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Zynga IPO: Social Gaming Comes of Age

Posted by Sheila Shayon on December 16, 2011 03:11 PM

“The virtual cow is the new cash cow of Wall Street,” writes the New York Times of Zynga's blockbuster IPO today.

Even as its first-day performance is closely watched, Zynga's public debut is being seen as a coming of age for the gaming industry; the largest tech IPO since Google in 2004 and the biggest in gaming history, and an exoneration of sorts for CEO Mark Pincus, who persisted in his vision of the ‘freemium’ model (free basic play with incentives to pay for upgrades) despite derision from investors and critics of his company’s relentlessly hard-driving corporate culture.

Founded in 2007, Zynga now has 230 million monthly active users on Facebook and is a lead player in an explosive virtual goods market worth $9 billion last year.

“Zynga embodies a confluence of trends in the gaming industry. Its whimsical games cater to casual users, who may not own a console like a PlayStation 3. Its games, which are available on Facebook and mobile devices, also use social networks to allow players to share activity with their friends,” summarizes the Times.

While fewer than 2% of users pay money to populate their farms in FarmVille or build cities in CityVille, “players spend $3 million in Zynga’s economy. In the first nine months of the year, the company had earnings of $30.7 million, on revenue of $828.9 million.”

Other popular Zynga games include "Words with Friends," (now infamous thanks to famous player Alec Baldwin), "Zynga Poker," "Mafia Wars," "Pioneer Trail," "Empires and Allies," and "Castleville," which launched in November, covered here, and has 68% of players playing at least twice a day.

BTIG analysts Richard Greenfield and Brandon Ross believe that Zynga’s social games are a cure for boredom, much like TV, and can be played anywhere, and that Zynga is a “media company” focused on taking a greater share of your time and money spent on entertainment according to Venture Beat.

Competitor Electronic Arts, maker of the highly successful Madden N.F.L. and Sims Social game franchises, has a market value of $6.9 billion, but, according to ifre.com runs “a higher risk of cannibalising their core business in console games that sell for relatively high prices (roughly US$60 each versus mostly free social games and mobile games purchases for a few dollars).”

Pincus, a serial entrepreneur, founded Freeloader, an Internet broadcast service that sold for $38 million in 1995, followed by Support.com, a consumer support service that went public in the last dot-com boom.

“Say what you will about Zynga. But Mark knew that free was the next big thing, and he went harder than anyone else,” said Gabriel Leydon, founder of gaming start-up Addmired in the Times. “He saw the trend way ahead of time, and he spent the most money.”

Critics remain concerned that Zynga’s reliance on Facebook will be detrimental in developing independent platforms, especially in the mobile arena which analysts agree is a must-have in social gaming, and its biggest vulnerability is dependence on a small group of players paying a comparatively small amount of money on a few games.

But Pincus, understandably, is bullish, commenting: “With our IPO, we are accelerating this mission of connecting the world through games. There is a lot of energy around our company. And what we need to do is focus that back on our mission and get regrounded in our mission of making games we love to play.”

Below, the latest company stats released by Zynga in a blog post celebrating its IPO this morning:

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