Mark Pincus, Founder of Zynga, Is Replaced as CEO Again
nytimes.com
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It's such a tough business given that you need to invest in building a full game before you really know if it's going to be a hit. You could put out concept art, etc. but I'd argue that you can't really do "private betas" like what we do with SAAS just yet.
When the game got into a playable state he already got some followers. And the word started to spread. It was still a free Java applet at the time. Then people started to play it on Youtube and it exploded. And that's when he started charging 10 bucks for the game.
Whatever you may think about PES, FIFA was forced to evolve a lot to compete with it (everyone used to think PES was better). Progress has been more modest for Madden, which has had no competition for something like a decade.
This makes them a safer bet than companies like King or Zynga, which bet the farm on one particular quadrant of the overall gaming universe (casual games on mobile devices). If the world stopped playing games on their phone tomorrow, EA could survive that.
But normal game companies? Especially casual game companies? Do people really have that much faith that Candy Crush and the like is more than a generation's flash in the pan like Tetris, Pogs, or Tamagotchis?
No, but people have faith (quite often irrationally so) in their own ability to time the market, and be able to exit at the right time.
Activision and EA are movie studios. Zynga is a casino. Activision and EA want big hits and loyal fans. Zynga doesn't really care if you've played any of its previous games, or whether you play games at all; it just cares whether you'll play right now. (And maybe later, and later, and then more after that.)
(Of course, casinos also have their whales, as do Zynga-style games.)
There are some old hotels (literally) out there that can still crank out cash and they're fine investments as long as you set your expectations appropriately.
I just the best talent will either start their own companies or join smaller companies where they can have more equity participation.
In a sense I see parallels with old AOL. They were still making money off the landline accounts sold to our parents, and did some copying here and there, but very little new greatness while they lived off the cash cow.
A better comparison might, perhaps ironically, be Yahoo. Not that Yahoo was ever as hated as Zynga, but after their usefulness as "the front page of the Internet" faded -- before the first dotcom boom went bust! -- Yahoo never really figured out what the hell to do with themselves, beyond continually insisting that they were an important media company. Somehow.
One thing that is common, is that everyone that knows how the game industry work, always keep pointing to Zynga that they are doing it wrong, but they don't change their ways, and keep doing it.
Yes, game industry IS hit driven, and this does lead to some problems (example: Maxis was VC funded, investors were expecting their growth to be stable, not a roller coaster, after the massive hit that was SimCity 2000, they had no time to outsell SimCity 2000 the following year to keep a growth pattern, VC didn't understood that and the end result was them being sold to EA). But even then, on long term is obvious that a company experience and solidity is more important, for example Bethesda, that uses the terrible and buggy engine Gamebryo, although I am one of the voices that keep asking them to change, I suspect the reason why they can crank games with similar quality every time, is BECAUSE they never changed their tools, and make all games similar to each other. Another RPG example is Obsidian, that for each game used wildly different tech, yet all their games are known to have a certain baseline quality that came with experience. Or for a mobile game company, Toca Boca, all their games have a distinct style of theirs, and they have a clear process on how games are created.
Zynga got one part right, that is to "fix" the hit driven problem by having some stability with their "average" releases, the part they got wrong is that they do that by just copying everyone else games, and copies rarely do great, specially in time consuming games.
When WoW appeared, and MMORPG making became a mania like tulip-mania, with investors throwing money at MMORPG companies with little thinking, I warned lots of people that making a WoW copy would never work, WoW is a time consuming game, if you make a clone, why the person would play the clone? a WoW fan will keep playing WoW, and someone that don't like WoW, won't play the clone.
Every single company I knew, that attempted to make a MMORPG after seeing WoW success (instead of making the game a MMORPG because it made sense) was a failure, I know investors that lost millions with this, and I know people that accepted a proposal I vehemently reject that got problems too. (one company approached me, and asked me to drop out of college to join their MMORPG team, the company owners visited Blizzard headquarters, were mesmerized, and wanted to copy it, but doing a christian MMORPG, I flat out refused, the company somehow went bankrupt only 3 months later).
Zynga needs to start doing serious game R&D (instead of making lots of clones), and also find their own style of games to create consistently, and find their average revenue to size the company according to it...
If you have a hit, just store the cash, many, many game companies of all sizes learned the hard way that growing after a hit can result in you having to be forcefully shrink again to pre-hit levels, usually in a painful manner that might make you lose lots of money.
Another scenario is that they get acquired by a different company. In this scenario it is also likely their share price would jump and I would cash out as well.
- Goodwill - 657,671,000
- Property, plant and equipment - 273,221,000
The 273 million in PP&E is interesting because that is essentially the purchase price on their headquarters building (or $340 per square foot). Office space in San Francisco is going for around $800 per square foot now.
Since investors know about that potential large gain, they are effectively saying two things:
1.) They do not trust that Zynga will ever deliver profits.
2.) They value goodwill at zero.
In a case like this, honestly, laying off people is one of the more palatable tools in their box. A round of layoffs would:
a.) Drop their annual operating loss (they lost about $45m in 2015 and if their headcount stays the same and they lease space in the building they currently own, they can expect that loss to rise in 2016.)
b.) Cut the amount of space that they need to lease.
c.) Streamline the company.
Of course, it could also:
a.) Kill morale.
b.) Encourage everyone left to dust off their resumes and stream for the exits while the job market in San Francisco stays strong.
Either way, Zynga is in a tough spot. Investors have ultimately valued the company at assets + zero and show little faith that the company will ever be profitable again. Layoffs are a tough thing and they often backfire, but strategically, they aren't unthinkable.
According to their most recent statement of cash flows (year ended Dec 31, 2015), they lost about $45m on operations last year. Since they're selling their building (and if there are no layoffs), I suspect that to increase to around $55m. That gives them a ton of runway...
My only concern is that their current $2.25 stock price gives them a market cap of a little less than $2.1b. That is quite interesting because their 2015 balance sheet shows total assets of just a little over $2.1b. The dubious number on their balance sheet is ~ $658m of goodwill, but I think that risk is possibly offset by only valuing their property, plant and equipment at ~ $273m.
Zynga may not have another hit left in them, but if they do, a $2.25 stock price leaves plenty of room for profit. It's definitely not a place to park your retirement money, but there are certainly worse stocks out there!
Wether or not that's a good bet is debatable considering their track record to date.
In my opinion, the problem with Zynga was the social games bubble, years ago I used to read on tech news websites that Zynga is really big to the point that Facebook own 25% of its revenue to Zynga, Facebook was just started monetizing their business. Sometimes you shouldn't "look big" as much as others expect you to be.
I think most people are in agreement that, simply from the fact that VR doesn't currently exist on the market, and the novelty factor, we're going to see a spike in VR sales and development.
The real question is whether or not this will last, and whether it has the potential to become a substantial part of the mainstream in the medium-long term.
My bet is on VR becoming more refined and better, with enough business to support a few small-ish headset manufacturers, but it will not come anywhere near, say, the scale of the Xbox/Playstation/PC install base. The big challenge is getting devs to support it - VRizing properly is not a small feat, and developers have proven very reluctant to support niche hardware (see: Kinect).
I wouldn't underestimate the impact of "social" gaming on wii's success, it was seen as accessible, casual, gaming at an affordable price. One of the unfortunate aspects of current gen consoles is that the games don't support single-console multiplayer for the most part. I have to leave an go home if I want to play destiny with my friends.
With VR you can't really share the experience so it sort of loses the word of mouth type virality that came along with Wii where you might go to someone's house and play together. Instead it's a solo experience. Even if multiple people have headsets (even more money) you still aren't sharing in the experience in any way.
The smartphone headsets are somewhat better, but still just kind of a neat trick. I don't deny that VR is plenty cool but the barriers for widespread adoption are just too high in every direction I look.
The Wii was in hindsight in the same space as Guitar Hero and Rock Band - really cool social experiences that ultimately had no sticking power. Both were a flash in the pan (to the tune of a couple years rather than a couple months, but still very temporary), and both are deader than a brick right now despite attempts to resurrect it.
But in any case, agree - VR is just too limited, too niche, and too expensive. Costs will surely come down, but by enough to get a huge install base?
The Wii was dirt cheap compared to consoles of its generation, and even it couldn't sustain sales despite having a novel but niche experience. At $600-800 VR has absolutely no mainstream future, at $300? Maybe not even then.
The PSVR is IMO the most realistic shot right now at mainstream VR - it promises to be cheaper than Oculus and Vive, and has a dependency on a medium-priced console as opposed to a high-end gaming PC. Even then, the all-in cost of PSVR is likely still going to nearing $1k.
The points you're making about shared experiences are somewhat valid in terms of, I'm not going to keep 4 headsets around so my friends can come over and play. But I feel like I experienced that problem with Xbox anyway, friends who only have 1 or 2 controllers.
And once you do have multiple headsets, it's absolutely a meaningful shared experience. There are games where you can hear the other person talk, see their avatar's mouth move as they do, move around and play games with them in a made-up environment. It is so awesome.
It's very hard for companies to regain this once it's been lost. This is why I think it may be hard for them to regain their greatness.