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Comment by dkrich | Hacker News Reader

But $200mm for a company that built the electronic version of Pictionary that was released six weeks ago? That is insane!

The gaming industry is not one that can be controlled by a single company. I don't mean to sound harsh, but it is pretty clear to me that Zynga has too much money and very little vision. The numbers just don't make sense.

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You say "electronic version of Pictionary that was released six weeks ago." I say "#1 paid, free, and top grossing iOS app, 12 million active users"."

Great. Would you pay $200mm for a game that was released a little over a month ago? It seems to me that money has no value in Silicon Valley. We've seen this story play out before, but I guess we'll need another bubble to clean out the rest of the suckers.

Yes, I would pay $200mm for a game that nets $250k/day or $91.25mm/year. Assuming Zynga does nothing but maintain the revenue, it will make back it's investment in a little over 2 years. How many investments opportunities are out there that net you a ~40% yield!? Of course there is risk with an investment like this, but this is after all, their core business and they are probably very good at mitigating those risks.

Ha, right. And in related news, at its height, the Pet Rock was netting a million dollars a day. At that rate, why didn't somebody pay $700 million to acquire the company? They could have made their money back in two years.

Don't know anything about the Pet Rock, and you can poke fun all you want, but it doesn't change the fact that this title has significant revenue that is more likely to go up than down under Zynga in at least the medium term due to reasons such as:

- Cross promotion

- platform leverage

- historical performance of similar games

- and all of this operating in a market segment (mobile gaming) that is exploding not contracting.

Would should they be spending their money on? I would look at is as user acquisition to, Zynga will quickly have their box in the app cross promoting their other apps.

Nah, I don't buy that. Most users play games on a one-off basis. That is, people realize a game is fun, get a few of their friends to play with them, and they're off.

I don't think Zynga gains any long-term competitive advantage from this. Most people don't play games because they know the company that produces them, they play them because they are a fun novelty. Games are necessarily one-off successes at the mobile/social level, because there is not really a storyline or steep learning curve, so I believe that a company that produces one successful game is no more likely to produce another than a company with no previous successes, assuming equivalent technical know-how.

This may well be part of a bubble but what does the release date have to do with it?

Because there is very little evidence that the company can reproduce this success, or even that the current rate of revenue for that game will persist for any meaningful period of time. It is pretty clear that they (Zynga) made a snap judgment and decided to pick up the company, regardless of the cost.

This reminds me a lot of when Mark Cuban sold Broadcast.com to Yahoo. Yahoo execs overreacted to the potential of the technology that Broadcast had developed, and were drastically overpaying out of fear of missing out. Not a great position to make acquisitions from.

The network effects of Draw Something's user base add immense value. Think FB vs. G+. If Zynga had made their own Pictionary game, it would have been a graveyard.

I'm not disputing that it is a wildly successful game. I am stating that a $200mm valuation of a single game is insane. I know the argument will be made that they bought the whole company, but this acquisition would not have happened if not for Draw Something.

Given the number of developers working on producing the next big hit in games, there will be a Words With Friends or Draw Something released on an ongoing basis. Why would Zynga get in the business of buying up these companies after the hits have been produced? Seems like a losing business model.

The value of the game to Zynga is higher than the value of the game on the open market, since Zynga can cross-promote their other games and also suck up a whole ton of personal information from the Draw Something userbase.

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