Zynga Is More Vulnerable Than You Think

Losing a key executive is bad enough. Losing a key executive responsible for key elements of your strategy is worse. Losing a key executive with broad strategic responsibility because said executive thinks a competitor's tech is better? Time to run for the exits.

According to TechCrunch, Zynga (Nasdaq: ZNGA  ) has lost CTO Laurent Desegur to start-up Game Closure because its technology for creating mobile games is apparently too awesome to ignore.

"I vote with my feet. After first-hand experience with the Game Closure SDK and the people behind it, I knew that I had [to] be involved in the growth and refinement of the team and technology," Desegur told TechCrunch.

To be fair, he isn't slamming Zynga per se. But there's at least a hint of faint praise. After seeing the technology and evaluating it against what he had been working on -- specifically, directing all of Zynga's engineering efforts -- Desegur decided to make a move.

In good company?
Interestingly, Zynga and Facebook (Nasdaq: FB  ) were also interested in Game Closure. TechCrunch says each company made bids for the start-up, which chose instead to take $12 million in new funding from a group of venture capital firms. 

Right now, that looks like the right move. Shares of Facebook and Zynga are crashing even as Game Closure is gaining interest for a development kit (i.e., the "SDK" referred to above) written in Javascript that allows coders to write and distribute apps to any platform.

The company calls its strategy "Games Everywhere," a possible nod to Sun Microsystems' messaging with the original Java programming language, which promised to help developers "write once and run anywhere." In this case, "everywhere" amounts to iOS, Android, HTML5, and Facebook. Windows Phone isn't mentioned among the list of supported platforms at Game Closure's website.

Color me thrilled by the prospects, even if it is a thumb in the eye of Apple (Nasdaq: AAPL  ) . The late Steve Jobs actively discouraged developers from trying to build cross-platform iOS apps. Instead, he wanted coders writing directly to the iPhone programming interface.

Game Closure sees that as wasted work, and has come up with a solution to fix the problem. Bravo.

And Zynga? I'm not optimistic. The company, already bereft of original game ideas, badly needs as much programming talent as it can get its hands on. Desegur's departure only widens the gap.

Think I'm right? Wrong? Weigh in using the comments box below. And if you're interested in more social-media stock ideas, consider the Fool's newest special report, "Forget Facebook -- Here's the Tech IPO You Should Be Buying," which profiles a social-media stock that has an even longer runway for growth than either Facebook or Zynga. The report won't be available forever, so click here to get access today -- it's totally free.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple at the time of publication. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

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Read/Post Comments (5) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2012, at 1:24 PM, Magron wrote:

    It couldn't POSSIBLY be more vulnerable than I think it is. We dipped well below $6 today. heh.

  • Report this Comment On June 04, 2012, at 2:56 PM, totallyoblivious wrote:

    I don't disagree that their ability to innovate is lackluster at best, but 25% of their market cap is cash, and they have steady incoming cashflow from existing games whose microtransaction payment systems mean they're still getting money out of those games. It may not be the best run, or most exciting company, and it's growth potential is very much in question, but it's the only company in the social media space whose valuation I'd argue is a bit too low.

  • Report this Comment On June 04, 2012, at 3:24 PM, bignort2001 wrote:

    I bought Zynga for one reason only. They need to lobby Congress for legalized internet gambling. If they poured a bunch of money in that, they are well positioned to take advantage of it. But they need to start the ground work now.

  • Report this Comment On June 10, 2012, at 1:04 PM, mbplus3 wrote:

    Nice piece with valuable "inside" info. However, now that ZNGA is low, it is below their worth. In other words....buy now!

    btw - They have picked up valuable personnel with fresh perspectives; e.g., LOLApps went down and places such as Zynga picked up the best and brightest to work for them

    As far as users are concerned, who cares what platform and programming technology is used? As long as the product is a hit, that's what adds value to investors.

    Moves such as that made by Desegur are for personal reasons. I've even moved for the excitement of an environment, and the right pay. But does that necessarily translate into a great product...or company? Only maybe.

  • Report this Comment On July 11, 2012, at 2:29 PM, Canuckistancat wrote:

    Note that Desegur is one CTO at Zynga, not the CTO of Zynga. The technical leads on Zynga teams are all called CTOs of their respective teams. Cadir Lee remains the CTO (C-level Exec) of Zynga.

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