Zynga's woes - The chips are down

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.