With over 200 million people registered on Facebook, the most popular social networking site, and millions, millions more on similar sites like MySpace, Bebo, and Hi5, social networking has become a part of daily life.

As quoted in the Financial Times, one CIO of a leading U.S. firm found that her young employees "communicate by Facebook and simply will not read their e-mail." Worldwide, social activists are using social networking sites to organize protests. Meanwhile, others have found old classmates and friends using these sites. It's a testament to the power of social networking.

Likewise, social games -- essentially games created to be playable within existing major social networking websites -- seem poised to set a revolution in the game industry akin to the one first kindled by downloadable casual games. These games that use social connections have multiplied like wildfire on social networking sites.

They represent a viable business opportunity for game developers and venture capitalists agree, investing approximately $98 million in social game companies last year. It's no surprise that mobile game developers, casual game developers, and web programmers are forging ahead with social games. Even EA has a Facebook game.

Additionally, with a mixture of business models, social games offer game developers a test bed to see user reactions. Most importantly, because the sales are direct-to-customer, game developers own the customer relationship.

Using customer data supplied directly by Facebook or other sites, they can more fully understand customer needs and in turn, engender customer loyalty. As such, these developers follow in the steps of successful companies like 7-Eleven Japan, which uses its customer behavioral data to forecast exactly needed inventories.

While social games do not seem to have realized such accuracy as of yet, the potential for moneymaking remains strong. The Facebook platform, which was the first, launched in April 2007 and within weeks, entrepreneur Suleman Ali had a hit application and was generating enough revenue through advertising to hire employees.

He eventually sold his company Esgut and its roster of games to Social Gaming Network (SGN) in April 2008. Nowadays, the big players in the social game space are Playfish, Zynga, and SGN. All of Playfish's games are in Facebook's Top 25 whereas Zynga clearly dominates the MySpace charts.

While some consolidation in the sector is to be expected, a one-man shop is still a possibility. Entry costs are low and viral distribution over the Facebook platform reaches over 200 million potential users. That staggering amount,

Gareth Davis, Platform Program Manager at Facebook, enthusiastically points out, exceeds the total number of users for World of Warcraft and Xbox Live combined. In fact, the number of users World of Warcraft has collected over four or five years is equal to the number of new sign-ups to Facebook each month.

If this data isn't compelling enough, keep in mind that even before this population spurt, SGN's early Facebook game, Warbook, pulled in about $100K a month in its heyday. Facebook itself is estimated to have revenues of $50 to $70 million from its virtual gift sales (currently at $1 to $50 each) for last year. So, even if the games on social networking sites are simplistic compared to AAA titles, they are worth noting, especially since they have the power of social networking behind them.

Social Games Defined

But what exactly are social games? Like "casual games," the term is supposed to describe a specific market segment. Most games are already social, though, in that we play them with others or we participate in the communities that have built up around them. What makes social games different?

Colloquially, games on social networking sites and/or on iPhone are called social games, but even this definition is up for debate. Some differing definitions or conditions include:

• Multiplayer games that utilize the social graph, i.e. a player's social connections, as part of the game. Examples: Parking Wars, PackRat
• Games in which the main gameplay involves socializing or social activities like chatting, trading, or flirting. Examples: YoVille, Pet Society
• Turn-based games that are played within a social context or with friends. Examples: Texas Hold'em Poker, Scrabble
• Competitive casual games that include friends-only leaderboards. Examples: Who Has the Biggest Brain?, Word Challenge

PackRat

Very clearly, some social games are ports or variants of existing casual games. Demographically speaking, women over 55 are the fastest growing segment on Facebook.

The latest study from search service firm Rapleaf shows that with the exception of LinkedIn and Flickr, women outnumber men in all age groups across all social networks, so it would make sense that casual games flourish on these sites. Are social games just casual games transplanted to social networking sites? Not quite.

Firstly, not all social games are considered casual games. They're called hardcore or casual based on gameplay. A strategy-based game like Warbook draws the same typical hardcore crowd of young males whereas the virtual pet simulation, (fluff)Friends, also from SGN, is popular among women, ages 24 - 40.

So does the platform make all the difference? Partially. I would say one difference lies in social psychology. "There are nuances that you have to understand to do well on Facebook," warns Ali. Playing online games with friends has a different dynamic than playing with strangers.

Even a zero-sum collection game like PackRat, in which players steal cards from friends, has been turned around by the desire of players to play cooperatively. Do you dare risk your friend's anger by stealing a much-needed card? People act differently when there's shared history.