is launching its own Game Studio along with a social game for Facebook called ‘Living Classics.’ This is the company’s first major step into videogame development. But with Zynga’s recent downfall, one analyst is questioning Amazon’s decision to invest in social gaming.
“They are late to the party,” Daniel Ernst, principal at Hudson Square Research, told CNBC’s “Squawk on the Street.” “Social gaming was a craze for about two years and now it’s under pressure.” He does not think Amazon should invest in gaming.
“It seems exceptionally off strategy for Amazon,” Ernst said, explaining that the company is a seller of content and products — not a maker.
Although Ernst disapproves of Amazon’s gaming strategy, he does not think it will impact the company’s bottom line. “The margins on social games are very thin,” Ernst explained. “Even if this is wildly successful, it would be a non-impact for Amazon.”
However, the chance of Amazon’s new gaming platform becoming “wildly successful” may be slim.
Popular gaming companies such as Zynga, Electronic Arts, Wooga, and Kingare all preparing to go mobile. Ernst said that the biggest problem is not the platform, but the gamers themselves.
“At the end of the day, you’re selling games to people who are non-gamers,” he said. “They’re casual gamers, so they don’t have a big part of their discretionary budget dedicated towards gaming.”
The statistics speak for themselves: Less than 2 percent of the people who play Zynga games actually spend money. Ernst said that this statistic can be applied to the entire social gaming ecosystem. “I think all these guys are chasing after a very narrow population,” he said.
And that population appears to be declining. Zynga reported that Facebook gamers fell 16 percent in the last quarter. Zynga’s stock plunged nearly 45 percent after it reported an earnings miss. Year-over year, social gaming has declined 10 percent.
But Amazon is not only interested in game development, Ernst said. He explained that the overarching strategy is to make the Kindle and potentially Amazon phones into a platform for these games.
“It is very difficult when the platform starts competing with other content providers who want to be on that platform,” Ernst said, adding that Amazon will likely clash with content providers moving forward.
But if history can serve as a guide, Amazon may surprise us once again. Originating as a book seller, Amazon has grown into an online company that now sells virtually everything. It moved aggressively into a cloud company, and now the online retailer is moving into social gaming.
At the very least, the odds are in Amazon’s favor.
—By CNBC.com’s Madeline Laskoski
CNBC Data Pages:
- Dow 30 Stocks—In Real Time
- Oil, Gold, Natural Gas Prices Now
- Where’s the US Dollar Today?
- Track Treasury Prices Here
Daniel Ernst does not hold a position in Amazon.