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Speerfactor: What Zynga Needs to Survive

by on January 24, 2012
 

You have heard of them before, and you might even have played their games from time to time. Zynga is still the biggest game developer for games on Facebook and on your smart phones. With games like Words with Friends and Cityville, their brand has become a household name across the world.

Just last year they decided to take their company the next step further and put their trust in shareholders to help them grow capital with their Initial Public Offering. The share price started at 10.00 and since then, it has received a lot of pressure from investors and traders. Today their stock sits at the price of a little above 9.00 a share. Even though it might not seem like that dollar difference is a lot, you will have to imagine that there was over 1 Billion dollars brought in by their IPO and a ten percent loss of that is 100 Million dollars. What you have to wonder about this stock and any other stock for that matter is, “Where does all that money go?” (Of course it is all banks, I’m sure but this article is not about that.)

 

Well, apparently all of that money will not be used to develop newer games for their portfolio. With their most recent release of the hidden object game Hidden Chronicles, they took a risk by going against their standard formula of your normal farming type of game and making an experience geared toward the fastest growing genre of games online right now.

Was this a risk? Not really in the grand scheme of things. It was a risk in that they were trying to do something different, which I greatly applaud.  I think that the biggest challenge for Zynga now is that they are trying to develop on a grand scale, a product that is competing with other companies that have much lower overhead and, of course, no barrier to entry other than whatever their little computers can produce. By that I mean that almost anyone can make a Facebook game.

You do not see this rapid development happen in consoles because there exists a much larger barrier to entry. You first will have to get your approval from the publishing companies to be able to develop games on a certain system. Then, after that you will need the development kits, which at times can range in the tens of thousands of dollars, making it very difficult for anyone to make the next blockbuster game out of their garage. With some companies, you will also need to go through an approval process so that every part of the game will fall into the rules that exist for every game on that platform. Zynga dosen’t have to do much of this so they have it in their power to output games at a much more rapid pace than those of the console development.

In a nutshell Zynga needs to do only one thing to turn it around this year. Innovate. For too long they have relied on the same business model for their products. They try to get the player to continually log into the game and then begin to charge them when they would like to progress beyond what the free play offers. Unfortunately they have been putting this model in all of their games since the inception of Farmville. They have used similar play models in their other games like Cityville and Castleville. With Cityville, they had one of the biggest games ever on Facebook and since then, they have been seeing a shift of MMU’s playing the game. Their numbers are still high mind you, but the rapid growth that they have been seeing from a few years ago has slowed down, analysts could speculate that it is the lack of innovation that is not attracting new players. Just ask anyone that is familiar with the online games, The chances are they will say that the “ville” games play the same to each other with different graphics and that will not help them grow in the long run. Yes, you can put a new skin on something from time to time but without the engagement factor for the new item, it is nothing more than a reboot.

To give them credit, they have been wildly successful with their game Words with Friends but if you have noticed, they are only making money off it due to its in game advertising. The game has been out for a while and they have not really had the need to update it that much. But we will know how well they actually did when they release their books to us when the fiscal year ends.

To summarize, people are still playing games on Faceook, the problem is that there are millions of games to play on it and it is all free. Should you feel the need to spend money, there is always another game to play at a moments notice. If Zynga wants to grow and not have to cut jobs in the coming months, they are going to have to pull a pretty substantial rabbit out of their hat that will bring the customers to spend some money with them.

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