Market Overview

First Comes Zynga's I-P-O, Then Zynga's D-E-A-T-H


Zynga's current business model is a recipe for disaster.

In terms of media attention, Zynga is the can't-lose-game developer. From IPO amendments and new game anticipation to positive side effects and IPO valuations, Zynga is the company everyone is talking about.

But while the news typically sounds good or, at the very worst, cautious, Zynga is anything but a safe game developer. Since its inception four years ago, the company has produced a bundle of hugely popular games. All of them are free to play, have been pushed heavily on Facebook, and have encouraged millions of people to play video games for the very first time.

These are good things for all of us – for gamers, for the game industry, for Facebook, and most of all for those hardheaded businessmen who insist that the free-to-play model is the way of the future.

But Zynga, like so many developers, has fallen victim to the idea that one game format is all you need to succeed. Activision (NASDAQ: ATVI) is certainly guilty of this; just look at the Call of Duty series. It hasn't changed much in the past five years. And look at Activision's competitors – they all make Call of Duty and/or Gears of War clones. The iPad is getting overrun with clones of the latter.

This whole design philosophy is based on the belief that “anything you can do, I can do just as well – and make just as much money at it!” It's not a great philosophy, but that's business.

The problem for Zynga is that it isn't currently developing games for hardcore gamers. Instead, the company is creating simplistic, Sim City-like social networking games that bank heavily on the belief that everyday people will not tire of repetitive experiences. That strategy is enormously risky. It didn't work for the Guitar Hero franchise, nor did it work for arcades, party games, or any other fad that attempted to cash in on the mainstream.

If Zynga could successfully convert its Average Joe and Average Jane users into dedicated game players, its security would surely increase. But it wouldn't be foolproof. One thing that the console have taught us is that, the more games people play, the more likely they are to tire of the same old experiences. This is why the popularity of genres (action, fighting, RPG, etc.) fluctuates every few years. In fact, over the last 15 years, shooters – both first- and third-person – are the only games that have consistently stayed at the top. (Hence the number of Halo and Call of Duty clones…)

With that in mind, you might think that Zynga would be wise to develop a first-person shooter. And maybe it should; it would be interesting to see how its microtransaction business model would work with a shooter that anyone can play for free. Of course, it would have to be a very low-end shooter that can run in a browser. Without that flexibility, Zynga would greatly reduce the number of potential players, thus limiting the amount of potential profit.

This obviously goes against Zynga's business model. It also goes against the benefit of using Facebook. If you can't reach every person using the social network, why bother?

However, that doesn't mean Zynga can't move forward with some new game concepts. There are a number of genres that work well in a plain, 2D environment, including action, sports, and fighting. Zynga could take any one of those genres and create an entirely new experience (or breathe new life into experiences from the past).

While this might sound like wishful thinking, the company has reportedly hired Mark Turmell, the creator of NBA Jam, NFL Blitz and Smash TV. If Zynga is serious about protecting its future, advancing its portfolio, and improving its bottom line, Turmell is the kind of developer the company needs. All of his hits were made at a time when technology was either very basic (as in the case of Smash TV and NBA Jam) or just beginning to evolve (as in the case of the three-dimensional NFL Blitz). The Blitz format is almost certainly too advanced to be turned into a Facebook game. But I am betting that his other creations could be converted to the Facebook format without issue.

This gives the company hope, which is more than it had two months ago. But Zynga still has a lot of hurdles to overcome. Mike Capps, the president of Epic Games (the studio behind Gears of War, the Unreal engine, and other hits), recently put things into perspective.

“You see a lot of people, both on the customer side and the service side doing things that don't make sense,” Capps told GameSpot. “I don't think people meant to spend $500 on gold in whatever social game they were playing. I don't think that can really last. I doubt they're going to keep doing it. I think chasing after millions of people who will pay you $500 a month to play your game online doesn't really make sense. So there's a little bit of unrealism in that market that I'm hoping susses out.”

This is bad news for Zynga, which may not be able to survive on ad revenue alone.

On the flip side, Capps is concerned about the impact Zynga may have on the next generation of game consoles. “We're excited about it,” he said. “But there's a big risk that nobody cares because they're all too busy playing [Zynga Facebook game] Empire and Allies, and they don't need a next-generation console box.”

Does this mean that social networking games and console games could inadvertently cancel each other out? That would be a horrible outcome that no one wants to see. But with Nintendo (NTDOY) making terrible mistakes and Sony (NYSE: SNE) flip-flopping on the PS Vita release date, console manufacturers are going to have a rough time going into the next generation. Nintendo is already feeling the burn, and Wii U isn't likely to change that.

Follow me @LouisBedigian

Posted-In: Activision Call of Duty Epic Games Facebook GameSpot Gears of War guitar heroTech Best of Benzinga


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