At the Social Gaming Summit in San Francisco today, the overall consensus among many speakers and attendees was that viral growth on Facebook isn’t dead yet, but it is definitely dying slowly. Kavin Stewart of LOLapps articulated the state of development on Facebook effectively when he suggested that with the ongoing changes on the Platform, it’s necessary to “keep your chin up”, as developers have historically figured out a way to continue growing.

Free User Acquisition Slowly Disappears From Facebook

The term “viral growth” essentially means the art and science of free user acquisition. Top application developers have essentially become “viral growth scientists”, focused on two things: optimizing viral channels and finding platforms that provide those channels. As any developer in this space knows, Facebook is no longer the viral platform that it once was. The changes made by Facebook have slowly squeezed many developers into an awkward business position.

Initially built in an environment in which growth was free, developers are now being forced to consider investing large marketing budgets to launch their applications. It’s something that many developers are happy to do. Playdom, for example, invests $50,000 to $150,000 to launch games, depending on the cost of developing the application. Not everybody is doing that though.

Keith Rabois, Slide’s Executive Vice President of strategy & business development, told the audience at Social Gaming Summit that the company has only invested “experimental” budgets on advertising at this point. Kavin Stewart of LOLapps suggested that their company was definitely playing with more significant budgets and looking to optimize them.

Developers Need Facebook

Despite the changing business model for developers, all social game developers are still extremely dependent on Facebook. That’s because the cost of user acquisition off of Facebook is essentially too much of a hurdle for many of the top social game developers. This dependance on Facebook is exactly what the company is using in discussions with top developers, if the latest news is true.

According to Mike Arrington, Zynga is preparing to launch Zynga Live, a social gaming destination site, in an effort to ease the company off of their current dependance on Facebook. Whether or not the rumors turn out to be true, it would be a bold move for the leading social game developer. It would also clearly be an expensive move. During a panel earlier today, Jia Shen remarked that the cost of acquiring users off of Facebook (at least domestically) is 2 to 3 times as expensive.

That means any new social game that launched on its own standalone site could require upwards of $500,000 to launch. While not cost prohibitive for largest gaming companies, most small game developers cannot afford such significant budgets. With lots of cash in the bank, and a $5 billion dollar valuation, Zynga has the muscle to attempt an audacious battle with Facebook.

Between Facebook all but killing virality and potentially forcing developers to use Facebook Credits within all applications, the margins could soon become more slim and the cost of launching apps is becoming more expensive. While it doesn’t spell the death of the social gaming industry, it most definitely means that bigger players will have the advantage in this new environment in which Facebook continues to pull most of the strings.

It’s not surprising that one of the favorite activities of many developers who have been building on the Facebook Platform for the past three years, has been to get together and reminisce about the good ol’ days when there was no limit on application invites, and Facebook was essentially handing developers free money. Now that the industry has matured and legitimate businesses have been created, social gaming has become a whole new world.