Zynga, the premier social network game company, is another name that by all rights should not be on our list. Zynga’s revenue rose from $19.4 million in 2008 to $1.14 billion last year. Zynga spent plenty of money to reach the top position in its industry, and last year lost $404 million. Investors were drawn to the company because it had been effectively piggy-backing free and premium games onto the Facebook platform, which currently has nearly one billion members. The success of the model appeared astonishing.
In its last reported quarter, Zynga says it had 192 million monthly unique users, up 27% from the same quarter a year before. But, as the total number of virtual games has grown, the cost to maintain a lead has become almost prohibitive. Zynga lost $23 million last quarter on revenue of $332 million. In the same quarter a year ago, Zynga made $1 million on revenue of $279 million.
Zynga’s growth rate is no longer impressive. And, the problems it faces apparently will worsen soon. The company recently lowered its outlook to reflect delays in launching new games, a faster decline in existing Web games due in part to a more challenging environment on the Facebook web platform, and reduced expectations for Draw Something. This bad news pushed Zynga’s shares to $3, down from a post-IPO high of $15.91. Zynga’s problems are more complex — and more permanent — than delayed games or lower returns on its Facebook presence.
The game market is becoming more fragmented by the day as games migrate from consoles to PCs to tablets and smartphones. Social media is not the only place that game players gather in great numbers. Many of the most downloaded apps at the Apple App store are games. The same is true of the Google app store. Zynga’s insurmountable challenge was summed up by its CEO Mark Pincus on the company’s recent earnings call. He said, “We think social gaming is just starting to grow quickly on mobile and we think it has the potential to be the most important part of the experience on mobile and an even bigger business in the future.”
Despite his vision of the future, Zynga’s shares are in the rubble. The reason, GameIndustry International reports is that “Apple iOS and latterly Android have become the dominant platforms for growth in social gaming (not necessarily for social gaming itself, but all the growth is on mobile, not on the web)…” Zynga has been overwhelmed by hordes of new challengers.
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