Ten years ago social gaming in Latin America was not much more than a bunch of empty servers: Yes, it is not the wildest exaggeration to say, that it was almost absent. However, with the expanding internet access and usage in most of Latin American countries, this has changed. Social gaming has not only reached a decent level of popularity, but is seen as something far beyond just a weak trend. Players in the region are increasingly embracing social gaming. And even though the penetration figures are not yet as high as in the United States, the social gaming market is growing up fast, making it widely discussed in studies and eyeballed by foreign marketers, branding experts and game developers, who’re seeing the contours of possible success being sharpened.

While being trapped between the traffic lights – the smoke and dirt of Mexico City’s streets surrounding me – I decided to write about the current situation of social gaming in Latin American with particular focus on Brazil.

Latin American social gaming scene has been helped by the growth of Latin American countries in recent years – with the economy of Brazil being the main attraction, when foreign marketers are taking a look at this area. Brazil is by far the biggest market in Latin America, accounting for 35 percent of this market, which in itself makes up five percent of the worldwide market.

Studies show that the market for social games in Brazil can be expected to grow as large as $238 million by 2014, according to a study released by social research firm SuperData. That’s a significant increase from the $136 million the market is expected to be worth by the end of this year. In that same time frame the size of the social gaming user base in Brazil is expected to grow to 52.3 million.

Earlier this year SuperData released a study showing that virtual goods revenues across all of Latin America are expected to rise to $517 million by next year, with Brazil leading the way, followed by Colombia and Mexico. “With social game revenue growing more than 36 percent over the past year alone, there are real opportunities to capture market share and make the most of this first-mover advantage,” Janelle Benjamin, SuperData’s Director of Research, says in a recent statement.

A challenge for foreign developers and marketers is localizing social games to the Latin American market. Localization seems indeed to be an essential factor, when marketers want to penetrate the market. To give an example of this, 95 percent of the Brazilians only consume social games in their own language, Portuguese! The existence of local, cultural references is also essential to successfully capture the Latin American audience. Juan Franco, co-founder of Mentez, explains: “Localization is difficult for U.S. developers without help. Many of their games are filled with cultural references – like the Super Bowl and the Fourth of July and Halloween – which mean nothing to Brazilians. So it’s not as simple for U.S. developers as translating their games into Portuguese and dropping them onto Orkut.”

Mentez is the dominant game publisher in Latin America. From the company’s office in Sao Paulo, it localizes and distributes pre-existing titles for Latin American audiences. The company has a team of artists and product managers who build virtual items that resonate with gamers in Latin America and help craft changes in the games so that they have a Latin American look and feel. The publisher also has a PR team that helps the game get coverage in Latin American publications, and it runs banner ads inside their other games. It also takes a cut on virtual item revenue, so Mentez has a vested interest in seeing the game succeed.

Mentez publishes four out of the five most popular games on the Google-owned social network Orkut in Brazil and its portfolio reaches 22 million active users every week. One of those games, Wonderful City Rio, with game play very close to games such as Vostu’s MegaCity and Zynga’s CityVille – but yet adapted to the Latin American market.

Although Brazilian users are avid social game players, monetization can be a problem given the lack of adoption of traditional payment methods. For this reason, both Vostu and Mentez have developed alternatives methods of payment. They now use prepaid card offerings that are available at tens of thousands of retail locations across Brazil. Tutudo, a Latin American micro-transactions company, has developed a prepaid card network that has significant penetration and is available to developers not affiliated with Vostu or Mentez.

According to Franco, “in emerging markets like Brazil, 50 percent of the 100 million people who are connected to the internet don’t have credit cards — and so PayPal doesn’t work here. So gamers need other ways to pay. With Paymentez, they can walk into an Internet café and use cash to buy virtual credits. Paymentez has over 100,000 retail points of sale. That’s just one more hurdle U.S. developers don’t have to worry about when they partner with Mentez. They can sit back, get their checks in the mail, and enjoy a bigger footprint worldwide.”

Currently the average revenue per paying user in Brazil is $1.87, approximately $0.50 less than in North America. The most popular form of payment is local electronic wallet solutions, such as Payseguro. The largest social network in Brazil is Orkut, which boasts 66 million active users, nearly 60 percent of which hail from Brazil. Games based on platforms other than Facebook, such as Orkut, are expected to reach $5.6 billion in revenue by 2014.

If we zoom out for a bit – now looking at social gaming in a global context – the market seems to be maturing. In addition to a top-heavy marketplace, where big firms dominate and claim the bulk of revenues, the overall space is also increasingly crowded. This forces companies to spend more on marketing, which in turn shrinks the margins between acquisition cost and average revenue per user. One strategy to escape this predicament is therefore to look for other markets that are less mature.

“If you currently only have your game on Facebook, you can double or triple your revenue by working the international markets,”says Franco. “The U.S. is a very tough market that’s dominated by two or three big companies. So it’s very difficult for a smaller developer to compete in the U.S. on the Facebook platform these days. I believe that, for those good developers with good skills and good ideas, exploring international markets could be the best way for them to succeed.” This multiplicity of vibrant social networks thus creates a significant opportunity for social game developers willing to port their content to new networks and localize for non-English speaking region.

There exist two major social networks in Latin America. Facebook, who owns every country in Latin America except Brazil and attracts more than 97 million visitors. (In Chile, Facebook even reaches 90.9 percent of all online users, ranking as the most penetrated market in Latin America.) And Googles Orkut, who dominates Brazil. For many years, Orkut was Google’s most successful venture in social, and Google is taking steps to make Orkut a great distribution channel for a broader array of developers looking to target the Brazilian market. Combined with a more mature payment landscape, Orkut presents a potentially lucrative opportunity for social game developers looking to reach the 75M+ internet users in Brazil.

The Latin American market of social gaming has become bigger the last three years. According to Daniel Kafie, CEO and founder of Vostu, the global advertising market for social gaming is expected to rise to US$ 1.6 billion in 2012. In Latin America, the social gaming advertising market actually reaches US$ 350 million, according to the executive at IAB Now Argentina. A lot of its growth can be traced to the Brazilian economy. However the interesting factor for marketers is more the potential of growth of this industry rather than its current size. To Bloomberg Businessweek Mentez CEO Franco states that since social games are a new business in Latin America, “there is an opportunity for companies like Zynga to be aggressive in that market.”Brazil, in particular, “is a huge opportunity,” he says. “It’s the hottest market in the world today” for social games. This article has highlighted the importance of localization, when making social games seem interesting and relevant to the Latin American audience. Mentez’ major success can be subscribed to the fact that they help companies in exactly this regard – localization. Also the payment problems have been pointed out. However several companies have succeeded in overcoming this problem by implementing alternative payment methods.

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