GO
Loading...

Zynga Pursues New Hits for a Fickle Market

Getty Images

The social game company Zynga hit it big in 2009 with FarmVille, a phenomenon on Facebookthat had millions of people watering virtual corn.

Then came PetVille, CityVille, CastleVille and ... FishVille?

Zynga is still raking in hundreds of millions of dollars from sales of virtual cattle and fish, and from other games like poker. But in recent months, the company has run into trouble as investors and game players alike have cooled on the company’s game lineup.

Shares of Zynga have dropped below $5 in recent weeks, well below the $10 sale price of its high-profile public offering in December. They closed at $6.07 on Monday.

Interest is waning in some of the company’s most popular games, like CastleVille, which lost 35 percent of its daily users in the last six months, according to AppData, which tracks the traffic of applications that run on Facebook.

Now Zynga is trying to figure out how to recover its early momentum and lure back users who have turned their attention to other online and mobile games.

“Zynga had a lot of early success on the Facebook platform and is still a dominant player there,” said Doug Creutz, an analyst at Cowen who covers social media and games. “But the market is evolving, and the question is whether or not they are going to stay in touch with it.”

On Tuesday, Zynga will try to answer that question. It is holding an event called Unleashed at its headquarters in San Francisco, where it is expected to unveil new games and features that it hopes will impress Wall Street and game players.

In an interview, Mark Pincus, the founder and chief executive of Zynga, declined to go into specifics about the event. But he said that the company hoped to continue to create more of the kinds of games that helped establish Zynga as the king of online social gaming. In other words, there is no such thing as too many Villes.

“We focus on evergreen categories and brands and game types,” Mr. Pincus said. “We think that the Ville games are fun, and as long as we keep making the game play fun, social and accessible, people will continue to want to engage with each other through those games.”

Mr. Pincus said he was not concerned about the rocky stock price. “We’re focused on inventing a new consumer industry and looking to build that over the long term,” he said.

Zynga’s growing pains shed light on the bigger challenges facing the newest generation of businesses built on the social Web and Facebook. Early on, Zynga benefited from Facebook’s exploding growth, using its clever games to catapult itself into a full-fledged business. It staked its future on its ability to persuade people to spend their time tending to digital farms and the like. In April, it said it had 292 million active users.

But as Facebook’s growth has slowed, and as plenty of gaming has migrated from the Web onto phones and tablets, Zynga has had trouble adjusting. And it faces an onslaught of new competitors, all eager to claim a piece of the mobile and social gaming market.

Part of the challenge, Mr. Creutz said, was the company’s reliance on Facebook. Most of Zynga’s games run on Facebook’s site, allowing users to play with their friends. Those games are free. The company’s business rests on the willingness of its players to make in-game purchases, like buying accessories and outfits for their virtual characters. Facebook processes those payments for Zynga and siphons 30 percent from each transaction.

The partnership has proved lucrative for both parties. Zynga generates the majority of its revenue from its relationship with Facebook, and Zynga was responsible for 15 percent of Facebook’s first-quarter revenue.

Zynga has taken some steps away from its reliance on Facebook, including pouring resources and efforts into its own game site, Zynga.com. But even there, it recently agreed to run ads provided by Facebook and tailored to the interests and demographics of individual Facebook users, in the first such arrangement with an outside site.

While Zynga has reigned on Facebook, an entirely different marketplace has been flourishing on the screens of the world’s smartphones. Companies like Rovio, which developed Angry Birds, and PopCap, which created Bejeweled, a puzzle game, rule the smartphone world.

Zynga has had a few successful mobile apps, including its poker app. And the company has pulled out its pocketbook to keep up with mobile trends.

Last summer, it bought the Scrabblelike game Words With Friends. And in March it bought OMGPop, the New York start-up behind the Pictionary-style app Draw Something, for $180 million after the game became an overnight hit. But not long after the deal closed, many of Draw Something’s original players began to lose interest. The rise and fall of the app was dizzying, highlighting the fickle tastes of Web users and the speed at which online and gaming trends now move.

“It’s a hit-driven industry, which is really risky from an investor standpoint,” said Brian Blau, an analyst with Gartner who covers social games. Mr. Blau said that in addition to mobile, Zynga needed to stay ahead of other developments in gaming, like games designed to work across multiple screens.

If it fails to keep up, “they’ll have some spot successes on Facebook but they’ll stay relatively small,” he said. “I think they want to be a much broader business.”

Mr. Blau pointed to a few of the company’s recent releases as proof that Zynga’s model still worked — for now. Bubble Safari, for example, has attracted nearly seven million users since its release in early May, according to AppData.

“There’s no lag in terms of people willing to spend money to play games,” Mr. Blau said. “In fact, there’s a whole world of people who aren’t even connected to the Internet yet and will be playing games when they are.”

Mr. Pincus said he disagreed with the perception that the market for games was volatile. “The vast majority of our games have grown steadily over time and then seen slow decline after they peaked, but they maintain player engagement,” he said.

He declined to discuss recent figures for Draw Something or any other games. But he said that the company was optimistic that on mobile it would be able to use its base of players to spread the word about new games.

“Everything we’re doing is in response to what we think our players are excited about and will engage with,” Mr. Pincus said. “This has been our road map and a strategy we’ve been executing on for a long time.”

Contact Technology

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More

Squawk Alley