Zynga faces some serious firecrackers

As Zynga’s number of monthly active users (MAU) continues to plummet (now at 254 million, down from 292 million in April 2012) and its stock price continues to fare well below expectations (60% less than what it was at its highest point in March 2012), the social game giant is clearly experiencing some not so pleasant times. While the drop in share price is somewhat attributable to the Facebook IPO, there are other more fundamental problems Zynga is facing.

Move to mobile devices

Many attribute the drop in Zynga’s MAU to users increasingly going after mobile game experiences as opposed to web experiences. Although this can’t be proven, there is no denying that the smartphone market is too big for game makers to ignore, especially by the likes of Zynga. As its Japanese counterparts GREE and DeNA absolutely dominate the mobile game market, with approximately $5 of monthly average revenue per user (MARPU) compared to Zynga’s $1 MARPU, and slowly expand their reaches into Western markets, Zynga is having an incredibly hard time replicating its Facebook success and dominance on mobile platforms. To put this into perspective, there is only one Zynga title currently in the US top 10 grossing titles charts on both iOS and Android: Zynga Poker.

One of the most logical explanations for the lack of success is Zynga’s overreliance on Facebook. Whereas the two prosper on the web, it’s not the same story on mobile. Both are known to be having difficulties properly adapting to the mobile platforms. Facebook’s app for mobile is still as mediocre as ever. For this reason, Facebook has been known to be making some heavy investments into the mobile space, the latest being the infamous acquisition of Instagram. Zynga, as expected, has been doing the same, but the results don’t yet reflect the efforts put into it, far from it actually. The $200 million acquisition of Draw Something maker OMGPOP especially is looking more and more like one of the worst investments in the social game industry in the last few years, as the drawing game sees no end in sight for its continuous drop in MAU.

Franchise fatigue

In the video game industry (or any media industry for that matter), there is a thing called franchise fatigue. It kicks in when companies refuse or fail to innovate their game series and churn out a similar product year in, year out. Usually these companies are sure they are doing nothing wrong, that they are innovating by simply slightly changing a few things, like changing the setting and adding in meaningless features.

An example I always like to use is Electronic Arts in the pre-2006 times. For many years, EA was the leader in the video game business who knew exactly how to satisfy both consumers and investors. The recipe for its long-lived success was simple: base your product on a popular sports or movie series, spend many a million dollars marketing it, and then pump out a new version of said product year after year. Impressive sales of such products, based on properties like the omnipresent Harry Potter, James Bond, and the Lord of the Rings, meant consumers were content with EA’s way of running its business, as were investors, knowing the company had a reliable stream of revenue in the infamously hit-or-miss video game business.

However, as EA transitioned its product portfolio into the next console generation in 2005 and 2006, it became more and more clear that its seemingly invulnerable strategy was, in fact, full of faults. Instead of generating new, wholly-owned IPs, it relied on its established darlings, but without innovating them. As a result, quality dropped and consumer interest and sales along with it. Luckily for EA, it realized the mistake it had been making (for too long, mind you) and started its restructuring process in 2006. In the years since then, it ramped up its investment into new properties, improved quality of its existing franchises, and successfully started its transition to digital. All of these changes came at a significant cost, however. Its market valuation is down 50 per cent since November 2011, as investors increasingly lose trust in the company. The company that was once the industry’s biggest third-party publisher has a very tough time ahead.

Much like EA in the past, Zynga too is having problems with franchise fatigue or, rather, focusing too much on the financials (metrics and monetization) and not enough on the gameplay experience of its titles. Its strategy titles, such as FarmVille, are all based on the same formula – either wait millennia or pay up – and consumers can be tricked only so long with new face lifts before they turn their attention and money to other experiences.

Needless to say, this kind of business thinking is flawed. Although many of Zynga’s titles have been great successes, they can’t be sustained indefinitely. Just because they are based on the new business models enabled by social gaming, it doesn’t mean they are bullet-proof from the negative consequences of resting on laurels and failing to innovate.  And not innovation in the sense of putting on a new coat of paint.

What Zynga needs is a good old reality check. It needs to realize that no matter which business model you use to monetize your titles, you simply need to come up with new games eventually (better sooner than later, though), games that not only match the market performance and quality of your previous releases, but exceed them. That or you’re on your way out of the industry.

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About zantoplisek

Works at Outfit7, videogame apostle, movie buff, air guitar extraordinaire, tech junkie & comic book fan. Lover of all things burger.

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