Gaming On-The-Go: Where Has Zynga Been Now That Mobile Gaming Has Exploded?


Gaming On-The-Go is a weekly series that explores the mobile gaming industry, as well as uncovering current trends, with hands-on guides for the latest smartphone and tablet games.

Remember that annoying period of time when we were constantly bombarded with FarmVille notifications from Facebook friends? Like any rising trend, eventually the hype around FarmVille was extinguished, and people no longer had to go on status rants forbidding friends from sending another notification to play the game. No, we no longer want to play.

While Facebook games may seem like a thing of the past, the mobile gaming market continues to explode—and probably will continue to grow in the future. According to Big Fish Video Game Stats Database, it's estimated that the mobile gaming industry will reach $30.3 billion in sales in 2015. The industry previously reached $25 billion in sales in 2014, up 42 percent from 2013.

And as smartphones continue to be a part of everyday life, it's safe to say this trend is not just a fad. According to the Entertainment Software Association, 35 percent of gamers play on smartphones.

So whatever happened to the online social game company behind games like the popular Words with Friends, FarmVille 2, and Mafia Wars?

Co-founded in July 2007 by Mark Pincus and named after his American bulldog, Zynga came onto the scene when Facebook opened an API which allowed built-in apps on its social network. Zynga launched Zynga Poker after two months, and three years later the company had a profit of $90.5 million thanks to hit titles like FarmVille (which became the largest and fastest growing social game with "more than 1 million new daily active users a week on average"), CityVille and Mafia Wars.

"I've always been a closet gamer, but I never have the time and can never get all of my friends together in one place. So the power of my friends already being there and connected, and then adding games, seemed like a big idea," Pincus said in 2009.

Things were looking good for the developer. Investors poured in, including Kleiner Perkins Caufield & Byers, which gave $29 million in venture capital. Zynga priced 100 million shares at $10 each back in December of 2011, becoming the biggest Internet initial public offering since Google in 2004. It closed a secondary offering of $49.9 million shares at $12 April 3, 2012.

Throughout 2012, the company released games like Bubble Safari and FarmVille 2, and purchased the maker of Draw Something for $200 million (and acquired a few other companies over the years), but its decline had already begun. By 2013, Zynga's stock price was less than $3 a share.

It's relationship with Facebook began to get rocky, especially when the social network changed its policy in March of 2010 that got rid of Zynga's game notifications known as "spam mechanisms." This change hurt the company, and traffic began to fall. According to AppData, by this time FarmVille had 61 million monthly users.

While the company employed more than 2,800 people in 2011, just one year later it cut 5 percent of its staff to help save some money as its average monthly users declined. In fact, 2010 was the only year the company turned a profit.

By July 2013, Pincus stepped down and former head of Xbox Don Mattrick took over as CEO; however, the number of daily average users decreased to 39 million in the second quarter of 2013, making it the lowest number in the company's history.

In April of this year, Pincus returned as Zynga CEO with big plans to turn the company around.

In 2010, Zynga was able to work out its problems with Facebook, agreeing to listen to its rules while becoming the exclusive social game maker on the network. Since then, the company has launched its own site and has also tapped into the growing mobile gaming industry, releasing its popular titles as stand-alone apps for iOS and Android. Still, the company struggles, with stock prices currently around $2.50 per share despite an optimistic quarterly earnings report from August 2015.

So how does Pincus plan to have Zynga stay afloat and relevant in the ever-expanding mobile gaming market?

The CEO previously announced a cost-reduction plan with the goal to save $100 million in annual pretax savings by the end of the third quarter in 2016, and is on track to have $45 million as a result of job cuts by the end of the fourth quarter this year.

"In Q2, our marketing expense increased 35 percent sequentially as we launched two new games in the quarter. Our fees and royalties increased 7 percent, largely due to our increased mobile mix," the quarterly earnings letter reads. "These factors contributed to an overall increase in non-GAAP operating expenses to $126 million, a 3 percent increase over Q1 2015, and non-GAAP cost of revenue of $51 million, flat sequentially."

Things are beginning to look up for the developer as advertising now makes up 22 percent of its total revenue, up 7 percent from 2014.

According to its August report, Zynga currently has 83 million monthly active users, down 32 percent year-over-year. But Pincus is doing everything he can to bring the company back to its glory days. He has plans to put the focus back on casual games—something Mattrick strayed away from—and has hired former EA executive Frank Gibeau to join the team.

Zynga has already launched three new games, Words on Tour, Empires & Allies and FarmVille: Harvest Swap this year, with plans to release three more. Empires & Allies has reached the Top 5 grossing charts for the iPad, and players have visited the game on average five times per day.

The developer also announced a multiyear partnership with Warner Bros. Interactive Entertainment to release a Willy Wonka and the Chocolate Factory-themed social slots game that will launch for mobile players and on the web next year. This no doubt was a smart move since social casino games like Wizard of Oz Slots grew 274 percent from last year.

Pincus also plans to put the focus back on a player-centric and data-driven model. "We're investing deeply in industry-leading data and analytics, and integrating a metrics-driven approach to the way that we develop, and hopefully delivering on the promise that 80 percent of our engineering days should go toward something that our players will thank us for – that are delivering clear, obvious quality for our players," he said in an earnings call. "And I believe that by leveraging metrics, we can do a better job of making sure that we're building things that players want before we make huge investments of engineering days."

While many might have thought Zynga would've fallen flat by know, the social game developer continues to plan its big comeback. For now, we'll just play Words With Friends, and see what else they have in store for the future.

Photo: Zynga

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