Zynga Inc. is the world’s leading provider of social game services with more than 240 million monthly active users playing its games, which include: CityVille, Zynga Poker, Draw Something, Hidden Chronicles, FarmVille, CastleVille, Words With Friends, Empires ; Allies, Scramble With Friends, Cafe World, The Pioneer Trail, Indiana Jones™ Adventure World and Mafia Wars. Zynga’s games are available on a number of global platforms, including Facebook, Zynga. com, Google+, Tencent, Apple iOS and Google Android. Through Zynga. rg, Zynga players have raised more than $10 million for world social causes. How did Zynga manage to enter and successfully compete in the highly competitive social gaming industry against giants such as EA and Nintendo? Mark Pincus’ (CEO) approach was to start small, and hire 20 or more game developers to work interactively in teams of 10-15 members to continuously create, develop, and then perfect new games such as Farmville. By 2011, Zynga employed over 1,200 game developers and designers, and promoted a relaxed, university campus-like environment.
Mark Skaggs, Zynga’s Senior Vice President of product design, describes the company’s strategy toward game making as “fast, light, and right. ” Zynga’s games take only a few weeks or months to design because the company’s developing teams work in self-managed groups that, today, may have up to 30 members. Another aspect of strategy that works well for Zynga is its competency to continuously customize every game it develops to better appeal to the likes and dislikes of its users.
Unlike other leading game-makers who cannot change their games after they have been released, much of Zynga’s game development takes place after a game is released. Zygna’s designers work around-the-clock to enhance content, correct errors, test new features, and constantly modify a new game based upon real-time feedback detailing how game players are “interacting” with the game. This allows developers to discover what users enjoy the most, and modify games accordingly. The more games that Zynga encourages users to play, the more money it earns.
When the company announced a public offering of its shares in June 2011, analyst estimated the company could be worth as much as $20 billion. In December 2011 the company raised $1 billion that values the whole company at over $10 billion. Thus, Zynga’s focused differentiation strategy has made it one of the leaders in the gaming industry. It is most accurate to describe Zynga as a differentiator. As a result of changes like new players in the market and Facebook being down -1. 17% in its gaming, Zynga has taken a hit on revenue.
Zynga has yet to discover a new hit for a new generation of gamers. In the second quarter, Facebook changed its discovery algorithm to favor new games rather than existing games. And Zynga took a hard hit because of it. Here’s what former COO John Schappert said on the Q2 earnings call at the time: Facebook made a number of changes in the quarter, and we saw the cumulative effect of those changes throughout the quarter. And we saw the ecosystem declined 16% overall, but 34% for the live games.
Specifically, the changes that one made impacted the surfacing of discovery for games, feeds, requests, bookmarks and the like. So basically, our users did not remain as engaged and did not come back as often. Instead, new games were promoted. Zynga partially relies on its players promoting its games on their Facebook Timelines and News Feeds. The challenges they faced in their web business in Q2 continued in Q3 and while many of Zynga’s games achieved plan, they still experienced overall weakness in the invest and express category.
To address this they are further investing in other genres like casino where they already lead with Zynga Poker and blue PVP, a category they pioneered with Mafia Wars, and now have the opportunity to reinvent with the industry’s best talent at Zynga. I believe that Zynga’s business strategy of being a differentiator is perfect for their company and should not change it at all. As long as their developers keep coming up with fun and innovative games for people to play, then there is no limit to Zynga’s success.