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Zynga Stalls

The much-anticipated IPO of Zynga stock has stalled on arrival - but with no clear strategy for future growth, what did the company expect?

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.

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Rob Fahey avatar

Rob Fahey

Contributing Editor

Rob Fahey is a former editor of GamesIndustry.biz who spent several years living in Japan and probably still has a mint condition Dreamcast Samba de Amigo set.

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