
Zynga earnings miss, FB also falling - veyron
http://www.bloomberg.com/news/2012-07-25/zynga-misses-estimates-as-users-flee-social-games-for-mobile.html
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ChuckMcM
This was a very well written comment on ZNGA nearly 2 months earlier :
<http://news.ycombinator.com/item?id=4101906> I kept it in my bookmarks to go
back to.

The essence is that Zynga makes its revenue selling fake stuff, and the size
of its market for its stuff is its users, and if they lose users their 'value'
has to go down because their total available market got smaller.

This struck me as potentially a very durable way of measuring value for
'information goods' type businesses. I don't see anything in Zynga's latest
results to contradict this analysis.

~~~
joering2
Chuck I read very smart comment as well, although cannot point to the source
now.

It basically said that you cannot look at it as "selling fake stuff", but
rather look as "selling something users like". This approach, I think, made
Zynga (at least initially) successful where others couldnt believe you would
spend money on "buying fake stuff".

Same way you can say about many other things. Going to the cinema. Its fake.
You can't eat the picture, you can't take it with you, you cannot even record
it for later. You pay for the ticket and that ticket buys you pleasure and
happiness for 90 minutes, hopefully. But other than that, 90 minutes later you
have nothing. Once could say: this is fake.

Therefore, people that buy "fake" pigs and harvest "fake" fields, would still
pay real money for doing so, because Zynga made it look and feel so great that
the result (pleasure) is worth paying real money.

The true reason why Zynga is falling through cracks, I believe, is because
having fake farms that you pay with real money was a fashionable moment;
something cool to do, but at some point, people got tired and it stopped being
popular/trendy. That's it. Now its up to Zynga to figure whether they can keep
users busy some other ways (and spend money), or they won't until they get
delisted from Nasdaq and subsequently file for Chapter 11.

I believe in the latter.

~~~
ChuckMcM
I use the term 'fake' here in the context of a product made entirely out of
information, and your cinema example is a good one. The experience is the
sale, not the asset. That said, the other company I'm watching in this space
is Blizzard which recently opened up their real money 'auctions' for items in
Diablo III. This legitimizes what has been an underground industry for years
and recognizes that there is some business value in trading "products" made
out of bits instead of materials. Unlike Zynga the Blizzard scheme has users
selling to users and Blizzard just takes a percentage. If the model generates
any serious revenue at all for Blizzard I would expect Zynga to follow suit,
allowing Farmville users whose cow births a gold medal calf or something to
trade that for Zyngian currency or even real money. These businesses have to
be careful not to create an actual currency because the government will shut
that down, but trading virtual goods has so far passed muster on that
score.[1]

That said, the analysis I've seen on Zynga games relates the pleasure not from
the virtual farming, so much as the chance to get more out than you put in
(the gambling rush as it is known in Las Vegas). You plant your farm and you
get a golden bean or something that is now 'valuable' as opposed to all those
other times you planted and got regular beans. Its a powerful tool, wielded
well by Zynga and others.

[1] You will know you are trouble when your customer wants to pay you with
rare gear from Diablo or extra egg laying chickens or something.

~~~
waterlesscloud
I enjoyed Zynga games for a while, but there was a change at some point along
the line where you could no longer play the game as it was designed without
spending money. That's when I stopped playing.

It's fine to have the spend-money parts as fun add-ons. I might even spend a
dollar or two here or there on such things.

But I will not play a game that tries to hook me in for free but then requires
me to purchase pieces of it just to play it as it is designed.

That's a tricky line, of course. I'll play WoW sometimes, and I pay for that.
But I'm not paying real money to give my character some spell that's required
for basic play. For a funny hat or a cool mount (that's functionally the same
as a free one), sure.

Greed, for lack of a better word, killed Zynga. They pushed it too far.

~~~
ChuckMcM
I think this captures a very common sentiment. Certainly folks I know have
expressed it as well, which is that its one thing to have 'bonus' items cost
real money but its another thing entirely to feel 'duped' into investing in
something without knowing the costs. Its a challenging line in the freemium
world because on the one hand you can 'dial in the amount of money you want'
and on the other hand folks defect. There is an interesting corollary in
taxation [1].

With Blizzard, one wonders if they will begin to compete with their customers
by creating and then selling through their auction system rare or unique, and
by definition game changing, items. The temptation will always be there of
course, a company has to choose not to step over that line.

[1] I worry about using that example because it sounds like a troll, it is
not.

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gojomo
A problem with some 'viral' models is that eventually the herd develops an
immunity.

~~~
samstave
Brilliant.

Some are immune prior, some become immune, and others will always get sick...

This is the business model.

Spike, Plateau, drop....

I'd like to hink that those of us on HN are fairly immune...

You know what would be an interesting model: figure out the ratio of users on
a site to users on HN for given things to determine a prediction of stupid
adopters to smart adopters.

Then take that ration and apply it to the total adoption, and determine the
real profit margin a site could get.

I am not sure how this would work, but I think we can derive the number of
people that will do stupid investments of time vs those who see through the
scam...

(I am positive this is what quants are masters at...)

------
tokenadult
The New York Times reporting on this issue,

[http://www.nytimes.com/reuters/2012/07/25/business/25reuters...](http://www.nytimes.com/reuters/2012/07/25/business/25reuters-
zynga-earnings.html)

kindly shared to HN by iProject,

<http://news.ycombinator.com/item?id=4293713>

includes this amazing statement: "The company blamed the poor performance of
its established, money-making games - Facebook-based titles like 'Cityville' -
on changes to Facebook's algorithm, which Zynga said spurred users to discover
new games rather than repeatedly play existing Zynga offerings." So Zynga is
saying it was hosed by the algorithms of the site that made its games famous--
the site that derives a lot of its own revenue from a cut of Zynga's revenue.
It looks like Facebook has a rather odd idea of how to be a "partner" with
another business that uses its platform. No wonder the stock of both companies
went down when Zynga's results were announced. This should increase interest
in Facebook's results and Facebook's spin on its results, including any
response Facebook has to what Zynga's excuse for its performance is.

------
frankphilips
I'm confident Zynga will succeed, and this is just a temporary setback. They
are incredibly smart and have a solid business model. I don't think social
games are going out of fashion any time soon, although I do think they are
moving toward the mobile realm. Zynga also has an amazing track record of
growing companies it acquires. After the purchase of Words with Friends from
Newtoy for $53M, they doubled their daily active users in 6 months. I do think
they may have to focus more of an effort on figuring out new avenues of
driving revenue for the company. Because ultimately that's what investors are
looking for.

------
nrmehta
I think Zynga will be a very hard stock for wall street to understand for some
time. Since it's revenue is so tied to usage (meaning unpredictable after
hockey stick growth flattens) and since usage is so tied to external factors
(e.g., Facebook Open Graph changes), I think it will be a very difficult
company to forecast. In general, it's tough to be a public company if you
can't have some predictability to your financial results.

~~~
jbigelow76
I don't think the two points you make: tied to usage and external factors,
equate to difficult forecasts. Look at airlines, they are definitely tied to
usage, empty planes and bad routes impact revenues; and external factors come
into play with things like fuel costs and union negotiations (at least in the
US). The things you list as making them a "hard stock for wall street to
understand" are actually what make the sharks see right through zynga's value
proposition/bullshit.

~~~
nrmehta
Thanks for the response and I think I probably should have been clearer. Zynga
is fundamentally tied (today) to factors outside of its control (like
airlines) but that are (a) controlled largely by one entity (facebook) and (b)
opaque to the outside world. By comparison, airlines are tied to factors (GDP,
fuel cost, etc.) that are not controlled by any single entity and that are
more transparent (e.g., real-time markets for fuel, widely available forecasts
for GDP). Regardless, I wasn't defending the stock - on the contrary I was
saying this is going to be a very tough public company in general.

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evolve2k
"Last week, Zynga expanded its board as it named former Yahoo! Inc. executive
Ellen Siminoff its first female director."

------
ThomPete
Shouldn't this just be "Zynga earnings miss".

I don't see where the FB also failing comes into the picture.

~~~
sp332
Zynga is mainly based on Facebook's platform. They also explicitly said that
getting revenue on that platform is harder than expected. That makes investors
very nervous about FB's outlook. We'll know more tomorrow when FB releases
their own performance and expectation numbers.

~~~
ThomPete
Which doesn't change that we don't know yet and there is nothing in the
article that indicates what it writes.

I am not a big fan of the revisionists that are roaming HN but the title is
flat out wrong.

~~~
bryne
FB is down 7% after hours, and the most likely culprit is this news, as the
two companies' outlooks and stock performance have been tightly coupled after
past quarterly reports.

The title looks factually accurate to me.

------
nekojima
As Zynga copies games with some success, why has it been able to copy the
Japanese model of social gaming? Gree and DeNA have been able to make money
for several years now and it appears are growing sustainably.

Gree's most recent quarterly results: [http://v3.eir-
parts.net/EIR/View.aspx?template=ir_material&#...</a>

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dr_
With all this recent talk of paid vs defense of free vs freemium, at the end
of the day, certain basic principles apply. Revenues still matter, a lot.

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Kiro
As soon as Zynga starts offering real money poker they will become the biggest
and most profitable poker room in the world.

~~~
veyron
MGM or LVS are better equipped to take advantage of a loosening of the
internet gaming acts

~~~
Kiro
But Zynga already operates the largest poker site in the world. They just need
to add real money play and they're set.

~~~
veyron
Adding "real money" isn't as simple as it sounds. Internet gambling in the US,
if it returns, will be highly regulated.

~~~
CamperBob2
Which just means that the regulations will be written for (and likely, by) the
best-capitalized players in the market.

~~~
beedogs
What's happening now is that all the old stalwarts in the poker world
(Partypoker, PokerStars, and Full Tilt) are being sued by the federal
government while, at the same time, the brick and mortar casinos and Indian
tribes are ghostwriting gambling legislation to heavily favor themselves.

So, you're right, but it's an even shittier situation, because there already
_was_ an online poker marketplace, and it's being _stolen_ from the original
players in the industry.

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austenallred
Well, if TechCrunch is right, already-public companies missing the mark leads
to smaller valuations which leads to cheaper rent in the Valley. I'll take the
smaller valuations in exchange for the cheaper rent. </selfishness>

------
michaelochurch
Zynga is (with some collaboration; to call it the singular reason would be a
massive oversimplification) the reason Google+ Games failed, and the
mediocrity of Google+ Games is one of the major reasons Google+ is seen as a
"Me, too" product and will probably never have break-out success. Huge missed
opportunity.

Given this, I can't say I'm upset to watch Zynga fail. Although much of this
loss was indirect, they probably cost Google billions of dollars.

I predicted this in August 2011. I was at Google and wrote an internal missive
on how social network fatigue, led by these shitty "social games", was about
to evolve into outright brand damage and that it had the potential to ruin
Google+ from the start. We had to differentiate ourselves from Facebook on the
things that were causing SN fatigue. If we were going to do Games (which was a
risky decision) we had to do them right.

To its credit, Google+ seems to have managed to avoid a persistent
association. Google+ _isn't_ associated with Zynga shit-games. In fact, I'd
bet that 99% of the people reading this have no idea there ever _was_ a Google
Games. Google did a good job of hiding that one under the rug. But if they had
engaged independent developers and built a real community (I suggested
starting with the German-style board games, then moving into 2D RPGs and
decent casual games) then they could have had something massively successful
and important.

