Facebook, MySpace, Bebo, Yahoo!, iPhone, and iPod touch. Key games
include Pet Society, Restaurant City, and Country Story.

PopCap Games was founded in 2000 and is headquartered in

Seattle, Washington, USA. The company designs games for
social networks, mobile phones, game consoles, and in-flight
entertainment systems. In October 2009, PopCap received
$22.5 million of funding from MeriTech Capital Partners.
PopCap currently generates 3.1 million daily active users through its two Facebook
games: Zuma and Bejeweled Blitz.

Netpickle operates RockYou!, which was founded in 2006

and is headquartered in Redwood City, CA, USA. The
company currently generates 3.8 million daily active users on Facebook, across 18
games. RockYou!’s leading games include Hug Me, PetrolHead, and Birthday Cards.
The company is currently funded by $119.4 million of capital from Doll Capital
Management, First Round Capital, Hercules Technology Growth Capital, Inc.
(NasdaqGS:HTGC), Lightspeed Venture Partners, Partech International, Sequoia
Capital, SKT Ventures, and SoftBank Capital.

Slide was founded in 2005 and is headquartered in San

Francisco, California. The company offers online
applications for social networking websites. Slide’s website provides slideshow, image
and video personalization, guestbook, and virtual gift applications for social networks
including Facebook, MySpace, Bebo, Friendster, Hi5, and Orkut. Slide is backed by
BlueRun Ventures, Fidelity Management & Research Company, Khosla Ventures,
Mayfield Fund , T. Rowe Price Group and The Founders Fund.

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Stillfront develops browser-based gaming

services on the Internet. It creates Fan
Immersion Games (FIG) for global online community and generates additional revenue
streams for digital properties. Stillfront is based in Uppsala, Sweden and backed by
Deseven AB

WonderHill designs and develops online social games

to play with friends and family. It offer games such as
Fairy rescue, The Solitaire and Aquarium life fully
integrated with social networks such as Facebook and Myspace. The company was
founded in 2008 and is based in San Francisco, California. WonderHill is backed by
Charles River Ventures and Shasta Ventures.

Zynga was founded in 2007 and is headquartered in San

Francisco, CA, USA. Zynga has grown dramatically over
the last year, increasing headcount from 156 to 561 full-
time employees, reflecting growth in headcount of 260 percent. In November 2009,
Zynga reached 100 million unique visitors per month. Zynga has raised approximately
$220 million in funding to date. Most recently, in December 2009, Zynga completed a
$180 million round of funding, provided by Andreessen Horowitz, Digital Sky
Technologies Limited, Institutional Venture Partners, and Tiger Global Management LLC.
In February 2010, Zynga acquired its neighbor social game developer, Serious Business,
whose platform included Friends for Sale and Happy Hour. Zynga develops games for
most social networks and the iPhone. The Company’s key products include Mafia Wars,
FarmVille, and Vampires.

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Analyst Profiles

GP Bullhound is a research centric investment bank headquarted in London with offices

in San Francisco.
Alec Dafferner – Alec is a Partner and Head of GP Bullhound’s San Francisco office.
With over twelve years of technology investment banking experience, Alec has executed
over 45 transactions for emerging growth companies in the U.S. and abroad, raising over
$10 billion in capital and advising on over $2.5 billion in mergers and acquisitions. Prior
to joining GP Bullhound, Alec was an Executive Director at UBS Investment Bank.

Justine Chan – Justine is an analyst at GP Bullhound. She previously worked as an

M&A analyst at Harris Williams & Co., where she worked on U.S. and cross–border
transactions across a number of industrial and retail sectors. Justine holds a B.S. in
International Finance from the University of California, Berkeley.

Remy Valette – Prior to GP Bullhound, Remy worked as an M&A analyst at

Societe Generale covering a number of industrial sectors. He holds a Masters in
Corporate Finance from EM Lyon Business School and also a Master in Applied
Physics from Paris VII University.

Disclaimer: Information contained in the document does not constitute an offer to buy or sell or the solicitation of any offer to buy or sell any
securities. This document is made available for general information purposes only and is intended for institutional investors who have a high
degree of financial sophistication and knowledge. This document and any of the products and information contained herein are not intended
for the use of private investors. Although all reasonable care has been taken to ensure that the information contained in this document is
accurate and current, no representation or warranty, express or implied, is made by GP Bullhound Ltd. as to its accuracy, completeness and
currency. This report contains forward-looking statements, which involve risks and uncertainties. Actual results may differ significantly from
the results described in the forward-looking statements. In particular, but without limiting the preceding sentences, you should be aware that
statements of fact or opinion made, may not be up-to-date or may not represent the current opinion (whether public or confidential) of GP
Bullhound Ltd. In addition, opinions and estimates are subject to change without notice. This report does not constitute a specific investment
recommendation or advice upon which you should rely based upon, or irrespective of, your personal circumstances. Use of this document is
not a substitute for obtaining proper investment advice from an authorized investment professional. Potential investors are therefore urged to
consult their own authorized investment professional before entering into any investment agreement. Past performance of securities is not
necessarily a guide to future performance and the value of securities may fall as well as rise. In particular, investments in the technology
sector can involve a high degree of risk and investors may not get back the full amount invested.
GP Bullhound Ltd. is authorised and regulated by the Financial Services Authority in the United Kingdom and is registered in England &
Wales No. 381 4857

* GP Bullhound is currently representing or has represented in the past 24 months the following companies or their shareholders listed in this
report: Meez and King.com

GP Bullhound Ltd, 52 Jermyn Street, London, SW1X 6LX

http://www.gpbullhound.com, info@gpbullhound.com, +44 20 7101 7560
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GP Bullhound Ltd. March 2010