Wagner James Au from Gigaom recently talked with three top VC’s about the gaming industry.  His goal?  To find out what the people with the money are looking at, and where this rapidly changing economy is headed.

The quick and dirty shakes out like so: Free or alternate funded games (i.e. microtransactions, in game advertisement, etc.) are poised for explosive growth, and a top-to-bottom transformation of how games are played, developed, and deployed.  One VC in particular takes an alternate look at the casual gaming market and predicts an imminent backlash.

Mitch Lasky of Benchmark Capital (Second Life, Gaia Online, Red 5, Vivox, Riot Games and JAMDAT) says in an email to Wagner, “I’m sensing that we are on the verge of a casual games backlash.  The space is so ridiculously over-funded, the barriers to entry are so low, and the media models require such high traffic to generate meaningful revenue, that I think there has to be a shake-out. I think the sites with traffic, like MiniClip, will benefit, because everybody is going to be buying referrals from them.”

While Lasky gives credit where credit is due, he also sees top beneficiaries of the non-casual gaming market as middlemare producers.  “I read a recent analyst report that showed almost 90 MMO’s, virtual worlds and online game services scheduled to come to market in the next 18 months,” he said. All that activity is “going to benefit the platform companies — we’ve been seeing tremendous customer growth at Vivox, for example, which provides high quality voice services to online games.”

Speaking to non-casual games, Lasky also added, “I’m increasingly interested in more gamer-oriented online games, not based on subscription billing models. Our investment in Riot Games grew out of this thinking. We’ve seen strong evidence that this combination works in the Chinese and Korean markets, but it’s been slow to take off here. It is going to take the right game to unlock this market, but it could be huge.”

Lightspeed Venture Partners Managing Director Jeremy Liew confirms Lasky’s opinion about the rise of free-to-play.  He’s predicting a massive shift away from the subscription model, echoing developments in Asia.

“Free-to-play gaming and virtual worlds (monetized through up-sold virtual goods and subscriptions) are gaining increasing traction in the West,” he said in an email. “Companies like K2, Nexon, Gaia, Habbo, Neopets, Runescape/Jagex, Gameforge, Eve/CCP and Bigpoint all doing revenues now in the tens and even hundreds of millions of dollars. But gaming, like media, is not a winner-take-all business, and there are many up and coming companies building free to play experiences and growing fast.”

In Liew’s view, companies that can help with player acquisition, billing, fraud and player management/game mastering are those poised to profit the most.

Liew’s not only in his thinking, as Susan Wu a former VC at Charles River Ventures agrees.  “With the death of retail and the greater accessibility of games in the hands of an order of magnitude larger audience, free to play with some premium components becomes the most logical conclusion. Then of course with alternate billing models comes alternate payment systems.”

Wu is now in the drivers seat at what she terms “a groundbreaking, stealthy new online gaming company.”   While Wu’s no newcomer to the party, she sites Susan Choe’s Outspark, Acclaim, and Nabeel Hyatt’s Conduit Labs (Loud Croud) as projects she’s followed closely, and sees them as integral parts of a netwide transformation.

While Wu notes that the web has always been changing, she’s quite surprised at the rapid pace of change, particularly accelerated by the acceptance of social networks as entertainment platforms.

In addition to this acceptance, technological innovations and game development abilities have jumpstarted this change.  With flash becoming a viable platform for games (think iPhone), and even industry giant Blizzard producing hardcore games (and likewise devoted followers) despite super flashy graphics.  Wu also takes a step back to view a psychological factor as game industry driver.  “With social relationships as primary catalysts for game playing; we’re moving back to the playground where games reinforce and create social bonds.”

So while one VC sees an impending backlash verging on the horizon, all three separately agree that the age of subscription is a dying breed, with free to play titles gaining more and more ground each day.  As Lasky points out, with over 90 MMO’s, virtual worlds, and online game services coming to market within the next 18 months, this is bound to become an increasingly competitive space.  Bringing the product to market quickly and effectively may be the winning strategy for developers.  Wouldn’t it be a shame for them to have a great title, but be weighed down by their own development of primary and secondary economies?  Enter stage right…..fatfoogoo.