Zynga – the new Silicon Valley giant
Social Gaming is the next evolution of gaming, and is a signal towards digital convergence between the traditional videogame industry and the Web 2.0. There is a growing need for greater user interactivity in the traditional gaming industry, and the emergence of online gaming marks the stepping stone towards open source platform of harvesting user attention as compared to the general proprietary technology operators (Ninetendo, PS3, XBOX) that clogged users to its platform. Zynga business model relies heavily on social networking as a platform to encourage gaming between users. The critical success factor of the company is its ability to leverage itself on the social networking effect and capitalize on it by providing entertaining games that users love and build communities and networks around. Zynga’s success can be contributed towards the right vision and timing (social gaming), the right platform for launch (Facebook) and last but not least, the content – which proves itself undoubtedly valuable in the clutter of the web. Mark Pincus (CEO Zynga) understood that since social networks were becoming platforms of social interactivity and engagement, it was inevitable that gaming should be precluded from such a network. Gaming was typically enjoyed more when played against/with friends and offered different parallels of connectivity to all types of age groups. Initially Pincus’ vision was to have his own network, however given the sheer scale of Facebook and its growing ubiquity, he decided to be a third party developer and ride on their network.
Wait, a third party application developer producing gaming content (at substantially lower costs because of the inferior graphical requirements) and distributing it via Facebook has overtaken Electronic Arts in market valuation? Well, Netflix has effectively bankrupted Blockbuster. Digital Distribution is the way forward. Companies who have been able to develop or license the right content and use the best distribution channels have been winners. Rapid growth on the web is a tactical task, especially for companies such as Zynga which have to constantly develop newer products and features to keep users engaged on to their games. Their strategy to keep existing user engagement involved through constant upgrades in game functionalities as well as to rapidly develop games (as they have been) to attract new user segments. Analysts describe Zynga’s strategy as “Fast, Light and Right stressing on how they develop and launch games within weeks instead of the regular 2 years that most traditional video game companies require”.
Zynga’s business model relies heavily on its transport mechanism, i.e. Facebook. Facebook’s ubiquity and a 700 million user base provider Zynga with an audience beyond what any network can offer, all at a fraction of the cost. Business models such as Zynga are giving EA a run for their money. Within a span of 4 years, Zynga has displaced all other gaming companies and is being valued anywhere between USD 8-14 billon. Zynga cuts through a lot of entry barriers for potential users in making their content accessible. Firstly unlike Nintendo, Sony or PlayStation which require hardware and software, Zynga simply requires a computer with a Facebook account. However what really makes them successful is their content that relies on “connecting users through games”. Although their current stance on being completely reliant on Facebook is viewed cautiously (especially after Facebook decided to develop Facebook credits and extract 30% of Zynga’s revenues through their main revenue model i.e. selling of virtual items), Pincus is confident that Facebook does provide “definite value for users and developers in having the trusted Facebook brand associated with buying virtual goods".
With their IPO weeks from now and with competitors such as EA releasing their own social games (Sims Social) on Facebook, it will be interesting to see the evolution of gaming companies evolve especially in relation to their content to suit the new dimension of social gaming as well as leverage digitally on established networks to outpace the dominance of Zynga.
BIBLIOGRAPGY
1.) Zynga – Harvard Business School Case Study – 9-710-464
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