10 ms·

Why Zynga Failed

86 points by uladzislau 14y ago

potatolicious 14y ago
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.
- jpdoctor 14y ago
  > Fundamentally, Zynga's business model and products did not line up with the interests of either its host platform (Facebook) or its end users. You left out: But it did line up with the interests of the investors, who then poisoned the well by bringing this POS public.
  - potatolicious 14y ago
    I don't think the public has anything to do with Zynga's failure. They've been losing mindshare and players since well before the IPO, and Facebook likewise has been closing the door on spammy app behavior since well before the IPO as well. Zynga's failure is entirely its own doing.
- Peaker 14y ago
  Towing companies provide negative value to their paying customers, but seem to make a killing.
  - adgar2 14y ago
    They provide value to the owners of the roads from which customers are towed - roads typically owned by the public. Your analogy is folly.
    - Peaker 14y ago
      They make their money from the car owners, so who are their customers?
- Bud 14y ago
  I think it's largely even simpler than you say: They copied everything. They stopped even trying to think up a new idea.
  - wslh 14y ago
    I don't think copying is the main reason of failure. Probably if they copy WoW they would be more succesful.
    - ido 14y ago
      $100s of millions (or more) were spent trying to copy WoW by many companies and almost everyone but blizzard failed miserably.
      - derefr 14y ago
        With a lot of them, though, the problem was that $100s of millions were being spent. MMO games--even niche ones--have guaranteed revenue; the problem has always been making a profit after incurring such high initial development costs. You fix this by making games for cheap--Korea is pushing cheap MMOs out by the dozens, and they're all turning tidy profits.
  - viscanti 14y ago
    It wasn't the copying, it was the culture of AB split testing everything that killed them. AB (or multi-variate) testing can help improve an already successful product, but I'm not convinced it can build a good game from scratch (or from copy). A culture of design by AB split testing killed any chance they had at creating another breakthrough game. Sending out emails to select users about possible future games, and counting click throughs as votes, with the idea of building the game with the most votes is probably doomed to failure. They double-downed on that strategy, brought in a bunch of MBA types (not evil people, but not great game designers either) to statistically manage game development. It can't be too surprising that great games aren't built that way, and a game company without great games can't survive forever.
- ljd 14y ago
  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?
  - rz2k 14y ago
    What does provide real value? I am sure it sounds like nitpicking, but arguments that hinge on an idea of real value are inescapably about a moral judgement of some kind. It hardly matters whether you are cursing the rise of manufacturing in contrast to agriculture, or complaining about the growing portion of wealth and prosperity coming from the service sector. Does the distinction draw a line between Zynga and other games, or between games and other entertainment. Where do professional sports fit in the hierarchy of products with virtue? How about art? I think GP is getting somewhere with the idea about innovation and extraction, and maintaining focus on the utility players derive as an imperative before any extraction can be done. However, it is very easy to get off track venturing into vague notions about real or fake value. If users enjoy playing the games then theentertainment is offering value no more imaginary than any other.
    - potatolicious 14y ago
      Real value is whatever your customers are looking for. In this case, presumably, fun entertainment. Zynga was more concerned with setting up an addiction loop and reaching into your wallet than building anything that lived up to its value proposition: creating fun entertainment. It even fails the main value proposition as a casino - the winnings aren't worth anything.
- guelo 14y ago
  I got semi addicted to Mafia Wars for about a week back in the day when newsfeed spamming was more wide open. I quickly realized that the game had no payoff and the company had no respect for its users. It felt scammy and dirty. When I later learned more about Pincus' loose ethics it started making more sense. Unfortunately Pincus is a very rich man which will encourage future assholes.
s_kilk 14y ago
Simple, they make dreadful, shitty shovelware. Failure is hardly surprising in that case.
joeycfan 14y ago
Because they were ethic-less thieves?
staunch 14y ago
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.
steve8918 14y ago
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.
- reitzensteinm 14y ago
  > As an (unhappy) investor I don't think I'm the only one here that would love to hear that story!
  - steve8918 14y ago
    Not much of a story to tell, I bought ZNGA shares, and am unhappily suffering LOL. I figured they are getting close to book value, and they couldn't drop much further (always the worst reason to buy a stock). And I thought that given they have real revenues, that someone might be willing to step in and buy them for their customers. Maybe YHOO or AOL, or even FB. Now, with their revenues dropping, it could be that NO ONE wants to buy them for fear of overpaying (like they did with OMGPOP), so I could be up the creek on this one.
    - 14y ago
runn1ng 14y ago
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).
alizaki 14y ago
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.
zzzeek 14y ago
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 ?
skrish 14y ago
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.
SeanDav 14y ago
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.
andrewljohnson 14y ago
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?
viseztrance 14y ago
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 14y ago
  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 14y ago
    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.
tatsuke95 14y ago
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-capitalist-angle-on-zynga/ http://blogs.marketwatch.com/cody/2012/07/26/the-venture-cap... 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.
overbroad 14y ago
Why Mark Pincus failed? Or did he? How much did he make from the Zynga "failure"?
Evbn 14y ago
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.

86 points by uladzislau 14y ago

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.

jpdoctor 14y ago
> Fundamentally, Zynga's business model and products did not line up with the interests of either its host platform (Facebook) or its end users. You left out: But it did line up with the interests of the investors, who then poisoned the well by bringing this POS public.
- potatolicious 14y ago
  I don't think the public has anything to do with Zynga's failure. They've been losing mindshare and players since well before the IPO, and Facebook likewise has been closing the door on spammy app behavior since well before the IPO as well. Zynga's failure is entirely its own doing.
Peaker 14y ago
Towing companies provide negative value to their paying customers, but seem to make a killing.
- adgar2 14y ago
  They provide value to the owners of the roads from which customers are towed - roads typically owned by the public. Your analogy is folly.
  - Peaker 14y ago
    They make their money from the car owners, so who are their customers?
Bud 14y ago
I think it's largely even simpler than you say: They copied everything. They stopped even trying to think up a new idea.
- wslh 14y ago
  I don't think copying is the main reason of failure. Probably if they copy WoW they would be more succesful.
  - ido 14y ago
    $100s of millions (or more) were spent trying to copy WoW by many companies and almost everyone but blizzard failed miserably.
    - derefr 14y ago
      With a lot of them, though, the problem was that $100s of millions were being spent. MMO games--even niche ones--have guaranteed revenue; the problem has always been making a profit after incurring such high initial development costs. You fix this by making games for cheap--Korea is pushing cheap MMOs out by the dozens, and they're all turning tidy profits.
- viscanti 14y ago
  It wasn't the copying, it was the culture of AB split testing everything that killed them. AB (or multi-variate) testing can help improve an already successful product, but I'm not convinced it can build a good game from scratch (or from copy). A culture of design by AB split testing killed any chance they had at creating another breakthrough game. Sending out emails to select users about possible future games, and counting click throughs as votes, with the idea of building the game with the most votes is probably doomed to failure. They double-downed on that strategy, brought in a bunch of MBA types (not evil people, but not great game designers either) to statistically manage game development. It can't be too surprising that great games aren't built that way, and a game company without great games can't survive forever.
ljd 14y ago
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?
- rz2k 14y ago
  What does provide real value? I am sure it sounds like nitpicking, but arguments that hinge on an idea of real value are inescapably about a moral judgement of some kind. It hardly matters whether you are cursing the rise of manufacturing in contrast to agriculture, or complaining about the growing portion of wealth and prosperity coming from the service sector. Does the distinction draw a line between Zynga and other games, or between games and other entertainment. Where do professional sports fit in the hierarchy of products with virtue? How about art? I think GP is getting somewhere with the idea about innovation and extraction, and maintaining focus on the utility players derive as an imperative before any extraction can be done. However, it is very easy to get off track venturing into vague notions about real or fake value. If users enjoy playing the games then theentertainment is offering value no more imaginary than any other.
  - potatolicious 14y ago
    Real value is whatever your customers are looking for. In this case, presumably, fun entertainment. Zynga was more concerned with setting up an addiction loop and reaching into your wallet than building anything that lived up to its value proposition: creating fun entertainment. It even fails the main value proposition as a casino - the winnings aren't worth anything.
guelo 14y ago
I got semi addicted to Mafia Wars for about a week back in the day when newsfeed spamming was more wide open. I quickly realized that the game had no payoff and the company had no respect for its users. It felt scammy and dirty. When I later learned more about Pincus' loose ethics it started making more sense. Unfortunately Pincus is a very rich man which will encourage future assholes.

s_kilk 14y ago

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

joeycfan 14y ago

Because they were ethic-less thieves?

staunch 14y ago

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.

steve8918 14y ago

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.

reitzensteinm 14y ago
> As an (unhappy) investor I don't think I'm the only one here that would love to hear that story!
- steve8918 14y ago
  Not much of a story to tell, I bought ZNGA shares, and am unhappily suffering LOL. I figured they are getting close to book value, and they couldn't drop much further (always the worst reason to buy a stock). And I thought that given they have real revenues, that someone might be willing to step in and buy them for their customers. Maybe YHOO or AOL, or even FB. Now, with their revenues dropping, it could be that NO ONE wants to buy them for fear of overpaying (like they did with OMGPOP), so I could be up the creek on this one.
  - 14y ago

runn1ng 14y ago

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).

alizaki 14y ago

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.

zzzeek 14y ago

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 ?

skrish 14y ago

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.

SeanDav 14y ago

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.

andrewljohnson 14y ago

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?

viseztrance 14y ago

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 14y ago
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 14y ago
  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.

tatsuke95 14y ago

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

overbroad 14y ago

Why Mark Pincus failed? Or did he? How much did he make from the Zynga "failure"?

Evbn 14y ago

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.