
Conflagration: Zynga’s OMGPOP acquisition torched nearly $500,000 a day - tylerlh
http://thenextweb.com/insider/2012/10/05/conflagration-zyngas-omgpop-acquisition-torched-nearly-500000-a-day/?utm_source=HackerNews&utm_medium=share%2Bbutton&utm_content=Conflagration%3A%20Zynga%E2%80%99s%20OMGPOP%20acquisition%20torched%20nearly%20%24500%2C000%20a%20day&utm_campaign=social%2Bmedia
======
ChuckMcM
Presumably this isn't entirely unexpected, and the 'torching' comment is over
the top. Microsoft wrote off $6.2B of their AQuantive purchase in July,
assuming 2000 days (5 years plus a few months) that is $3.1M per day, roughly
6x the 'torch' rate in this article.

The stock price was already valuing them a lot lower than their pre-OMGPOP buy
so this seems more like a recognition of that in order to make their balance
sheets look a bit more credible. I had stock positions invested for a while in
Activision (90's) and Vivendi (early 2000's) and generally they seemed pretty
random. A hit and the price would rocket up, a flop and it plummets down. That
suggested to me that a 'fashion' stock (where the product was as much
fad/fashion driven as it is quality/non-quality driven) is really only good
for trading, not for longer term growth. Got out of both positions at a small
profit but a lousy return.

Contrast that with a company like Milton Bradley though, which milked the
Monopoly game concept for millions if not a few billion dollars. It seems like
games are more like 'books' or 'music' or 'movies' than something more durable
like a 'word processor.'

The treatment Zynga getting re-assures me that we aren't in a bubble, in spite
of what some would say (although not so much now, which is nice).

~~~
ahelwer
Back around the Instagram acquisition when HN went are-we-in-a-bubble-centric
for a while, an opinion I read a few times is that you shouldn't be worrying
about the bubble popping when everyone's talking about it, but rather when
everyone stops.

Kind of a baseless argument, really. Still, has much changed? Isn't VC money
still sloshing around the valley? Aren't startups starting up in ridiculous
numbers? Isn't everyone and their dog an angel investor? That was my
impression of where things were heading before stories about it dropped off in
regularity. Even up here at the University of Calgary this year I've seen ads
asking for talent to join startups, which is a first as far as I've noticed.

------
gfodor
It's harsh, but whenever I see Zynga's stock dip even lower its reassuring due
to the signal it sends to smart people: what you work on matters.

~~~
kooshball
> It's harsh, but whenever I see Zynga's stock dip even lower its reassuring
> due to the signal it sends to smart people: what you work on matters.

I don't follow your logic here.

You're implying that the work done at Zynga is non-important, or is some how
bad.

But plenty of smart people work at "important" world changing places and never
hit huge success.

Plenty of smart people work at "non-important" places and end up hitting it
big (like most year-old startup being acqhired these days).

~~~
smacktoward
I don't know if the distinction is so much between "important" and
"unimportant" as it is between "building games that amuse people" and
"building games that function as electronic Skinner boxes."

------
Tsagadai
I wonder how much of that write down is due to Zynga's management of OMGPOP.
Their games went from fairly fun to complete spamballs (popups and constant,
invasive advertising) in a matter of weeks after the acquisition. That caused
almost everyone I knew who played it to stop. Draw Something has unplayable
responsiveness on older Android phones after the "updates".

~~~
buro9
^ This.

Everyone I know who was playing Draw Something stopped playing in the 2 weeks
following the acquisition.

None of them cared that Zynga took over, but they cared that they were being
spammed, that the same words were coming up constantly (best way to kill the
game experience), and that the service degraded visibly (lost games,
inconsistencies in games, server not available).

As the games involved 2 people, as soon as some of my friends found it to be a
poor enough experience and stopped using it... the whole thing unravelled
really fast and the whole group of friends just stopped using it.

I couldn't make sense of it: What did Zynga do to OMGPOP? Or did OMGPOP do
this to themselves in trying to justify their worth to Zynga? Did they cut
servers to reduce costs, whilst 'monetising' every possible angle in the app
to bring in revenue?

Whatever they did, it worked. Just not in the way they wanted.

------
alanh
I haven’t played their annoying game in quite a few months (despite being
addicted, despite myself, initially). I got a Draw Something email yesterday
(contents: “Please? We know you love us! Here’s your username! You forgot,
right? Haha! LOVE US!”) and cheerfully unsubscribed.

 _Edit to clarify: I paraphrased, obviously._

~~~
ojbyrne
The whole "we love you" thing is vastly overdone. My car dealer sends me
emails with that as a subject. My initial impression? Prove it.

~~~
sharkweek
I remember the dealership I bought my car from kept calling once every six
months to see how things were going. After a few years, my transmission blew
and I contacted them to take care of it -- very quickly I realized how little
they actually cared about me and my problems

~~~
endianswap
It's a sad state when I figure the dealership is going to do everything in
their power to blame me for damage that I believe to be a manufacturing defect
covered under the warranty. Imagine my surprise when I took my car in when the
rear end was making noise and they found the problem during inspection, and
said that they would need to rebuild the entire rear end... but it was covered
under the powertrain warranty without any question. Furthermore, they found
the water pump was leaking a tiny amount and fixed that under warranty, too.
And the inspection was free because they found warranty issues.

I feel depressed at how cynical I am sometimes, but there's no feeling like
being wrong about something like when you expect someone to try
screwing/blaming you to save money.

~~~
lurker14
The dealer gets paid by the manufacturer to perform warranty repairs. In these
cases, it is the dealer and you vs the manufacturer, much like "pain doctors"
and dentists who milk your insurance.

------
rdmirza
Did anybody else see this oddball response by the author to a compliment he
got in the comments?

alexwillhelm: "The fuck are you banging on about?

I linked because that bit is one of WolframAlpha's more useful features. It's
a great way to get time scale when you need it. Have fun counting by hand, you
Luddite. You are right that "a lot" of journalists would not have done that.
Thank god I am not one of those. Also, next time you waste my 30 seconds, have
a point. Yes you fuckwit, it is in fact "MAJOR." A"

Insane.

------
ipince
Pardon my ignorance, but what does this mean? That Zynga will pay OMGPOP less
than what we had heard? How can they do that?

(Sorry I'm not from around here and don't understand the "write down"
language. I presume it's different than "underwrite").

Edit: from trotsky's comment I'm assuming it means they now value it for $x
less than what they valued it before (what they paid for).

So how does this influence/affect the guys that came with the acquisition?

~~~
andrewljohnson
The author speculates that the OMGPOP team did not hit their $30M "earn-out."

When one companies purchases another, part of the deal is often variable based
on future earnings, and if the acquired company doesn't hit the projected
numbers, they get less money.

~~~
sillysaurus
So how much money does the author speculate OMGPOP got?

~~~
andrewljohnson
"Those figures hurt all the more when put into perspective: Zynga paid between
$180 and $210 million for OMGPOP. The final $30 million of the deal was
structured as an earn-out."

The author speculates Zynga paid $180M, instead of the maximum deal value of
$210M.

This is really speculation though, im my opinion.

~~~
smacktoward
TechCrunch reported those numbers ($180M up front plus $30M earnout) as fact
when the acquisition happened ([http://techcrunch.com/2012/03/21/done-deal-
zynga-gets-draw-s...](http://techcrunch.com/2012/03/21/done-deal-zynga-gets-
draw-something-phenom-by-acquiring-omgpop-were-hearing-210m/)).

Of course, that story is from TechCrunch ("You got your speculation in my
journalism! YOU got your journalism in my speculation! Wait, you're BOTH
right!"), so it may not be the definitive statement it appears to be.

~~~
andrewljohnson
I was more saying OMGPOP not getting the earn-out was speculation, not the
numbers themselves. Who knows where the bar was set for the earn-out?

~~~
alexwilhelm1
Yes, that was what I was saying. Given the steep writedown in less than a
year, I doubt that OMGPOP hit its targets that would have earned it its full
earn out. I could elab, but I really think that statement makes sense?

------
bdr
_I forget which venture capitalist first said it, but a very wise thought is
this: if it has become easier for any single app to garner millions of users
rapidly..._

This may be referring to cdixon's "Increasing velocity" post:
<http://cdixon.org/2012/04/11/increasing-velocity/>

It's a hugely important idea that doesn't get enough attention.

~~~
tomasien
Dixon also said "10mm is the new 1mm users" right? I've heard that cited quite
often recently by VC's.

~~~
alexwilhelm1
Alex here from TNW - yeah, that sounds right. Will take a look when I get a
second and try to add it in.

~~~
alexwilhelm1
On second read, that's not the post I had in mind. Much love to @CD, but I
think it was a Fred Wilson post that I have in mind.

------
htmltablesrules
ZNGA hasn't even been public for a year, yet their equity is now at an 80%
discount from it's initial price. Not looking good at all.

------
fpgeek
Was OMGPOP acquired with cash, stock or a mixture of the two?

To the extent that there was a significant stock component to the acquisition,
this is somewhat less bad than it looks, since Zynga's stock is down so much
(though, of course, Zynga won't want to make that argument).

------
nicholassmith
If Zynga had been smart with OMGPOP they'd have probably made a fortune from
it, but instead they did what they did to Words With Friends and killed it.
Amazingly when you start dropping the quality of the game, making it
increasingly spammy and introduce seriously reliability issues people aren't
going to return, and there's your profit centre gone.

------
timrpeterson
i wish i could wish Zynga the best, but everything I read makes the CEO, Mark
Pincus, and the company philosphy seem truly awful.

~~~
infinii
I agree. Their questionable ethics when it came to copying successful games
really stifles innovation.

------
trotsky
very hard to believe you can go from buy to writing down half the value in two
quarters. either there was fraud involved or zinga is just looking for a
convenient scapegoat + one time charge for their general malaise (which is
what I'd guess)

~~~
andrewljohnson
Why do you find it hard to believe that a trendy game might fizzle in 90 days?
I'm not surprised at all.

I could imagine Zynga turned some dials when they acquired the company that
destroyed the user base.

I could imagine the game just got boring, to everyone (it did for me).

I could imagine there were some fairly impressive, but perhaps inflated,
PowerPoint presentations given to Zynga, and things didn't go exactly as
planned.

And I could imagine a culture clash that destroyed progress on the game, and
in such a fast moving progress, standing still is as good as dying.

But mostly, I could imagine all of the above. Easy come, easy go.

~~~
trotsky
because franchise, staff, pipeline, cross-promotion, licensing ?

------
chris_wot
Can someone explain in simple English what a "writedown" means?

~~~
antr
All a "writedown" means is a reduction in the recognised value of an acquired
asset or company.

In this case Zynga states:

"...$85 million and $95 million (excluding any income tax impact) related to
the intangible assets previously acquired in connection with the company's
purchase of OMGPOP."

So Zynga is saying that they overpaid, or that the asset is not performing as
they wished, i.e. so they are writting-off the intangible value (the
difference in price between OMGPop's real assets when acquired and its
acquired price). In this case they are writing-down $85m-$95m of a reported
$200m dollar acquisition - a 43% to 47% reduction in value.

------
Aloha
I'm not surprised.

Everytime I see a webapp like this, I always wonder to myself "where's the
click".

I dont see a future for SaaS that is not targeted at people directly forking
money over for it.

~~~
nostrademons
Including Google and Facebook?

~~~
fletchowns
Nah, there will always be plenty of ad space and privacy to sell.

------
moocow01
I feel sympathy for any employees who exercised their options at IPO - that
stock in after hours is at a rock bottom 2.28. Hope strike price was low.

~~~
adgar2
> I feel sympathy for any employees who exercised their options at IPO

Why? People choose their alliances. OMGPOP and Zynga are both trying to cash
in on fads without bringing much real value to the marketplace. Why should
rank-and-file employees get more sympathy than the big fish running the show?
They chose to do the jobs they did.

~~~
wpietri
You can still have sympathy for people learning hard lessons.

If you tell a kid "tie your shoes, honey," and he just takes off running, he
could well face plant. If he does, you can still feel sympathy for him, and
you can still be comforting. But you should also say, "Well, this is why
keeping your shoes tied is a good idea."

Nobody's born knowing that delivering user value is the key to business
sustainability, and there's a lot in American culture that teaches other
lessons. If I judge by the people getting on the Zynga short bus, a lot of
their employees are pretty young. Hopefully this is where they learn something
about picking employers.

~~~
adgar2
You just compared Zynga/OMGPOP employees to 5-year-olds who don't know better
than to tie their shoes.

~~~
wpietri
I picked an obvious example that made it clear what I am talking about.

Nobody knows everything. We all have lessons to learn. We all die with many
lessons unlearned. Refusing to have sympathy for suffering just because the
cause of the suffering is obvious to you is bad for everybody. Yourself
included.

------
fredsanford
Too bad we can't talk Larry Ellison into buying Zynga so 2 steaming piles get
flushed at one time.

------
89a
Best bit of the article:

<http://i.imgur.com/1sLPB.png>

what the fuck Alex Wilhelm?

------
samstave
Heh, call it Karma.

Kixeye, whilst having its own PR issues, has proven that FB gaming can be
quite profitable and lucrative.

Luckily they don't have quite the bad reputation Zynga has for its practices -
even though the CEO is a douchebag.

All of this Zynga drama is, to me, is even more an indication on how
criminally wrong the FB ipo was; Zynga did the smart thing in IPOing first had
the information about FBs worth would have been true - but they suffer
tremendously based on how bad the ipo was...

The OMGPOP buy was a toss of 200MM on the speculation that FB was going to out
goog the goog....

I am still surprised there really havent been any claims of
criminality/litigation.

~~~
moocow01
Kixeye may not have as bad a public reputation as Zynga but that "Racism at a
gaming company" post ( <http://news.ycombinator.com/item?id=4603611> ) sure
did put them at the bottom of the barrel in my opinion.

~~~
Mvandenbergh
They fired four people over that, which certainly does make it seem that they
take it very seriously.

~~~
droithomme
Thanks for mentioning that, I had not heard the follow up. Looked it up, that
just happened today.

[http://venturebeat.com/2012/10/04/kixeye-fires-four-after-
in...](http://venturebeat.com/2012/10/04/kixeye-fires-four-after-
investigation-into-allegations-of-racism/)

Well good for them, that was the right thing to do. I hope the folks here that
were attacking the victim get the news that the victim was not really
fabricating the whole thing as they were implying.

