Zynga's Costly Mistake - Part One
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Social gaming company Zynga (NASDAQ: ZNGA) made headlines in April when it paid $180 million for OMGPOP, maker of the hit Pictionary-esque game Draw Something. At the time of the announcement, the then six-week old game had attracted 37 million installs and 20.5 million daily active users (DAUs). The price tag, which included an additional $30 million employee retention payment, seemed exorbitant especially compared to the $53.3 million spent for Newtoy, makers of Words with Friends and its similarly named brethren.
Draw Something was immensely popular and the general consensus was that Zynga coughed up the dough for the chance to nurture a superstar franchise along the lines of Rovio’s Angry Birds. But with the stars (and dollar signs) in its eyes, Zynga failed to realize two things: Draw Something was just a fad and this clunker could set pricey precedence for future acquisitions.
The impact of this decision could be the factor that helps competitors such as Electronic Arts take a larger slice of the Facebook platform market.
Draw Something: The Start of the Fall
News broke late last week that Draw Something had lost 5 million DAUs since its acquisition, taking user numbers down to around 10 million DAUs. It has since slipped down to 9.1 million DAUs, according to AppData*, and the slide is likely to continue. For comparison, Words with Friends – which was released in 2009 – still attracts 7.2 million DAUs.
What went wrong? The game itself wasn’t built to last. With no time limit, and no merit-based scoring, there’s little incentive to stick to the game. Players have complained about the limited dictionary, even in the paid version of the app which claims to have more words. This problem was exaggerated when Zynga implemented a new monetization method via branded clues, meaning that a player has to draw the word associated with the brand. Draw Something leans heavily towards popular culture anyway so this could’ve been a good fit. But the limited words can equal brands repeated with obnoxious frequency.
Zynga can’t experiment with what could work for Draw Something since the popularity was already at its apex. A small group can be beta testers but an impatient crowd will move on to the next big game. Zynga also can’t cut ties, since it chunked out so much money and took on nearly the entire staff of OMGPOP. A staff that, in part, produced 35 prior games that largely failed, leading to a company that was weeks from bankruptcy before Zynga swooped in.
Zynga is famous for either acquiring or copying popular competitors and there hasn't been too much financial backlash from those actions. But is this latest mistake a portent of woes to come?
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