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Another day, and more bad news for social gaming titan Zynga. Their stock price continued a 2-day slide to close at 8.00, down 9.19%. It's a curious thing because from one angle, Zynga looks pretty good right now, with all 5 of the top facebook games in terms of daily active users, according to Appdata, and there's also no indication that that will change any time soon. But its plummeting stock price suggests that Zynga’s best days may already be behind them.
It’s not because they’re notoriously unoriginal in their game design. And it’s not because they’re essentially vassals of Facebook, though that doesn’t help. Nor is it their oppressive corporate culture and over-reliance on a small portion of their consumers, though those things don't help either. It’s because they got big under a set of conditions that will never exist again. It’s because every dollar that they make is going to cost them more than the one that came before it.
Consider the example of two Zynga games: Mafia Wars, and Mafia Wars 2. The first game, released in 2008, was the smallest, marginal step up from a text-based game. It was nothing more than a couple of pictures, some bars that went from empty to full, and some numbers that went up. It was a smash hit, fueling Zynga’s meteoric rise alongside their iconic Farmville – a game that famously took only five weeks to make.
The initial outlay was akin to renting a shovel to dig up El Dorado. In about a year, it seemed Zynga had conjured a billion-dollar industry from dust.
Flash forward to last November, when they released Mafia Wars 2. It was bigger – and more expensive – than Mafia Wars in every way. It updated the old formula with animations, multiple characters, multiple locations to explore, new sound effects, music – everything. It was still much cheaper than a console title, but it made it clear that social games were in a very different place than when Zynga started.
It didn’t really work. Mafia Wars 2 was shedding users practically from the day after it launched. Today, The first Mafia Wars exceeds its sequel by 100,000 daily active users.
The experience of Mafia Wars 2 is indicative of what’s happening to Zynga in general – as their company expands and their audiences grow more demanding, their games get bigger and more complicated, but their users and revenues don’t increase accordingly. And now, they face steeper and steeper competition from little developers and big opponents like Electronic Arts and Disney alike.
Even Zynga’s successful games, like Adventure World and Castleville, take far more effort to maintain than either Mafia Wars or Farmville did in their early days. Then, a few new items and the possibility to expand the farm another few feet kept players clicking for weeks. Now, new quests, characters and maps are all required just to tread water.
Zynga’s initial explosion always seemed too good to be true. They first filed for IPO at a valuation up to $20 billion, far more than that of their chief competitor, EA. By December, that number had dropped to around $9 billion – still a colossal figure, but the loss of $11 billion raised eyebrows. When it finally came, their lackluster IPO confirmed the suspicions of some investors that Zynga wasn’t built for the long haul.
Zynga has a chance to hold onto their status as a gaming powerhouse. Analysts have suspected that Zynga’s 2012 cashflow might continue to disappoint as the company pours millions into R&D. CEO Mark Pincus aims to build a platform that could become the de facto social gaming space for the entire internet. If he succeeds, it would be a game changer on the level of Farmville. But with Facebook already serving that function, it’s hard to see where Zynga might fit in. That goal belies Zynga’s real weakness – it can’t stay on top as a game developer only.
Three years ago, Mark Pincus told Comcast ventures partner Andrew Cleland that he would build a gaming company bigger than EA in five years. It took him two. It was an incredible feat, one that transformed social games and video games writ large. Zynga hit a nerve buried deep in the minds of players around the world, and it turned up massive profits for its troubles.
But holding onto that position might prove to be the more formidable challenge.
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