2013-06-05 12:59:16
Jun 4th 2013, 8:39 by M.G.| SAN FRANCISCO
ONLINE poker is one of the many games offered by Zynga, a firm that was once
the poster child of the social-gaming revolution. But anyone buying its shares
today would be placing a very risky bet. On June 3rd Mark Pincus, the firm s
boss, announced it was firing over 500 people, or roughly 18% of its workforce,
in a bid to turn itself around. The company is also expected to shutter offices
that it had opened in New York and Los Angeles.
Zynga s fall from grace its shares closed at $2.99 following Mr Pincus s
announcement compared with $10 at the time of its initial public offering in
2011 is all the more striking given that more and more people like playing
relatively simple games online. According to an estimate by eMarketer, a
research firm, the number of Americans playing games like Farmville and Words
With Friends, two Zynga offerings, is expected to grow by more than 5% this
year.
So why is Mr Pincus swinging the axe? The answer is that Zynga built its
business model around desktop-computer gaming, which was all the rage in the
years after the firm was founded in 2007. In particular, Zynga flourished by
leveraging Facebook s applications platform to reach hordes of new users. But
more and more social gaming is now taking place on fast-growing mobile
platforms such as smartphones and tablet computers, where Zynga is far weaker.
The company has been trying to prop up its games tailored for desktops while at
the same time developing new mobile offerings. The result has been internal
confusion and conflict. In a post to staff announcing the job losses, Mr Pincus
alluded to these problems. The scale that helped the firm to dominate social
gaming, he wrote, is now making it hard to successfully lead across mobile and
multiplatform, which is where social games are going to be played .
Profligate spending has not helped either. Zynga splashed out many millions of
dollars to buy a landmark office building in downtown San Francisco when most
other big start-ups have been content with rented space. And the firm
reportedly paid some $200m last year for OMGPOP, the maker of Draw Something, a
popular online game. Even grizzled veterans of Silicon Valley were surprised by
the size of that price tag.
The conclusion to draw from all this is that Zynga has let success go to its
head. Now it is paying the price: the firm s revenue in the first quarter of
the year fell by roughly 18%, to $264m. If Mr Pincus cannot halt the slide, it
will be game over for Zynga.