Zynga pre-announced yesterday weaker than expected earnings for the third quarter, which follows a previously horrible second quarter. Zynga’s new game The Ville underperformed, it had to write off $90 million from the OMGPOP Draw Something acquisition, CEO Mark Pincus may have hinted at layoffs in an internal memo, and people are leaving (the founding creators behind Words with Friends are the latest two). The stock has dropped today to $2.30 a share (far below the $10/share IPO price).
The good news? When you’re down, you’re willing to take the risks to get back up. Zynga still have a billion+ in the bank, 300+ million players, incredible infrastructure, good brands, and a strong team.
And they have me, telling them what I would do if I were in charge of Zynga.
1. Cut the data cord and focus on fun. Zynga is known for being data wizards and there’s nothing wrong with that. But games are supposed to be fun. Zynga Poker and FarmVille didn’t emerge as super-hits because they were born in a petri dish. Someone at Zynga thought poker or farming (in the latter case, they noticed other farming games) would fun social games and in a matter of weeks, they built them.
2. Less Ville. Nothing wrong with the “Ville” game franchises, but they don’t do as well on mobile as they do on Facebook and there is growing fatigue around this game style. By creating so many “Ville” games, Zynga is in danger of burning the franchise. Zynga should look at how Rovio has expertly handled the Angry Birds franchise, expanding and building it out around its characters slowly but with high quality (e.g., Angry Birds Space, Bad Piggies).
3. More Core. The most popular and lucrative games on mobile now are those that appeal as much to the core as the casual audience, and with more games entering the US market from Asia (read Chicago Tribune’s excellent article about Asian companies going after Zynga’s turf today). Zynga has already made a move toward mid and core gaming with its recent acquisition of A Bit Lucky but they need to move faster.
4. Bet on Casino. Speaking of doubling down, Zynga should invest more in casino games, both online and offline. The problem is that its so easy to create a slots game, everyone is doing (Kabam Slots, anyone?) Zynga will be challenged if all they are doing is creating a catalogue of social casino games. Zynga should license its FarmVille games and characters to be part of actual slot machines (like its partner Slingo does) and get more heavily invested in gambling games in the countries it is legal today (e.g, United Kingdom, just like Big Fish Games did with Big Fish Casino).
5. Get out of your comfort zone. Back to going to the core, Zynga really needs to build games completely different than its “with Friends,” “Ville,” and casino franchises. In retrospect, Gree’s purchase of Funzio was better than Zynga’s buy of OMGPOP (though to be honest, I probably would have made the same decision as Zynga at the time). A good example of a company Zynga should buy is NaturalMotion, makers of CSR Racing, because it has a game engine that takes mobile games to a higher graphical level.
6. More publishing deals. The one area that Zynga has invested in and is rocking is publishing. Zynga has signed deals with big and small game companies alike (Mob Science, Konami, etc) and the games coming out innovative and exciting. Notable examples are Horn (5 stars), Sports Casino (4 stars), and Super Bunny Breakout (a breakout-style game by Atari we previewed yesterday). The problem for Zynga is that the margins in publishing are not as good as creating the game yourself, and and they are competing big players like EA, GREE, DeNA, and many more. The good news is that all it takes is picking one winner for the business to be great and Zynga is picking up good partners.
7. Build out games infrastructure business. Boring, yes, but Zynga has invested hundreds of millions of dollars into building the #1 infrastructure for social games in the world. In the same way Amazon built a billion dollar business around its cloud infrastructure services, Zynga can do the same here. And it’ll allow them to generate new cash and continue and grow its services, assuming they designed it correctly to be scalable.
So, there you have it, my prescription of how Zynga can get back on track. It’d be impossible to do it all of course, so Zynga has to prioritize, close some games, maybe lay off staff. Which is why I’m glad I’m not in charge of Zynga so I don’t have to make such decisions myself.
Final note: In researching this article, I came across an excellent editorial on this subject by Nabeel Hyatt that’s worth a read.