Back in 2008 it made sense for Zynga to piggyback with Facebook and offer a games portal for the social newcomer on the desktop. But as gaming machines got more powerful and home consoles proliferated, simple click-click games gave way to those more complicated, more easily replicable by other game developers, and clicks got more costly.
Now games like Farmville and Cityville, once Zynga’s bread and butter, are being left in the digital dust as droves of players spend more time on smartphones than on social gaming and paying gamers now comprise less than 5% of Zynga’s user base.
The billion-lapping Facebook garnered 14% of its revenue in the first six months of 2012 from Zynga, but according to CNBC, analysts are warning that “social gaming on mobile devices is growing at the expense of desktop, which is where FB derives the majority of its payments revenue.”
Its stock price has fallen more than 70 percent this year from its December IPO price of $10, and it’s seeing executives such as its head of poker games, CMO, COO and Chief Creative Officer exiting for greener pastures. Is it Game Over for Zynga?[more]
At its height, Zynga raise $40 million over three rounds in seven months, buying a large volume of ads and becoming a vital source of Facebook’s revenue, just as brands started pouring money into the social network causing stiff rate increases.
When Facebook launched its news feed and app platform, TechCrunch notes, “it didn’t quite anticipate how they’d be combined. Zynga quickly became a viral juggernaut. It built games where you’d win by asking friends for help, and constantly interrupted play to ask you to share ‘Can you milk my cow?’ stories to every one of your friends. This meant that each user it bought through ads might bring in two more friends by promoting its games through the news feed.”
As game spam began interfering with status updates and friends’ photos, muddying the Facebook experience, Zynga was challenged to build games that were not freemium and had to be bought before playing. To that end, they purchased Newtoy’s Words With Friends game, which proved a hit at first but didn’t sustain, followed by the acquisition of OMGPOP at the height of the game’s popularity, which subsequently tumbled causing Zynga to write off as much as $95 million.
As screens have been getting smaller, and as gaming on Apple and Android devices increases, Zynga has been slow to monetize and mobilize.
Zynga CEO Mark Pincus begs to differ, writing on the Zynga blog, “we are continuing to invest in our mobile business where we have one of the strongest positions in the industry. These actions support our strategy to transition from being a first-party web game developer to a multi-platform game network.” Pincus stressed that newer gambling games like ‘Zynga Poker’ and ‘ChefVille’ and ‘Farmville 2’ are performing well with more than 6 million daily players, and the latter took the top spot this week among the fastest-growing Facebook games by monthly active user, up 86% percent with 15.5 million MAU.
Zynga’s original ‘whale’ games, a.k.a. the ‘Ville’ series “still “pop” as a result of Facebook’s cross-promotional network, but they only rise to millions of daily players, instead of the tens of millions that FarmVille and CityVille had,” notes the Wall Street Journal. “Without Facebook feeding the old hits, the total number of users accessing it on a daily basis dried up — and, likely, the whales along with it. Zynga doesn’t break down the exact payer numbers, but the evidence appears apparent in Zynga’s stalling growth and mounting losses.”
“Our prediction that the Zynga IPO might have been the high water mark for Social Games 1.0 investment has been validated, with the VC market moving sharply away from that sector,” said Digi-Capital Managing Director Tim Merel.