Definite Answer to What is Wrong with Zynga: Obvious Edition

I pride myself on my “brilliant grasp of the obvious.”  But sometimes concepts bathed in divine light before my eyes are hidden to the entire world leaving me sitting like the solitary school-boy laughing to himself in a corner while the world doesn’t know why.    My gift tells me Zynga is in a good place.

For those of you who feel I put too many words to my thoughts on this blog, this time I will get to the point before I digress.  Even though you cannot swing a dead cat without hitting a Zynga naysayer, show me one person in the business who would not give their left nut – women included – to be in Zynga’s position today.   Lots of these well intentioned but sadly misguided folks are offering advice and statements about what should be done, and I will certainly start listening,  as soon as one of them shows me the 2 plus billion dollar company (Zynga’s current “depressed” value) with 60 million people a day checking in that they built.    They can all provide input from high towers about directional changes and missed opportunities revealed by hindsight, but it is just not useful.  My old boss at Eidos, Charles Cornwall was an investment banker who said making games, like any other form of entertainment, is about distribution and access to capital.   He then accessed both and grew a company from nothing to the second largest publisher in the world and a billion dollar market cap in a little over 2 years. The fundamentals of the business have not changed and Zynga has more of both than any other company in the business and perhaps, than any game company in history. 

No one is going to say Zynga has not hit a dry patch relative to the massive growth it enjoyed early on, but remember when Activision, the largest game publisher in the world, went through a prepackaged bankruptcy and emerged with less money and a lower valuation than Zynga has today?   Historically, publishers gained access to fixed distribution channels through relationships with third parties who owned them.  These could be retailers and at one point, middle men like GTI.   The publisher owned the content and the relationship with the retailer, but the connection to the consumer was only as strong as the retailer’s tie to its customer.  We hardly ever found out who purchased the product.    Zynga knows who buys it and they touch more of them.

Let’s put Zynga’s audience in perspective relative to other media.  In two and a half days the company is visited by the number of people who saw this year’s number one movie, The Avengers, globally, during it’s entire box office run.  Wait, before you point out these people paid for the film and do not pay for Zynga games, compare it to the multi billion-dollar television market.   The final episode of MASH, the most watched television show in US history had 50 million viewers.  The average daily viewership of all four US television networks combined ranges between only 40 and 50 million per night.  This is a powerful distribution channel for games and in a world of on demand movies and time shifting of media and disappearing print media making it impossible to know which media to buy, it is a powerful channel in the media world as well.   Zynga’s customer acquisition numbers to grow this audience are well reported, but now that it is there, the cost to reach this number of people is very low.  All the company has to do is make a hit.   This gets us to the money part of the truism.

One of the first examples I use to show the differences between the film production and video games is the different meanings attributed to the word “development.”   I explain how in film, the word means working on a concept to see if the studio can come up with a shooting script and cast.   During this time one person is working and no commitments are made to production.  Games, I explain, are the polar opposite.  “Development” means we are making something.   A team of people is working and a product will be completed and released.   While this paints a clear picture for the uninitiated, it is not an entirely accurate description of the business when I worked at a publisher and it is not an accurate reflection of Zynga.  The hyper accurate analysis of the term reveals they are exactly the same process.

We knew how much product we could push into a channel and sell through regardless of what was in the box.  In the short term, if we did not exceed the number, we knew our “development” of new IP was covered.  In the long term, if we abused the consumer by putting shit in the box, we lost our brand and therefore, our channel.   If the product sales exceeded expectations, we made sequels.  If not, we moved on to the next new IP.    The market for console is much different now, but not for Zynga.    By virtue of its audience size and infrastructure, Zynga is able to build out concepts, test them, determine revenue potential and tune, move forward or kill all before it incurs major expense.   Publishers like Acclaim and Midway are gone because they ran out of money to develop products.  With 1.4 billion dollars in the bank, they can do a lot of building, testing and tuning.   Only a meticulously executed strategic focus on hit avoidance could cause the company to burn through its pile of cash and build something worth while.

I do not know Zynga’s specific plans, and while this bothers a lot of folks actively writing about the subject, I am not bothered.  If you were trying to find success in a highly competitive market, would you telegraph your next move?   However, the company announced it will be looking more toward the core market (code words for increasing the percentage of whales), looking at mobile and preparing for a potential change in legislation which could make gambling legal.  I understand why gamers attack.  The industry hates to see anyone succeed and if a company breaks out and starts minting money a chorus forms to sing about why the winner is “not really a game” or “missing the point” or just a bunch of assholes.   Unless of course you are EA and then you are either management who is angry about the number of employees who moved over to Zynga or one of the remaining employees who is upset to be standing on the sideline while all the other kids got picked.  I can even understand why the mainstream is on the attack.  I mean, the only thing more popular than building heroes and putting them on giant pedestals is tearing them down.  It is kind of the American thing to do.   All those people who missed out on the opportunity to make money while the company was private, can hold themselves out as the smart ones who never got in.   But c’mon on folks.   If Zynga does well, we all do well.   If Zynga does poorly, the financial world hates games again and we return to the tiny incestuous world we are trying to escape.  Let’s give the company some breathing room and watch the folks who built the company to where it is put it back on a growth path.