Stories of 2012: What Zynga's decline tells us about the future of social games and free-to-play
24th Dec 2012 | 15:54
Zynga's rapid decline over the course of 2012 is thrown into sharp relief when you think back to January. Mark Pincus' social game giant was in rude health, its continued growth apparently unstoppable following a long-awaited floatation on the stock market which netted the company a billion dollars (£644.7m). It was, though, also the first wobble in Zynga's otherwise unflappable stride - a billion dollars is a great deal of money, sure, but the IPO, despite being the biggest flotation of a US tech company since Google's in 2004, resulted in the company being valued at barely a third of the figure that was originally suggested.
Zynga's rapid decline over the course of 2012 is thrown into sharp relief when you think back to January. Mark Pincus' social game giant was in rude health, its continued growth apparently unstoppable following a long-awaited flotation on the stock market which netted the company a billion dollars (£644.7m). It was, though, also the first wobble in Zynga's otherwise unflappable stride - a billion dollars is a great deal of money, sure, but the IPO, despite being the biggest flotation of a US tech company since Google's in 2004, resulted in the company being valued at barely a third of what analysts expected.
That slide in value was partly down to declining confidence in tech IPOs following disappointing turns from the likes of Groupon and LinkedIn, but 16 acquisitions in 14 months, a concerted push to increase the frequency of its own releases, and the effort expended on decreasing its reliance in Facebook took a heavy toll on the company's finances - finances that, up until December 2011, had remained hidden from public view. It wasn't helped, either, by the being the first social game developer to go public. Social gaming companies measure success in daily active users, but the vast majority of them will never pay a penny, something investors struggled to get their heads round.
If that was disappointing, worse was to come. Independent studio Nimblebit published an open letter to the company that pointed out the striking similarities between its game and Zynga's in-development mobile title Dream Heights, and suddenly it was open season on the king of social games. Tiny Tower wasn't the first - Zynga had already been sued for allegedly cloning the works of others in Facebook smashes FarmVille and Mafia Wars - but the claim that Dream Heights came shortly after Nimblebit had rebuffed an acquisition bid from Zynga was a damaging one.
Pincus did his best to play down the mounting David vs Goliath clash. "Google didn't create the first search engine. Apple didn't create the first mp3 player or tablet. And Facebook didn't create the first social network. But these companies have evolved products and categories in revolutionary ways.
"We don't need to be first to market. We need to be the best in market. There are genres that we're going to enter because we know our players are interested in them and because we want and need to be where players are. We evolve genres by making games free, social, accessible and highest quality."
One acquisition that did succeed was of New York studio OMGPOP, developer of overnight Facebook and mobile smash hit Draw Something. It seemed like everyone but Zynga saw only insanity in spending $180 million on a one-hit wonder studio whose sole successful game had no monetisation layer, but the deal went through. For Pincus this was a logical reaction to Draw Something dethroning Words With Friends as the most popular game on Facebook, further cementing Zynga's position as the most successful developer on the platform. User numbers dropped off sharply - five of 12 million were gone a fortnight after the sale went through, leaving a $180 million hole in Zynga's finances.
The first results released after Zynga became a public company revealed an eye-watering annual loss of $404 million (£258.2 m). In the following three months it lost another $85.4 million despite a revenue increase of nearly a third. Shares fell to their lowest level since the IPO in June after Cowen and Company effectively called time on Facebook gaming, and Zynga's stock would go on to hit new low after new low. The headlines just kept coming.
Then Zynga did the impossible and somehow managed to make Electronic Arts - voted the worst company in America, remember - look like the good guy. EA sued Zynga, claiming that not only had Zynga copied The Sims Social in the strikingly similar The Ville but it had literally cloned elements of it, right down to the RGB profile of character skin tones. Zynga said the suit was a "baseless sham", but no-one was having any of it.
By October Pincus was doing his Iraqi information minister routine, penning emotive letters to staff insisting he was "proud of the progress that our teams made on many fronts." Within weeks Zynga was laying off 100 staff, closing 13 games and studios in the UK, US and Japan. Investors loved it - shares rose 16 per cent despite a $52 million quarterly loss.
It's been a tough year for Zynga, certainly, but much of the difficulty it has faced is a result of its position as a social gaming pioneer. The company has, for better or worse, played a major role in shaping the template for social game design, and for a time enjoyed great success with a model that the rest of the industry has only recently cottoned on to. But as other players bend free-to-play and social games into new - and often friendlier - forms, Zynga's efforts are beginning to look out of place in a world increasingly focused on the individual player's needs over chasing that headline DAU figure.
Zynga's collapse would benefit no-one - it's a company with considerable resources and enviable experience, and it needn't be left behind in the world it helped create. Zynga has a big year ahead of it, with a reduced reliance on Facebook thanks to the expiration of its exclusivity deals with the social network, its own Zynga With Friends network and Zynga.com portal, and its increased focus on mobile. And if it's prepared to listen to its critics - most recently, SOE president John Smedley said the company has "done free-to-play a terrible disservice" - and focus on its players and not its bottom line, it could yet have a large part to play in defining where social gaming goes next.