I remember when YouTube started to go viral. It was the time when the two-way web was beginning. It fast became called User Generated Content. I am seeing the same dynamics happening now, and I think that it’s worthy of calling it the Next Big Thing – User Generated Games.

Flash games are the one of the hottest areas on the web. Online flash games are also known as in-browser games or social games. Social games use social networks or a person’s social graph or social circle to distribute the game. This is normally done through invites via email or on social networks. You can see this phenom on Twitter when you get a Mafia War invite (game developed by Mark Pincus and Zynga – one of the hottest gaming companies today) or on Facebook when a friends asks you to play along with them.

Using this technique provides a targeted and trusted set of users to play or friends. This technique of sharing via friends increase the “stickiness” or engagement for game playing and ultimately attracting more user and increasing the quality of the play. It can be annoying, but it’s working. Companies like Zynga, SGN, and Playfish are dominating this market with huge numbers. Zynga recently reported up to 50 million playing on a single day.

Market for Games

Online browser-based games are a major component of the gaming landscape today. The gaming market can be segmented into four categories: online games, retail games, mobile platform games, and major platform games.

The online market is by far the largest possible distribution channel for any game content. Flash technology works directly with existing standard web browses that provides access to almost 100% of the online market. Look no further than the success of social gaming. Companies such as SGN and Zynga have hundreds of millions of user in and of themselves. SGN and Zynga combined top the number of users on Xbox, and PS3.

It is now commonplace that a successful online game can garner 50 million users in one year and with $10s of millions in revenue. It is no wonder that the VCs are rushing in to invest in these markets.

Opportunity: User Generated Game Development

Game development is a big opportunity especially when they involve users as a key part of the development process. Traditional game developers like EA built games for high end consuls and at a huge cost. Online gaming (flash or in-browser games) are doing great. Combine it with the notion of low cost development and fast distribution via social networks really works and it’s fast becoming the hottest segments right now.

The opportunity is up for grabs. This new approach that combines social gaming with user generated development has no dominate player. I see this as the next big venture area and market opportunity. What user generated content did for social media I see user generated game development doing for the in-browser or flash game market.

Like iPhone apps, I expect to see new tools come out for social gaming. Imagine a converged environment where software development meets real world people and events.

The question is who will be the YouTube for user generated gaming? Unlike YouTube these social gaming companies are generating tons of revenue.