Betting the Farm (Part I): Zynga’s Decline and Future

Zynga is having a hard time. In recent weeks performance issues, followed by an exodus of senior execs, have left the social game publisher reeling. Today the company laid off 100 of its employees in Austin, and Boston and Chicago are rumored to follow suit. With the company’s stock price currently at $2.22 a share, investors and competitors alike wonder whether Zynga is done for, and what this means for the industry as a whole. Two questions on everyone’s mind are “How bad is it, really?” and “Can a shift to social casino save Zynga?”

The current situation is not rosy. The company has fewer monthly active users (MAU) in its simulation games now (147.8MM) than it did two years ago (162.4MM), even though total traffic is up more than 100MM MAU. In January 2011, one month after the release of CityVille, Zynga reached 239MM simulation monthly active users, but the spike was short lived and the figure has declined significantly in the 20 months since. Zynga’s aggressive attempt to target simulation game players with recent releases of The Ville, ChefVille, and FarmVille 2 over the past 3 months proved insufficient to stop the decline, and the company continues to struggle to retain players after initial acquisition.

Player engagement reached a low of 14% in September. Zynga’s daily active users over monthly active users (DAU/MAU) continues an alarming trend of gaining monthly active users while losing daily active users. The change is representative of Zynga’s focus on player acquisition and traffic rather than player retention, a considerable problem given that players that do not stick around are not likely to pay to play.

Despite the fact that Zynga has gained monthly active users on Facebook, its market share of Facebook’s gaming MAU has remained steady at just above 30%. As more small game developers grow at rates equal to or faster than Zynga, the company will continue to see its market share stagnate or decline in a dynamically-changing environment, unless it adapts to the new social gaming audience.

But Zynga is also known for its ability to adapt to a changing environment. With Mark Pincus controlling a majority share, the company is in a position to make quick and agile changes to its strategy. And so Zynga’s recent efforts in social casino games—an industry-wide trend as publishers look to new money-making genres—may yet prove critics wrong. Again.

In a next article, we’ll dive deeper into this burgeoning genre. Stay tuned! If you’d like us to notify you of future articles and release, just let us know.

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