It's not exactly a great time for a company to go public - market uncertainty and instability would depress the valuation of just about any company, no matter how fantastic its prospects. It's a fact that apologists for social gaming giant Zynga will return to again and again in the coming weeks and months. The firm's IPO may have been disappointing, they'll say, but it's in line with wider difficulties in the market.
To an extent, this claim is borne out by looking at other tech companies that have floated on the NASDAQ this year. It's been far from a golden year for tech IPOs, with the likes of Pandora (online music streaming), Boingo (global wi-fi access) and Friendfinder (online dating) all nosediving from their original offer prices.
It's worth considering, though, that these aren't exactly companies that any sane market watcher would have anticipated great things from. They all compete in extremely difficult markets in which they face stronger competitors, structural difficulties and uncertain futures. In other words, if you're comparing Zynga with those companies, you're already saying something pretty negative about Zynga.
There has, however, been one notable tech IPO this year that hasn't particularly underperformed, even if it's not exactly been stellar either. LinkedIn, a networking and recruitment service designed as the dark, suit-wearing mirror to Facebook's endless stream of social musings and drunken photographs, enjoyed a solid IPO and is still trading well above its initial price.
The difference between LinkedIn and the other companies mentioned above is that it has a clear market leadership in a sector it largely created and defined in the first place, and enjoys a dominant position that competitors have struggled to catch up with - not unlike Facebook's position, in other words. The suggestion is that while times may be tough on the NASDAQ, there's still room for companies with genuinely strong positions and prospects to succeed.
It doesn't speak terribly well of how the market perceives Zynga, then, that its early post-IPO performance and the bulk of its analyst ratings lump it in with Groupon and Pandora, not with LinkedIn or any other successful IPO of recent years. The tech market is prone to bubbles and fads, but at the moment we're in a bear market and investors are deeply wary of any company that doesn't have a clear path to success ahead of it.
In the videogame sector, many people are wearing blinkers when it comes to Zynga. The company's enormous success in growing one specific audience in social gaming has led it to be held up as a prime example of Where The Market Is Going, without there being all that much evidence to support that claim. Asked to pump cash into the company, investors appear to have been much more lukewarm on Zynga's claims than the games business itself has been.
The problem for Zynga - the problem which the stock market has identified but to which the company's apologists remain blind - is that it's reaching the end of its natural expansion potential, and it's going to have to work hard and reinvent itself in order to surpass its present size. Right now, Zynga appeals to one market - Facebook users in North America. You could be even more specific, and perhaps a little unkind, and point out that it particularly appeals to North American Facebook users with poor impulse control related to deferred gratification.
Beyond that group, the impact of Zynga has been minimal. It's expanding into the Far East through a deal with Tencent, but it's completely untested in that market - a market that hasn't traditionally been an easy one for Western online gaming companies (Blizzard aside, and let's not pretend for a second that Blizzard offers a readily replicable model for success) to break into. It's translating its games into other languages gradually, but faces major hurdles in non-English speaking countries, such as the fact that it's arriving there after Facebook was forced to crack down on the viral "spam" advertising which Zynga used to drive its explosive early growth in North America.
Then there's Facebook itself - the platform to which Zynga remains firmly wedded, despite its increasing desire to play away from home. There's an assumption among some in the industry that Zynga will find its feet on mobile platforms like iOS and Android, replicating its Facebook success on those platforms and creating a second growth spurt. It's worth pointing out that Zynga has had iOS versions of some of its most popular games for years now, and little has come of them. The company remains a bit-player on mobile platforms - its iOS versions are only ever used by Facebook users wanting to play the games away from home. If it's going to replicate its Facebook success on mobile, it's going about it in a very slow and unusual manner.
Bluntly, Zynga's fundamental problem right now stems from its fundamental reason for success in the early years. It's not, at heart, a videogame company - it's a viral marketing company. It's a company which understood long before anyone else how to manipulate Facebook's social graph to provide extremely compelling viral marketing, how to turn its freeloading players into valuable advertising assets and how to shunt its existing users around an ecosystem of new games rather than letting them burn out and leave the Zynga portfolio entirely.
There are lessons in there for the whole games business, and there's a lot of value in dropping the hard crust of cynicism many of us feel towards Zynga and understanding properly why the company's approach has worked for so long. However, there's also an enormous vulnerability in the Zynga approach. Its original viral approach is dead in the water now. Facebook no longer allows that kind of mass virality, because users got sick and tired of it. Mobile operating systems and other platforms never will, because what was annoying on Facebook would be outright intrusive on a mobile device.
Stripped of that potential, Zynga has been treading water for some time. Its IPO arrives just as its inertia feels exhausted. Right now, its greatest asset is the existing userbase - a userbase to whom it very successfully markets its own new products, and from whom it's become increasingly skilled at extracting cash. Growing that userbase, however, is a challenge to which Zynga has shown little sign of rising.
If Zynga were to justify a successful IPO, it would need to show off a clear plan for conquering new markets - new audiences, new platforms and new platforms. As it stands, the plan seems to be "keep going as we always have, but in new places". It won't work. The stock market knows it - and the coming year is likely to drive that understanding home to even Zynga's most fervent apologists.