Why Zynga needs to ‘Do Something’ instead of ‘Draw Something’
Subhadeep is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Social game maker Zynga (NASDAQ: ZNGA) has seen more lows than ups of late. And now, as COO John Schappert bows out, the question on everybody’s mind continues to be – is "lack of originality" the sole driving factor behind Zynga’s early demise? Yes, I call that demise because there does not seem to be much hope left for Zynga. And it’s all the more bad because the management could have clearly seen this coming, but did nothing to create another original "Farmville—like" experience. All Zynga did was acquire other companies as soon as their games became popular or adopted a more brazen approach of just cloning those games. Obviously, that strategy crashed big time.
But then, even Schappert can’t even be held solely responsible for the decline. After all, with tenure of a year and a half, he’s obviously not had enough time to make a significant impact. And now, granting stock options to employees seems a pathetic last-minute move to retain fast-eroding talent. After all, the company has nothing to show for those all those extended work hours and weekend operations it enforced upon its employees.
So, what’s Mark Pincus doing about it, after having made a pile of cash himself before the actual downslide started? One, he’s trying to reduce the dependence on Facebook (NASDAQ: FB), and two, focusing more on making games for mobile phones and tablets. While the former move certainly seems to be a sensible one, considering that Facebook itself is being already termed as a ‘passing fad’, the latter, although perhaps a good strategic shift by itself, has a big problem associated with it – monetization. Simply put, mobile users do not monetize at the same level as web-based users. Figuring out how to make money, besides creating some ‘original’ games for the mobile medium, is definitely going to take up a lot of time in future for Zynga. But then again, does it have the necessary talent to get it done? Doesn’t look very likely, considering that even Facebook failed in the monetization process and Zynga itself hasn’t had an original ‘Ville’ experience in ages. What’s more damaging is that the very fact that most of Zynga’s games are just a rip-off at their very best, is certainly not going to go down well with potential investors. The latest copyright theft charge for ‘The Sims Social’ leveled against Zynga by one of its biggest rivals Electronic Arts (NASDAQ: EA) just about reinforces the idea.
Looking at it from a macro perspective, Zynga’s operational model simply requires a lot of investment with slim assurance of success. The fact that you constantly need to rope in new talent to create newer games, ensure sufficient advertising on other media such as Facebook and spend on related promotions to attract more word-of-mouth publicity all point to just one thing – more inflow of cash. And with a business model like the one at present, that surely seems an unlikely proposition. Time to wash your hands off Zynga, I must say.
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