Here's Why Zynga's Game Plan Went Haywire

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As I was reading reports of the increasing skepticism about Zynga's (Nasdaq: ZNGA  ) shares slipping downward, what struck me was the continuous focus on its association with Facebook (Nasdaq: FB  ) . No doubt that played a crucial role (I'm talking about the IPO here), but Zynga has itself acknowledged the evils of such over-dependence for a long time now, as it hopes to come out of Facebook's shadow.

The real reason may lie in its "lack of originality" and the way Zynga has been to trying to sweep it under the carpet by displaying a voracious appetite for acquisitions ... which is why it's having a lot of explaining to do regarding the acquisition of Draw Something-maker OMGPOP. And that also relates to the 22 acquisitions made by the company within a span of 24 months through 2010 and 2011. The question is -- are these part of a deliberate strategy on the part of Zynga aimed at short-term gains, because seriously speaking, I don't see signs of long-term value addition in these.

It's been a long time since the Farmville days -- part of Zynga's brief tryst with originality. And now, its biggest acquisition to date is taking the flak as Draw Something's popularity chart shows a downward trend. While it's true that Draw Something was probably a good acquisition at the time, boasting of a record 50 million downloads within the initial 50 days of its launch, it's now facing the brunt of the fickle mentality of gamers so typical around the world.

From being the one-time highest grossing game on Apple's mobile app store, Draw Something has now been ranked 23rd in that order. But, what should be more worrying from Zynga's standpoint is that the game has now only about 7.6 million average users logging into it using Facebook on a daily basis. That's down from a daily high of 14.5 million when OMGPOP was acquired by Zynga.

It's not as if Zynga's not trying to do anything about its flagship game. The recent plans to tie up with Dreamworks Animation to put in additional advertising into Draw Something is perhaps one of the ways it's trying to address investor concerns. The target audience is also being expanded as Zynga plans to translate the game into as many as 10 languages. At the same time, Zynga is looking into the social aspect by enabling intra-player messaging within the game. The last bit may have come from the company recognizing that die-hard gaming and social networking may be difficult to gel, after all. Having said that, I certainly agree with analysts who feel that what Zynga really needs to do at the moment is not only add more users, but also figure out a way for them to actually pay up.

Zynga operates in a scenario where acquisitions seem to be the order of the day. Fellow game maker Electronic Arts (Nasdaq: EA  ) continues to keep up with Zynga in terms of acquisitions. Others like Activision Blizzard (Nasdaq: ATVI  ) , although not so aggressive, have reported a drop in active gamers. What's important, however, is that they are not dependant on Facebook as Zynga is. And now that the Facebook IPO has come as a big jolt, Zynga's need to shape up independently becomes even more crucial.

The recent explosive growth in mobile gaming might make that even more difficult given the fact that mobile users are highly unlikely to spend more or even play online games to a large extent, given the cost of data involved. If you ask me, they'd rather download it, which is why you should keep a safe distance from Zynga for now.

While Zynga has yet to figure out a way to capitalize on mobile-based gaming, there are a host of other companies that have successfully cashed in on the next trillion-dollar revolution. The report is completely free, just like this article, so check it out now while it's still available.

Fool contributor Subhadeep Ghose doesn't own any shares in any of the companies mentioned above. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard. Motley Fool newsletter services have recommended creating a synthetic long position in Activision Blizzard. 

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (5)

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  • Report this Comment On May 27, 2012, at 10:42 AM, Magron wrote:

    And here I was thinking they were failing because their 'games' are terrible. They are not complete, real games. They're set up so the players can only hurt each other enough to get angry and spend money on 'revenge'. Even the 12 yr olds start to see there's nothing of substance there after a while.

    The games are something along the lines of chess with altered rules that only allow you to take pawns actually off the board..and you can buy an unlimited supply of pawns.

  • Report this Comment On May 28, 2012, at 9:42 AM, bottomfisherman wrote:

    People want simple games Magron, especially people playing on small devices. So to the elite gamers out there yes these are bad games. To the majority of casualy gamers and kids Zynga's games fill a niche. They just need to do a better job of keeping interest in them and of course monetizing them.

  • Report this Comment On May 29, 2012, at 9:55 AM, MKArch wrote:

    I think I see a strategy here. I think that Zynga has found that 10 games with 10M loyal followers is a better business than one red hot game with 100M users. Ultimately it's the evolution of Zynga's reward system that will determine their success. It's a new model and I think they have plenty of room to improve it and their monetization of their massive sub base over time. I also think spreading their bets around a lot of games even if most are only moderately successful is a smart move.

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