

Why Zynga Failed - uladzislau
http://techcrunch.com/2012/10/05/more-competitors-smarter-gamers-expensive-ads-less-virality-mobile/

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steve8918
I guess this is a pretty good example of the difference between a business
built based on "innovation" vs "extraction". With innovation, you consistently
make new and exciting products and your customers are really happy. With an
extraction-based model, you corner out the market, and then you impose access
fees, taxes, etc on the users.

Instead of going with innovation, Zynga decided to go with extraction, and
they are now paying a heavy price. Farmville, Cityville, etc, are all
essentially just the same game. They add clicks and beeps to get middle-aged
housewives to pay $5/month for virtual items and I guess it's simply not
sustainable.

As a side note, I've been to Zynga's headquarters in SF. The offices are
beautiful, and spacious. My friend pointed out a human-sized statue of the
Zynga's dog that was repainted for something like $10-20k because apparently
the CEO didn't like the color. You can walk around and see a lot of dot-com
waste everywhere. We went to one of the snack areas, and there were opened
bags of organic chips just laying around. Apparently, they have an office-
supply vending machine filled with $100 wireless keyboards, mice, etc, that
people just take whenever they want.

As an (unhappy) investor, it certainly looks like there is a lot of room to
cut the fat at that company, so maybe they can slash their costs relative to
their revenues and turn it back into a viable business.

~~~
nikcub
The story about the office reminds me of one of the smartest people I have
ever worked with, an investment banker.

His job was to research, audit and credit check companies in developing
economies. He told me how within a few minutes of walking to the lobby of a
company headquarters he could with some accuracy judge how the business was
operated.

Lavish spending on insignificant things was a sign that there were
inefficiencies or problems elsewhere. for eg. in one case a Russian investment
fund had a large 3-level high marble lobby with a large bronze statue of the
founder. Turned out that they were hundreds of millions in debt rather than
wildly profitable as they had mis-priced assets.

The other anecdote he shared was that there seemed to be a high correlation
between businesses that hired young, attractive secretaries in short skits and
accounting fraud.

~~~
Evbn
You need good skits if you run a smoke and mirrors operation.

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potatolicious
I think it's simpler than that.

Fundamentally, Zynga's business model and products did not line up with the
interests of either its host platform (Facebook) or its end users. Its revenue
model was also, at its core, coercive and failed to provide real value to its
customers.

All of the points listed in the article, while accurate, are IMO only
symptoms/manifestations of this very core failing. This is also the general
case that we can learn from - short of having a government-granted monopoly,
if you fail to provide real value to your customers, you will fail.

~~~
ljd
There is an interesting parallel to the Zynga model and before you think I'm
being too extreme, consider my opinion nihilistic in the sense that I don't
believe Zynga is or has ever been Evil.

Zynga was a casino. The games offered no real value to their consumers but
neither do casinos. The only reason why you continue to play and pay for in
game purchases is to get back the high of doing something well; you want to
feel the rush of winning.

Their main fault wasn't that they did this, it was that they couldn't do it
well enough. Addiction's downside is that gains are subjected to the law of
diminishing returns. Basically, that your happiness is logarithmic. In a
casino, they've overcome this logarithmic challenge naturally, by allowing you
to put in an infinite amount of money. The gains are still logarithmic, hence
why people can go from gambling $20 to losing their house in short order but
Zynga could never figure out how to replicate this in their casino.

I think this wont be the last time we see this model in gaming, but the next
business will first need to solve this problem: if you make money through
addiction simulated behavior, how do you overcome the log returns associated
with it?

~~~
ChuckMcM
I spent a number of years of my youth in Las Vegas and I think that between
this 'Casino' comment and potalicious' comment you've captured a lot what
looks like the core issue to me.

Slot machines (especially electronic ones) are fascinating in their ability to
have their payout 'tuned'. And slots typically pay out 98 - 99% of the money
they take in. But what is also true is that there is a sharp 'knee' in the
curve between where people sit and play slot machines for hours, and where
they leave immediately after they lose their money.

The weird not immediately obvious thing, is that slots that let you 'win' a
lot encourage play. When someone is sitting there and 'winning' and up 50% on
their night, and then lose back to being 50% down will keep playing to 'get
back' to that winning state. But people who just win enough to slow their
exhaustion of cash stop when they run out. They never had a time when they
felt like they were 'ahead' they just watched their cash get smaller and
smaller.

New Casino owners who would get scared about big slot payouts would worry,
"What if everyone takes their winnings and just leaves?" which is a legitimate
worry, but you have to believe the statistics are legit and the payout is 98%,
not 100+%. As it turns out those winners brag which brings in more people. And
as Steve Wynn once said, "Slots make money on the quantity of the players not
the quality." Meaning that the more money that goes through them the more his
cut of the output.

Zynga appears focused early on revenue generation per player but not as
function of all players it seemed, rather as a function of single players. By
tuning the production of individuals through gameplay tweaks the over all
experience is compromised such that they recognize they are being exploited
and that takes away the 'fun' part of playing. At some level everyone knows
they are funding Zynga (or a Casino) but they do it willingly because its
'fun'. A very fine line be 'fun' and 'not fun' when the value goes down.

If Zynga could recruit Pichette away from Google it would probably help their
bottom line tremendously.

~~~
majani
Great discussion. It's really hard to get an objective discussion about Zynga
around these parts.

Looking from personal experience with casinos, my gut instinct tells me they
are definitely dangerous, but the one thing that tempts me to play is the cool
factor around them. You think Zynga would do well to try and create an aura of
coolness and sophistication around their upcoming games?

~~~
Evbn
Vegas decorates casinos and creates movies and books with beautiful wealthy
patrons. Zynga can't do that until virtual reality consumes us.

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andrewljohnson
I feel so bad for my friends who work at Zynga. They all talk about how the
company isn't as bad as everyone makes it seem, and stock clawbacks are
reasonable, and Pincus gets a bad rap. And then on Facebook, they all
gleefully announce the release of Farmville 2.

Is that really the conversation you want to have whenever you talk about your
livelihood? And do you want to be the only one spamming me about Farmville,
because your company makes you, and because I have everyone else who ever did
that turned off?

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s_kilk
Simple, they make dreadful, shitty shovelware. Failure is hardly surprising in
that case.

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zzzeek
I may get downmodded here since I'm drawing upon vague memory only, I had the
impression that Zynga from an employment perspective was run more or less like
a slave ship. Surely developers working under a terrible management
environment has some impact on a company's ability to recognize and quickly
adapt to market changes ?

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alizaki
I think a fundamental assumption in this article is flawed: "The most popular
games are still pretty simple, but mid-core games like strategy simulator War
Commander are gaining steam. Some people who used to be content clicking
FarmVille crops have moved on to more complicated games."

So called "mid core" games on Facebook are generally male focused war/strategy
titles. Most Farmville/Cityville, etc. players are women. They haven't "moved
on" to more complicated games. They've just grown tired of the same formula.

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runn1ng
Well, Zynga and co. did this to themselves. They spammed the walls to no end,
so Facebook just had to axe them. If they didn't overabuse the game posts so
much, people wouldn't be so pissed and they wouldn't shut the channell down
completely.

More "philosophically" speaking - I am just thinking if this is not a case of
preffering short term profits - "Send as much spam as possible!" - which,
however, hurts in the long term (now the game posts are essentially useless).

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tatsuke95
The best part is, they can't even oust Pincus to try something new, can they?
He has a controlling share.

Be cool if Fred Wilson, or another one of the early investors, would make an
appearance to explain why the hell they thought dumping this on the public was
a smart and/or credible thing to do:

 _"Look at the list of the Zynga insiders who cashed out this quarter to the
tune of $516 million, it’s chock full of A-list investors like Fred Wilson,
Reid Hoffman and Silver Lake Partners. So the narrative right now is “The
insiders dumped that stock at the exact right time.” I want to flip that and
say “The VC’s have sent you a term sheet for an investment.” Consider the
rationale for fiduciaries like Fred Wilson, who turned a $5 million investment
in Zynga into almost $400 million."_

[http://blogs.marketwatch.com/cody/2012/07/26/the-venture-
cap...](http://blogs.marketwatch.com/cody/2012/07/26/the-venture-capitalist-
angle-on-zynga/)

Next time someone brings up Wall Street, they need to take a step back and
realize this behaviour is happening in their own back yard.

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staunch
All they have to do is decide to become a real game company and they have a
shot at a turnaround. They've got the money, people, and resources to do it.
What they (probably) lack is the conviction it would take to focus on the
long-term. It'd involve firing most of their staff and massively scaling back
the entire company for the foreseeable future.

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SeanDav
I think there is some karmic balancing going on here.

Zynga was great at marketing but I doubt that anyone that matters at Zynga has
ever had an original thought about game play. If they can't buy the company
that has the game idea they simply rip them off by copying game play almost
down to the last detail.

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viseztrance
I really despise their spammy apps, but Zynga has a billion dollars in the
bank by making facebook games. The fact they did so well in the first place is
nothing short of amazing.

Failure is such a strong word. I'm curious how many successful startups even
came close to this.

~~~
nickpinkston
If success is measured by money in the bank, let us celebrate the wonders of
our criminal class! El Chapo - now there's a CEO success if I've seen one ;-)

Money != Value

~~~
viseztrance
There are many ways of quantifying success. But regardless if you're a
gangster or a shrewd business man, if your business made you (and your
shareholders) filthy rich, it's not that far fetched for it to be considered
it successful.

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skrish
I think it is shift in focus that is the root cause of this issue. There are
plenty of avenues for online gambling as well as real ones, where they extract
money out of the wallet.

However, the question is in exchange for what? As long as the focus is on the
entertainment quotient I think these businesses do just fine. The moment the
focus of business shifts to just extract every possible dollar out of its
users, people get smarter & just leave. This is probably what is happening
with Zynga.

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overbroad
Why Mark Pincus failed?

Or did he? How much did he make from the Zynga "failure"?

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Evbn
Someone please make a web app that shows men how much Pincus and Wilson and co
stole from me via selling this junk IPO to my mutual fund / 401k / pension
against my will.

