RIP Zynga

ZyngaI read two articles recently about how Zynga is going to succeed now that they have a new CEO in place. Sounded cool, and for the sake of my friends who work at Zynga I really want him to succeed. Except that I don’t see how he’s going to. Zynga is a large company in a small company market and that’s pretty much a death spiral in the making.

I’ve worked at small companies (I was employee #6 at my first startup) and I’ve worked at big companies (IBM for example). While I very much prefer small companies, I will admit that large companies have their advantages.

Advantages of a big company

  • More resources – At a large company, every project has a dozen engineers. At a small company, the whole team may be under ten. So it’s definitely easier to get more people to work on your project when you have a large problem that needs to be solved.
  • Marketing organization – A large company has a tremendous amount of marketing dollars they can put behind every product, even the crappy ones. Which means that even the crappy products will get some recognition and sales.
  • Sales channels – And this is probably the best advantage of a large company, they have a large sales force and access to channels that small companies can only dream of. At Tealeaf (125 people) we had one guy with 20 accounts, one of whom was a large bank we were trying to sell to. When we were acquired by IBM, we found out they had 20 sales people dedicated just to that bank. While to us, the deal we were trying to sell that bank was huge, to IBM it was pocket change and the sales director had us double the price because “they won’t even notice with the amount we sell them per year”.

Advantages of a small company

  • Access to the latest technology and innovation – Small companies are more nimble and they can adopt new tech as soon as it comes out. Big companies are leviathans and are at least 5 to 10 years behind the times.
  • Agility – What does this mean? It means a small company can adjust to the market much quicker than any large companies. In the time it takes for a large company to recognize a trend and consider a reaction to it, the small company has seen the trend, understood it, adjusted to it, put out two products to take advantage of it and moved on to the next trend.

So…

Let’s think for a second about the market for simple video games

First, let’s be clear here, Facebook games are simple. They’re not Madden NFL 2013, nor are they Skyrim. The graphics are simple, the game play is simple and the mechanics are simple. That’s what Zynga puts out and that’s what this post addresses. If they’re going to start producing more complex video games, then we can have a different conversation. Until then, Zynga makes simple games and that’s that.

So do simple games need the advantages of a large company?

  • More resources – We just said they’re simple. A Facebook game is developed in weeks using pretty standard templates. An iPhone game takes a couple of devs a month to finish. Nor do these games need a large number of servers to maintain them. So no, there’s no need for a lot of resources.
  • Marketing organization – No one cares about billboards advertising Farmville 2. The only marketing these games have (and need) are in game. In fact, I would argue that the viral nature of these games means they themselves are the advertising.
  • Sales Channels – There’s no need to get a game into stores anymore, nor sign complex agreements with distributors. The platform (Facebook, iOS or Android) is also the distribution channel..

Which means that none of the traditional advantages of a large company are going to help Zynga survive in the same way that they help Electronic Arts. They can’t throw resources at something to solve it quicker, they can’t market a crappy product to make it sell better than a good one and they can’t throw more sales people at the problem to sell more product. They are a big company in a small company market and that’s a death sentence. It’s a slow one because Zynga has plenty of IPO and Farmville cash to last a while, but unless they change, Zynga is as dead as any other dinosaur.

Addendum: this applies to all social / mobile gaming. These companies are a flash in the pan and their valuations should reflect that. Does anyone play Drawsome anymore? I thought not, but they got sold for $300million if I remember right and I’m sure there’s someone out there who’s thinking that the makers of Candycrush and Fruit Ninja will also be good acquisitions targets. Except they’re not. They’re small companies doing well in a small company market. When you buy them, you will make them into large companies. Their talent will leave and you will be left with a dead product belonging to an even deader company. Welcome to the new world.