Mobile Mavens

The Mobile Gaming Mavens on Zynga's slip and slide

Is the social giant on death watch?

The Mobile Gaming Mavens on Zynga's slip and slide

The Mobile Mavens is our panel of experts drawn from all sectors of the mobile gaming industry.

Zynga's fortunes appear to have shifted dramatically over the course of 2012, with the double punch of the departure of yet more key employees and a projected $105 million loss in its most recent quarter resulting in the company's stock falling yet further.

Indeed, since a high back in March, Zynga's share price has fallen by 80 percent in all and shows no sign of recovering in the near future.

And so, we asked the Mavens:

Just how bleak in Zynga's future? Does the firm's apparent fall from grace suggest that its model of turning over games at a quick rate doesn't work, and what should the firm do next to revive its fortunes?

Oscar Clark Chief Strategy Officer Fundamentally Games

Oscar Clark has been a pioneer in online, mobile, and console social games services since 1998. He is also author of the book, Games As A Service – How Free To Play Design Can Make Better Games.

Zynga did us all a favour when it launched games like Farmville. The firm showed us how, for the first time, we could address a truly mass market audience using social connectivity and asynchronous play.

However, Zynga's incredible success was driven as much by the Virality bonanza of those heady early Facebook days – days that were inevitably curtailed when inviting friends became spamming.

Zynga initially managed to retain a dominant position because of its momentum and audience size. However, the firm's product lines can no longer command the level of growth or revenues and it seems clear that they have started to decline.

But this is part of a normal product cycle: Market introduction, growth, maturity and decline. We shouldn't be surprised.

The response to this has also been predictable - spend money to retain through rate of new customers. However, although there is no shortage of potential users, there is a shortage of inventory to promote that content and lots of competition driving up the price and down the lifetime value.

Don't get me wrong - advertising is important, but it has to be smart, well targeted, compelling and in a positive context.

Developer's can also look to introduce new products or to look for product extensions. However, gamers are a fickle bunch - their tastes change and evolve and I fear that Zynga's products haven't evolved fast enough.

My guess is the problem lies is the very driver of their success: data driven design. Of course, it's vital to use data - lots of it - but too much emphasis on the minutiae can lead to Data Paralysis where you to lose sight of the big picture and that prevent you making the bigger jumps.

I think Zynga will survive, but it will have to decide both to fall in love with games again, and its customers, rather than just chasing the money. A hard thing to do when you have shareholders and quarterly targets.

Christopher Kassulke CEO / Owner HandyGames

Zynga's next buy is Supercell. Ilkka [Paananen, CEO Supercell], I wish you good luck.

Honestly, Zynga needs to push harder on mobile thats the platform to be.

David MacQueen Executive Director Strategy Analytics

Christopher is right when he said Zynga needs to push harder on mobile.

Only a tenth of Zynga's users are on mobile – based on the firm's own results, over 300 million online users, 33 million on mobile – and it's missing a huge chunk of its potential market.

There's also the games that, as Oscar said, seem designed purely around getting you to pay – they're too data driven and in many cases are rip-offs of other titles.

A bit of originality, for instance, and CityVille wouldn't be directly up against The Sims. It means Zynga relies on acquiring customers only through advertising and not through having a unique gameplay experience. Likewise Dream Heights and Tiny Tower. Likewise… well, take your pick from its catalogue.

Winning customers by spending money is not a business model for success. Zynga needs to deliver something unique in the experience.

Honestly, investing in Zygna is like investing in a record label that only signs cover bands.

Dave Castelnuovo Owner Bolt Creative

Zynga on Facebook is a good model for the potential future of freemium on mobile.

At the beginning, Zynga relied heavily on aggressive promotion and viral mechanics and were able to make a lot of money by hooking a small percent of their new users into what has become the traditional freemium monetisation model.

The idea was, create a huge funnel of new users with the hope that you monetise a minuscule percent of them and that an even smaller percent become your whales, giving you the largest percent of your revenue.

Let's not pretend that Zynga's growth was down to its actual games - although many people loved FarmVille, it was Zynga's aggressive viral tactics in the beginning that drove growth.

However, Facebook wisely decided that these aggressive tactics were bad for its image. It didn't want to be the 'middle eastern bazaar' of the internet – that's where users get bombarded left and right by purposely confusing promotion, from both advertising and their friends, just to get them to click into a game whether they are interested in it or not.

After Facebook implemented its changes, freemium games on the social network and Zynga in particular started a long steep decline. Zynga tried to fight back with more aggressive advertising to make up for the hampered viral mechanics and mainly just tried to keep their numbers pumped up until its IPO.

Not surprisingly, this artificial inflation is not sustainable and we are all seeing the inevitable drop. Sooner or later they will bottom out but I'm not convinced that Zynga will be profitable at that level.

I would suggest a 'pump and dump' strategy if Zyna is to turn its business around. Well, Zynga itself may not be a success, but at least the major shareholders could jump ship before it goes to hell.

Jussi Laakkonen CEO Noice

I disagree. I don't think Zynga's past is the future of mobile. Zynga was built on cheap user acquisition - viral and paid - and there's nothing cheap about user acquisition on mobile. It's way too late to execute that playbook.

Most games on the top grossing chart do not chart nearly as high on the top free chart. The whole concept of the 'top grossing' is weird for a normal person - I guess these games are popular, but what is grossing? Is it something gross? - compared to 'top free', which is totally clear.

So from that my argument is that companies on the top grossing chart are not primarily buying their way to the top of charts. They are advertising to directly acquire users into their games, and they know they can convert a substantial percentage of them to paying users.

That's the way the whole world, apart from viral sensations, works. You create product, you market it, you convert interest into (repeat) purchases.

Yes, Apple should ensure the quality of their charts, but companies like Supercell and NaturalMotion will succeed with or without the charts because their games are good and lead to a substantially lower cost of user acquisition than the lifetime value of those users.

In cold hard business terms, making that costs < sales equation work is what everyone who makes a game needs to achieve, whether it is through ad-supported, premium apps, F2P, paymium, off game merchandising like Rovio, or what ever way you make money.

To get back to Zynga, it has a lot of things going for it - apart from a insanely low stock price. With the huge cash pile in the bank, 300 million plus monthly players, $1 billion in revenues and the 3,000 or more developers within its team, Zynga has everything it needs to recover if it can figure out the strategic direction.

The key problem Zynga faces is, talent is walking out of the door and taking knowledge, ideas and execution ability with it. I don't think Zynga has anything to fear, apart from the team exodus – that's a huge problem.

The next 12 months is critical for Zynga and it is facing intense competition from GREE, DeNA and also from Nexon who just acquired Gloops. Bring your popcorn, the giants are duking it out.

Dave Castelnuovo Owner Bolt Creative

I agree that Zynga's main concern is not the top grossing charts – its goal is to artificially inflate its DAU and MAU in order to make the company attractive as an acquisition.

It's certainly not profit, because every company you mentioned is throwing way too much money at distribution for profitability to be possible. The side effect of this is that these companies are dominating the grossing rankings, which lead many within the industry to conclude that they have a bright future.

It's not a hard and fast rule. Like I said, Temple Run is an example of a great freemium game that is incredibly profitable.

I would say the same of most popular indie freemium titles as well. It's more the companies that you mention, who are trying to artificially create hits that present more of a danger to the mobile industry by creating a bubble that will likely burst in the next 3-5 years.

But I do have to say that it must be a great time to specialise in distribution.

Jussi Laakkonen CEO Noice

I actually very much believe Supercell's and NaturalMotion's focus is game first, revenue second, retention third and then vanity metrics like DAU and MAU.

Bad games don't retain users or make money or get referred to friends. Both Supercell's and NaturalMotion's games are fantastic for over the shoulder virality – as in, 'see what I'm playing'. Folks keep on playing them, talk about them to their friends and pay good money as they feel they get good entertainment out of it.

I have hard time understanding how they are artificially inflating the market.

I disagree with your proposition that buying audience through mergers and acquisition would be a good strategy in the current market - OMGPOP's write down should be a warning sign.

Buying revenue by acquiring companies that have proven ability to consistently produce high grossing games is a much better bet - i.e. Funzio, which made nearly all of GREE's international revenue last quarter.

Dave Castelnuovo Owner Bolt Creative

Don't get me wrong - I don't think the mergers and aquisitions strategy is good. I just see that happening with GREE and DeNA.

Oli Christie CEO Neon Play

Here's my take on why Zynga paid hugely over the odds for OMGPOP: the developer got lucky with the perfect storm.

When Draw Something was flying and peaking in the charts, it was GDC in San Francisco. So all the top game studios were there, drinking merrily in the W Hotel lobby, and the talk of the town was Draw Something and the crazy numbers it was enjoying in both the free and the paid charts.

I remember being at the Accel Partners party and the great and the good of the games industry were there – as well as me.

In the middle of the room, the OMGPOP guys were showing everyone all the funny and amazing drawings people were doodling and they were buzzing with the success and everyone wanted a piece of them.

They were like magnets with shining iPhones amongst the dark decadence of a very loud party.

Clearly at GDC all the big boys meet the smaller studios, and they weigh up who they may want to acquire, so for OMGPOP it was just perfect timing as everyone was blown away by its success and it seemed untouchable and highly valuable.

So, OMGPOP's negotiation position must have been very punchy and maybe Zynga - recently flush with cash itself - just knocked everyone else out of the water with their massive, crazy price.

Sometimes business sense and the realisation that what goes up must come down just seems to go out of the window and a one-hit wonder, like Instagram, gets lucky. Fair play to them.

I may be totally wrong of course!

Do you think you have what it takes to be a Maven? Drop keith.andrew [at] an email.

With a fine eye for detail, Keith Andrew is fuelled by strong coffee, Kylie Minogue and the shapely curve of a san serif font.


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