Monday, October 15, 2012

Struggles at Zynga

As many of this blog's readers know, Zynga - the social gaming company - has suffered recently.  According to this Fortune magazine article, "Shares are down nearly 74% since its stock market debut. User engagement has dropped 53% in less than three years according to social game analytics firm dystillr."  What has happened to the firm?

Several factors explain Zynga's struggles.  First, the company's games lack the depth of some traditional console-based video games.  Therefore, the games appear to have a limited life span.  Many users seem to tire of the games fairly quickly. Here we see a catch-22.  Zynga's games don't require the kind of upfront investment to develop that console-based games need.  However, the payoff down the road may be more limited - less risk, less return.  Second, the company depends upon Facebook a great deal.  As Facebook users have shifted toward accessing the social networking site via mobile technology, Zynga user engagement has declined.  Zynga appears to make less profit on its mobile games, as opposed to games that users accessed via Facebook on their laptop or desktop.  

Beyond that, I think Zynga's difficulties point to a bigger trend in the video game industry.   The shift toward mobile and social gaming clearly has disrupted the console-based gaming business.  Most of these mobile and social games require much less money to develop.  However, they also appear to have a limited lifespan in many cases.  Therefore, we have moved to a situation where gaming companies may need to innovate much more quickly.   Users appear to require new versions and new experiences much more often now.  They enjoy mobile games, but they "consume" them very quickly.   The new winners in the video game business will be those firms that can churn out streams of hits.  

The question remains:  Will those winners be able to develop franchises (a big hit followed by a stream of sequels and spinoffs), or will they have to develop unique new games much more often than in the past?   In the movie business, sequels generally make less money than original films.  Video games defied that logic for many years.  In console-based gaming, sequels proved to be an engine of profitability.   Can that happen long term in mobile gaming, or will consumers demand variety and newness to a much higher degree?

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