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Role-Playing: Mark Pincus

Role-Playing: Mark Pincus

Mon 03 Sep 2012 12:36pm GMT / 8:36am EDT / 5:36am PDT
Social

In this month's special, our panel examines the predicament Zynga is in and what its CEO should do

To say that Zynga's had a rough couple of months is putting it lightly. The company's stock has tanked and numerous employees seem to be fleeing what some consider a sinking ship. That said, there's still hope left for the social giant. The firm is ultimately going to have to overhaul its strategy and approach to the marketplace in order to gain better traction with players (and payers).

With this in mind, GamesIndustry International put Zynga CEO Mark Pincus in the spotlight in this month's edition of Role-Playing. Our panel below shares its thoughts in response to the following:

"You're Mark Pincus. Your company is getting hammered. The stock can barely stay above $3.00, your COO just resigned, you're being accused of insider trading, you're being sued by your bitter rival EA for copyright infringement, and your dependence on Facebook is clearly a concern. How can you restore your company's image and bolster its fortunes? What do you do?"

Scott Steinberg, head of business consulting firm TechSavvy

1

Ideally, you start by retrenching, bolstering your team and crafting superior platform and product strategy - laser-focus on the bottom line and delivering results is currently vital. From an external-facing standpoint, next steps would include announcing key hires or promotions to assuage doubt, and promoting any successful corporate initiatives or areas of the business where heighted growth and performance have been exhibited to the public to generate positive impressions. But key to surviving these bumps in the road is going to be the creation and revelation of new premium first-rate games and services - as well as overall strategic expansion - and the underlying platforms, systems or initiatives that tie all together. Going on the offensive is crucial in order to galvanize momentum and influence public perception. But we're not talking about going on the attack: We're talking about addressing key pain points, reassuring investors and showing that the company has the goods to back it up.

"The savviest way to fight back against critics: Show that these issues are well in hand, and that change is coming"

Scott Steinberg

Zynga's not unawares of growing challenges, from the shift away from Facebook to platform-independent solutions to revenue declines, public relations concerns, and the pressing need to expand into new titles and markets. What it needs to do now is start showing what it's been cooking up behind the scenes, and how it plans to address these challenges through evolutions to its product line and portfolio strategy. Keep in mind: The company still enjoys tremendous capabilities, resources and access to capital - it clearly has the tools it needs to make a fighting stand. But what it doesn't want to do is get involved with needless mud-slinging, or remain static - rather, it needs to let its creations and actions speak for themselves. The savviest way to fight back against critics: Show that these issues are well in hand, and that change is coming. Whether or not it's been planned or forced is less important than making the world aware that strategic innovation is in the offing - and creating the impression that it's always been part of the master plan.

Wesley Yin-Poole, News Editor, Eurogamer.net

Zynga needs to play its way out of trouble with better games and expansion away from Facebook. There is no easy way to create better games, but it simply must be done. If it does, not only will all the bad press melt away, but user numbers should rise. As we say in the UK, do the talking on the pitch. Investors will respond to that.

Perhaps most important though is Zynga ends its reliance on Facebook. Zynga suffered because Facebook made it harder to find its games. The best way to counter this is to make them easier to find everywhere else.

Zynga needs to make it so we can play all its games in any browser at any time, and it needs to make a serious play for mobile devices. My wife loves Farmville, but often says she's sick of all the superfluous nonsense she gets from it playing it on Facebook. In short, Zynga needs to make all its major brands as pervasive as possible. All barriers should be erased.

Chris Grant, Editor-in-Chief, Polygon

3

How do I restore my company's image? Well, my first order of business as CEO of Zynga would be to challenge what people think of as a Zynga game. If Polytron's Phil Fish is to be believed, Zynga has already approached him to deliver indie darling Fez to the iOS platform; while Fish said no, who knows how many other indies Zynga approached with a similar offer. Here is where perception and strategy overlap. 

"For all we know, social games are a fad; however, people have been spending good money on well-made games for decades"

Chris Grant

For all we know, social games are a fad; however, people have been spending good money on well-made games for decades. If Zynga delivers "good" games to an audience that cares about quality, it will go a long way towards repairing its image problem. If it delivers those games on the booming mobile platforms, notably iOS and Android, it could fix its image while diversifying its Facebook-heavy portfolio. As those platforms evolve beyond their phone origins - see the iPad and the upcoming Ouya - there's an opportunity to be a major player on a still-contested digital battleground.

Zynga's Facebook games can - and most likely probably will - still make money, cloned or otherwise, but that pursuit doesn't have to be a solitary one. If I were running Zynga, I would say that increased focus on mobile and on quality should help cure what ails the company. 

Stephen Totilo, Editor-in-Chief, Kotaku

4

The first thing I need to do is make a game that people don't stop playing. Hmm. How to do that? The energy thing again? Maybe. But maybe try something new. Maybe I'll let people pay for full, unfettered access to my next 'Ville game. Yeah, I'll try that. 

But I've got this other problem: lots of people play my games on Facebook, but lots of people now go to Facebook on their cellphones. You can't play Zynga games on a Facebook cellphone app. What to do... how about offer Facebook to make a gaming-compatible version of their app? 

I'll try those two things and see how I'm doing. Oh, and make an entirely original game. Just so people can't accuse us of Samsunging other people's games. 

Dan "Shoe" Hsu, Editor-in-Chief, GamesBeat

5

Sure, we've made a big splash in social gaming, and we can throw some impressive numbers out there, but no one seems to give a crap. So it's time to rethink everything. Game design, corporate philosophy, Facebook partnership, mobile strategy, top to bottom, left to right...everything's fair game for reevaluation or the garbage chute. Do we reinvent what "social gaming" means? Do we make more traditional games that are less "spammy"? Do we invest in more creatives to bring more original ideas to our portfolio? Do we go all-in on mobile?

"We might've hit rock-bottom, so nothing is sacred now"

Dan Hsu

We might've hit rock-bottom, so nothing is sacred now. No matter what new direction we go in, we wouldn't truly be starting over anyways. We still have a huge brand, a massive following, and a small army of talent. So whatever we decide to do, we'd have the upper hand over a new, unproven company entering the same space. So let's not squander our assets (while they're still assets), and let's try something radically new.

Tim Edwards, creative director at Network-N and Editor-in-Chief of PCGamesN

6

Int: A conference room. Late night. Empty polystyrene cups are strewn across the table. At the foot of the table, we see Mark Pincus sobbing into a keyboard. He is composing an email to the Zynga board. It is not going well.

To: board@zynga.com

Subject: Project Zeus

Friends,

The next year will be critical to Zynga's continued success. I therefore present the following strategies to maximise shareholder growth.

1) Poker

Our biggest bet: that the US government will legalise online poker. We already own the most popular online poker app and game in the US in Zynga Poker. For some unknown reason, saps are paying us for fake chips, and letting us take them off them when they lose. Then we sell them even more chips. Ridiculous. Even I can't work that one out. It's like we've found a hole in their brain where money falls out. Just imagine what they'll pay when there's a chance to actually win a few cents.

We're going to turn Facebook into Vegas. Baby.

Pincus stands up. Clicks his knuckles. A fresh surge of confidence rolls through him.

2) New demographics

It's well documented that our growth in the last few years has come from bored American housewives. But there are other bored demographics, and some of them have cash. Think: pensioners - how can we monetise their retirement. Think students: can we turn Chatroulette into a Zynga branded cash machine? This will work. I think.

Pincus looks into a mirror. Oh god. I've got more. Have I?

3) Bitcoins!

We float our company in Bitcoins. Our employees and shareholders can enter the barter economy. That'll definitely work.

Pincus stands up. He walks across to the mirror. A single, solitary tear rolls down his cheek.

"I am a sad man now."

7 Comments

I think PIncus has a few options...

(1) Ride this pony into the ground. After all, he and his investors already made out like bandits on the IPO. If Zynga fails, he can cry all the way to the bank.

(2) He's proved the micro-transaction monetization model doesn't work, but in the process he built a large user base that is starting to crave deeper content. Become a real game company. Start offering deeper games that have real revenue models associated with them. Sure he'll lose a lot of the "Im just here because its free" crowd but they are just a burden and a cost to him today, anyway.

Edited 1 times. Last edit by Jeffrey Kesselman on 3rd September 2012 4:46pm

Posted:A year ago

#1

Nicholas Lovell
Founder

183 162 0.9
Jeffrey, can you present your evidence that micro-transaction monetization models don't work. I see the argument that they haven't stood up to Wall Street expectations, but not that they don't work.

Question 2: does "real revenue models" mean pay-up-front, and subscriptions, or does it mean something else.

Posted:A year ago

#2
Look at the IPO docs. With their books legally cooked for IPO (as everyone does, things like making a big market spend in the year before and cutting way back on marketing in the year reported) they managed to get close to $1 of net income per user per year. (I did this analysis back when they IPO'd, see my blog here: http://worldwizards.blogspot.com/2011/07/more-zynga-analysis-profit-margin.html)
They haven't managed to do better since IPO according to their quarterly reports.

Thats a *very* slim margin to make a profit on. People tend to forget that online users cost you money. There is the cost of the computers to host them. There is the cost of the bandwidth to feed them. There is the on going development costs required to keep them playing and keep them spending.

Quarterly reports also suggest that they are also having trouble retaining users, which was an inevitability. The progression on all platforms is to deeper content as people get bored with what they've seen before. Look at an Atari2600 game compared to a modern console game. Or even the latest generation of mobile games compared to the first generation. For any given platform, games get more expensive and complicated to make over time. And there is very little price elasticity in their micro-transaction model to cover that.

""Don't work" is probably too strong a statement I admit, but it is clear they aren't the gold mine everyone was claiming they were and are looking more and more like a dead-end every day.

Okay so question 2: "real revenue models"
In the end, they all come down to charging a real and honest price for real and honest entertainment. That price being some reasonable premium over what it costs to deliver that entertainment to the user.

Thats the model. What people commonly call "revenue models" mostly aren't revenue models at all, they are advertising slogans and/or marketing strategies, which is something very different.

"F2P" is a meaningless advertising slogan. No business that truly gives away its product can succeed, so lets get that off the table.

Micro-transaction is a revenue model that has proved to have serious problems, as outlined above. Its possible to make some money in it, but only in a lowest common denominator/minimal costs/mass market sort of way.

"Freemium" is just the latest buzz-word for using a 'free trial' to hook the user into buying the product and is a marketing strategy. This has been a very successful strategy in the industry going all the way back to Doom and the share-ware days. In order for this to work, you need to drive distribution costs to near 0. With shareware we counted on the users to be our distributors. With broadband online connectivity relatively common in the US, we can now do it directly which has some advantages in terms of tracking and "user touch", though also slightly upping the costs.

The magic in free trials has always been hitting the right balance between providing enough play so the users get hooked and recommend it to their friends, while holding back enough to make them feel its worth paying the price. We can see this strategy in action very successfully though right now in many markets, mobile being one of the biggest and most obvious.

The trick behind free trials, to be successful in the online game space, is to get a good conversion rate *and* to drive as many as possible of those who don't convert away so you don't end up supporting free users forever at a loss.

Now, a free trial can be on a product with a per-update revenue model or a monthly revenue model, or both. Some games are test-beds right now doing A/B/C marketing with all three of these strategies (micro-transaction v. pay per update v. subscription), DCUO being a good example. I rather suspect Sony will come out of that with a narrower focus once the numbers are all in.

But we can't forget that there is also a VERY alive traditional game market. The "free-trial" for many MMORPGs has been the beta period and occasional "trial-key" offers. Funcom has shown that this can still lwork. (Do the math, at 200,000 Secret World subscriptions, all paying $15/month, they are pulling in $3 million dollars a month. I'd call that success. Its the equivalent of about 12 million Zynga users.)

I think what we are seeing in the online space is a bifurcated market, actually. At least for awhile there will continue to be cheaply produced"free" crap that hits the mass market and skims out a narrow profit margin, and there will be much richer and more expensive content that hits niche markets and, if they serve that market, will do very well.

I just blogged on this actually... http://worldwizards.blogspot.com/2012/09/congratulations-to-funcom.html

Edited 14 times. Last edit by Jeffrey Kesselman on 3rd September 2012 6:15pm

Posted:A year ago

#3

Teut Weidemann
Consultant Online Games

51 23 0.5
Jeffrey, you make the mistake assuming micro transaction is solely the model Zynga applies. That is wrong. I can asure you that there are many games which earn far more then $1 per user and are very profitable. World of Tanks being one, League of Legends, and the many many browsergames coming out of Germany.

What doesnt work is the Zynga model:monetization and spam before game mechanics. That doesn't work.

Posted:A year ago

#4
@Teut

Zynga is the only one we have actual financial data for. It was also the first one mentioned by all "F2P" advocates until the real numbers were revealed.

Now, you are right, they are back-peddling and picking others they can make sweeping claims for because there are no real public numbers to discuss. When there *are* complete cost v. revenue numbers for these examples, I will be happy to consider them.

Til then, there is an old saying that applies:
"Fool me once, shame on you. Fool me twice, shame on me."

Edited 2 times. Last edit by Jeffrey Kesselman on 3rd September 2012 11:13pm

Posted:A year ago

#5

Arthur N

11 2 0.2
If you're a CEO of one of the biggest gaming company around these days and don't know what to do and must rely on help from the general public as well as your competitors. Might as well call it quit. Lets face it, Zynga got to where it did from fluke and luck in timing. Not base on real skill . If it did get there base on skill, Mark wouldn't be years behind the game. He should call it quit, hang his gloves or find a real CEO to takeover.

Posted:A year ago

#6

Dan Fletcher
Production Manager

6 3 0.5
@Jeffrey - liked your comment and overall agree with most of it. One thing I did want to pick at though was:

"Do the math, at 200,000 Secret World subscriptions, all paying $15/month, they are pulling in $3 million dollars a month"

In a previous article on GI.biz, Funcom quoted total sales at a 'disappointing' 200,000. Whilst we can't know the retention rate for sure, I've seen figures (again anecdotal so I'm qualifying this until I get accurate stats) that MMO's average around a 40% retention rate after 2 months. So really we're talking a sustainable return of 80,000 * $15 or $1.2m per month.

Which when you take into account overheads means Funcom have had to lay off staff and refocus to a more cost efficient 'live team'

I'm not saying it's not still a viable business model, just wanted to try and focus in on the figures you quoted in support of your argument

Posted:A year ago

#7

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