Source: Facebook and Zynga Move Apart
Source: Nathan Myhrvold, Do-Gooder
Today’s “Zynga Unleashed” event in San Francisco revealed moves to allow third-party game developers to use Zynga’s technology platform and a new “Zynga with Friends” brand for multiplayer social interactions that could help the game company reduce its dependency on Facebook. Oh, and the company announced some new games, too.
There was no announcement, however, of the rumored real-cash gaming deal that would have brought down the house.
A Gaming Platform, Not Just Games
Uncharacteristically, CEO and Founder Mark Pincus began the conference by discussing the Zynga “platform” and infrastructure, rather than the new games that typically lead off similar events. There were a lot of numbers thrown around: number of logins, number of inbox clicks, even the number of bubbles popped in Bubble Safari. The upshot was that while Zynga’s games may be small and simple, the infrastructure behind them is big, scalable and sophisticated.
Why is that important? While the details are still pending, Zynga Chief Engineer Kostadis Roussos announced that Zynga will be opening its application programming interface (API) to third-party developers, giving them access to that infrastructure.
This could have two big impacts on the game industry and Zynga:
1) Depending on pricing, access to Zynga’s platform could lower the cost of entry for new, startup game developers. Ideally, they’ll be able to focus more on game design and less on building a scalable back-end.
2) It will take some of the creative burden off of Zynga. Pincus’ developers still have an interest in creating the best possible games, but as a technology provider they can still earn a cut of other hit games. This should provide some earnings stability and reduce the need for expensive, risky acquisitions like OMGPOP, maker of the fast-tanking super-hit, Draw Something.
Zynga even gave out a URL for interested developers.
Zynga With Friends
In its other big news, Zynga is launching its “Zynga with Friends,” a new brand for its multiplayer social initiative. Highlights include:
- Synchronous multiplayer gameplay across device types, first on Bubble Safari, and eventually on all of its games
- Enhanced social features, such as chat and user profiles
- An increased role for Zynga.com as a portal or “social lobby”
Zynga will expand its current pool of development partners and open to third-party developers in the near future. Enabling multiplayer gaming on existing games should be fairly simple , which ties in with Zynga’s new desire to be the facilitator for third-party games.
Still Friends With Facebook
While Facebook and Zynga will continue to be joined at the hip (for example, Zynga.com will still be serving Facebook ads), these inititaives will help Zynga strike out on its own.
The rest of the conference introduced some new and possibly interesting games, including a 40th Anniversary partnership with Atari, Farmville 2, other new ‘Ville games and the new Zynga Elite Slots.
But as the early parts of the conference made clear, the games aren’t really the thing. Zynga is already a data company and it’s trying to become a platform company.
Zynga wants to emulate Amazon (which now makes more money off selling bandwidth, processing and shopping cart services to others than it ever did selling books) and transition to becoming an infrastructure provider, while still building quality games when it makes sense. It’s a grand vision that promises increased, stable profits with reduced risk. But a lot still has to happen to make that vision a reality.
Facebook knows who you are. Google knows what you’re looking for. Which piece of information is more valuable? The future of online advertising – and the ad-driven, free sites we use every day – hinges on the answer. On Friday, Facebook took its first step toward proving that the big prize is in who you are.
As the news website Inside Facebook first noticed, Facebook ads and Sponsored Stories now appear on Zynga.com looking just the way they would on Facebook itself. It’s the first outside site on which Facebook ads have appeared. The day Facebook rolls them out on the rest of the Web will be a dark one for Google.
Google dominates online ads today. It makes more profit in one quarter than Facebook generated in total revenue last year. That’s because Google’s ad business is built around search, the gateway to the Web. When people are looking for something, they go to Google to find it, creating an opportunity for Google to show valuable ads that are relevant to the user’s search.
Google’s indexing of the Web is so complete that it can also provide relevant ads on sites themselves. Website owners are happy to run Google’s AdSense ads, which help them generate revenue, letting Google match its most relevant advertisers to the content of the site.
But the key here is the definition of that word relevance. Ads only generate money if they’re relevant. As long as Google is the way we search for things, its definition of relevance matters. But if Facebook can make its ads more relevant than Google’s, even on sites other than its own, then Google is in trouble.
Google’s test of relevance is whether you’ve found what you’re looking for. Google knows where you are, what you’ve searched for before, and some things about your browsing history. If you use Gmail, it knows what you talk about there. It’s also starting to get better at understanding what your words mean. But those are just vague signals it can use to deduce things about you.
The best thing Google has to go on with its ads is what you’re searching for right now. If you’re searching for “cheapest hotels in Vegas,” that’s a pretty good clue. But not all our searches are so obviously about buying things. How does Google know what ads are relevant in that situation?
If Google knew more about you, who you are, what your family is like and your real likes and dislikes, it would be able to fill in the blanks. But it doesn’t. Try as it might with Google+, Google doesn’t yet have a good picture of the people on the Web.
Facebook has the clearest picture there is.
As Dan Frommer showed in April, a comparison between Facebook’s and Google’s ad creation tools speak volumes. Google’s tool just asks you to crank out keywords to help it match your ads to people’s searches:
But Facebook’s tools ask for rich, specific, personal details about the people you want your ad to reach. And Facebook knows these things about people because they willingly tell Facebook about themselves. In their profiles, relationship statuses and likes, Facebook’s users have given it a gold mine of advertising data.
For now, that only makes for relevant ads on Facebook itself. They’re good for revenue, but they’re not Google-level good. Even if the ads are personally relevant, people aren’t going on Facebook to shop (or click on ads). They’re going to talk to their friends.
If Facebook launches an off-site ad network, that will change. Even if people use Google to search for things, the sites they find could be showing Facebook ads, and those could potentially be far more relevant than Google’s AdSense ads. Suddenly, Google – an advertising company for all intents and purposes – will be delivering traffic into Facebook‘s advertisers’ laps, sucking life out of its own business.
Zynga Is Just a Prelude
The new ads on Zynga.com don’t represent the stealth launch of a Facebook Ad Network, at least according to official sources. In fact, as Josh Constine at TechCrunch reports, this agreement was laid out in Facebook’s S-1 documents before it went public, so it should come as no surprise. It’s a revenue-sharing agreement between Facebook and Zynga, its longtime partner in all manner of time-wasting games, and they both insist that’s all it is.
Facebook’s PR statement is this:
“We have had a close relationship with Zynga for a number of years and we think we can deliver value to Zynga and to the people playing their games by showing the same ads that they see on Facebook. We will not be showing ads on other sites at this time.“ (emphasis added)
It may not be here “at this time,” but Facebook’s ability to track its logged-in users around the Web is well known. If, as industry watchers have long expected, Facebook launches an ad network for other sites, it would quickly upset the balance of power on the ad-supported Web.
Earlier this week we examined why Zynga is shedding users, causing its stock price to almost halve from its December IPO level. Zynga rose to prominence on the back of a farming simulation social game called FarmVille. Its success spawned a series of other ‘Ville’ games, such as CityVille, CastleVille, FishVille and PetVille. The theme of these games is to manage virtual stuff, with the help of virtual currency that you buy within Facebook (using real currency). The Ville series became tremendously popular, despite being shallow and irritating to many Facebook users – whose news feeds became clogged with virtual sheep, cartoon fish, and the like. Mercifully, for most of us, the Ville dynasty appears to be dying out. In this post we explore why.
A reminder, here is what has happened to Zynga’s top three Ville games over the past six months, measured in Daily Active Users (DAU):
The DAU of all three games on Facebook, which is where most of Zynga’s users come from, has dropped dramatically in the six months since Zynga’s IPO last December. The three games are hovering at the 4.1-4.6 million DAU mark. To put that into perspective: in December 2010, when CityVille overtook FarmVille as the most popular Facebook game, CityVille had 61.7 million monthly active users according to AppData (the same source of data for the above chart). So we’re talking a deep dive in popularity for the Ville franchise.
Users Tired of Throwing Sheep
So what happened? The simple answer is probably that Facebook users have become tired of the Ville franchise. From my own personal experience, while I have never used a Ville game at least a few members of my family have. I’m confident this is a common theme for readers of this site! My dear little sister was a big FishVille fan for a while last year, even creating a fake Facebook user named “Fred MacManus.” Fred wasn’t my long lost cousin, he turned out to be an animated fish from the game FishVille. OK, I have to point out that my sister is very intelligent and she played FishVille because it entertained her (and I too enjoyed the Fred character showing up in my Facebook news feed). But she tired of those games sometime last year and no longer plays them. Fred’s Facebook profile eventually got deleted.
I can’t help but think that’s fairly representative of what’s happened with other Ville users. They just got sick of the silliness.
Software Crashes & FarmVille Inflation
There have been other reasons for the Ville decline, which former or current Zynga users noted in the comments of our earlier post.
Stephanie Kelley cited regular game crashes and poor customer service. She is a regular game player on Facebook, as well as her smartphone and tablet. But Kelley “went on a Zynga strike” about 3 months ago because she had spent money on games that, according to her experience, “crash frequently, are poorly written and rely on spamming anyone and everyone in order to advance.”
Scott Colin noted Zynga’s tactic of aggressively cross-promoting new games in existing ones. Zynga users may be getting tired of that tactic. “As soon as the pop up shows up in the game I am playing for one of their cross promotions,” wrote Colin, “I simply block it right off.”
Another commenter speculated that the decline in users is because Zynga raised its prices for Ville features and “special animals.”
Whatever the reason, it seems that our collective obsession with virtual animals and virtual land on Facebook is declining, which is hitting Zynga where it hurts: its stock price. And that’s real currency, not virtual.
Social gaming company Zynga had an outstanding 2011, leading to a well-hyped IPO in December. But Zynga’s biggest risk was always an over-reliance on Facebook, with most of its revenue and users coming from the social network. It’s now six months after Zynga’s IPO and its stock price has halved, currently sitting at under $5. That’s because many of its high profile gaming products are tanking.
At the time of its IPO in mid-December, Zynga had the top five games on Facebook by daily active users. But, according to app tracking website AppData, three of those five apps have declined dramatically in Daily Active Users (DAI) since then.
Dec 12, 2011
Jun 12, 2012
Texas HoldEm Poker
Words With Friends
All of Zynga’s main “ville” products have lost a lot of users over the past six months. None moreso than the previous leader in Facebook’s gaming category, Cityville, which echoed Zynga’s share price drop to fall from over 10 million to below 5 million daily active users.
All three Ville games have now fallen out of the top 10 Facebook apps by DAI. It’s not all bad news, as Zynga still has four apps in the top 10: Texas HoldEm Poker (3), Words With Friends (4), Bubble Safari (5) and Draw Something (6).
Of the four apps still in the top 10, only one has shown strong growth over the past month: a new arcade-style game called Bubble Safari, which has quickly amassed 6 million active users since its launch in May. In fact it’s currently the top growing app on Facebook, by total users.
Mercifully, for the average Facebook user, Farmville continues to decline – from 4.6 million DAI to 4.1 million over the past month. But of most concern to Zynga is Draw Something, the Pictionary-like game which it acquired for $183 million in March this year. Its usage has been falling ever since. Just in the past month, the daily active users of Draw Something fell from 9 million to just over 5 million. Zynga has attempted to stop the freefall by adding 12 languages to Draw Something this week, in order to entice more global users.
The main reason for Zynga’s stock price fall this week was a report from financial analyst firm Cowen and Company entitled “Facebook Gaming in Accelerating User Tailspin.” The report stated that Zynga’s social gaming daily active users declined by 8.2 percent to 54.2 million in May. According to Cowen analyst Doug Creutz, that’s because casual gamers are moving away from the Facebook platform to play games on their smartphones and tablets. However Creutz hedges his bets, by noting that Zynga is “aggressively pursuing mobile game development.” Accordingly, he has a “Neutral” rating on Zynga shares.
The upshot is that Zynga’s fortunes are still ultimately tied to Facebook – and vice versa. Social gaming is moving onto smartphones and tablets, which is also where Facebook wants to expand its social networking platform. The reality is that both Facebook and Zynga need to aggressively expand onto smartphones and tablets, in order to get their stock prices moving upwards again.
Source: Why Zynga is Shedding Users
The big news in the world of tech acquisition may be Facebook’s $1 billion acquisition of Instagram. But startups that make games are more interested in a deal that happened back in March: Zynga’s $210 million purchase of OMGPop, the company behind Draw Something. For entrepreneurs in the gaming field, being bought by Zynga is the new exit strategy.
As frantically as technology giants like Facebook and Google have been flashing their cash to buy startups, big-game companies have been even busier. Zynga bought 22 companies in 2010 and 2011, and plans to increase its acquisition pace in the years ahead. That’s good news if you’re a gaming startup. Zynga has $1.8 billion in cash and is eager to spend it.
So who is going to get a piece of that Zynga bling? We asked Eric Johnson, who runs L.A.-based seed fund Ignited Labs. Ignited Labs invests in startups focused on gaming and entertainment. He says game makers that want to attract Zynga’s attention need three things: They need talent, they need to be mobile and they need to be social. Additionally, they need to be quick on their feet because they have a lot of competition.
Don’t Beat ‘Em, Join ‘Em
“Among my social-gaming friends, the mindset is not to be the next Zynga; the mindset is to sell to Zynga,” Johnson says. “There are not so many companies with that kind of capital on hand. So the general sentiment is to build and sell. And do it again and again.”
In this race, nothing succeeds like success. Game makers with a track record of wins get the most attention and investment. “There’s a small group of people in this business who know how to create hits and people tend to bet on those same groups,” Johnson says.
But in the gaming industry there is always room for surprises. (A smash hit based on farming? Who woulda thunk it?) And it’s easy and cheap in this field to slingshot a game into the market and see if it crushes a pig.
Still, there are a few important trends to keep in mind. Johnson says mobile is a “mandatory requirement” and mobile games should be functional across all smartphone platforms. Highlighting the move to mobile, CrowdStar, creator of popular Facebook games like Happy Aquarium and the “Girl” series (Social Girl, It Girl, Top Girl, etc.), said a few days ago that it will stop making games for Facebook. Though the company earned 90% of its 2011 revenue from Facebook, CEO Peter Relan predicted it will make 90% of its revenue in 2013 from mobile.
Especially attractive to mobile gamers are “fun in-and-out games,” Johnson says, games like Angry Birds. Immersive, 50-hour-a-week games are attracting an increasingly limited audience – and companies that make them are drawing limited interest from acquirers. “You see these quick-hit games get snapped up by acquirers,” Johnson says. “Teams that can make these games are very attractive.”
Another thing a game maker needs is social expertise. And that means not only a keen understanding of how to work on top of Facebook, “but also an ability to tap into whatever the next big thing is,” Johnson says. “Can you do something with Pinterest? Or can you do games on Twitter around 140 characters in a compelling fashion? If you nail that you become uniquely appealing to someone with a big amount of money.”
Be Ready to Pivot
Build fast, build cheap, test online and pivot quickly if you’re on the wrong track, Johnson advises his gaming companies.
“I see more startups being formed and more getting acquired. There’s a whole new entrepreneurial class and games are a natural for this new young entrepreneurial class. Unknowns can find the next big thing, build a lucrative business around one game and get acquired.”
Source: Game Startups Eye Zynga Bling