4 emergency maneuvers for ZyngaAugust 7, 2012: 5:00 AM ET
The social gaming company is clearly in trouble. Here are four moves it must make -- now.
FORTUNE -- Zynga has seen better days. Its share price is down nearly 70% since it went public last December and, worse, its user base has dropped 16% year-over-year to 141 million players. Zynga, like many other tech companies, faces the challenge of transitioning to an increasingly mobile world. It's a challenge that, as The Wall Street Journal recently reported, the casual gaming developer is grappling to get a handle on.
Migrate to HTML5. Faster. If Zynga is serious about mobile, it should move more of its key properties over to the quickly maturing web standard. (The company has released a few such games, including Zynga Poker and FarmVille Express.) After all, Apple's (AAPL) iPad and iPhone still don't support Adobe (ADBE) Flash -- and let's face it, never will -- which the vast majority of Zynga's games for Facebook run on. "With tablets like Microsoft's Surface Tablet which run Word, we're not going to carry laptops anymore," argues Michael Pachter, an analyst with Wedbush Securities. "We're going to have an iPad or a Surface tablet or something. Let those people be able to play your games." It's a no-brainer, but the more readily available its games are, the better Zynga's chances for user growth and wider spread adoption.
Go freemium -- with ads. Because mobile users tend to play games more casually than those on the desktop, Zynga has said those users tend to spend less money. That, along with the challenge of working on a far smaller screen, has caused the company to debate which business model to go with on mobile. Should users pay up a fee upfront, or pay nothing initially but cough up money later for extra features? Industry analysts remain divided on whether the latter business model, "freemium," is a good idea -- indeed Pachter calls the idea "stupid" -- but according to Scott Steinberg, a gaming analyst and head of business consulting at TechSavvy global, the average mobile user interacts 12 times with an app during the course of 10 days before paying for it. If that's the case, offering users the lowest possible barrier of entry, supporting the experience with unobtrusive ads and charging for goodies, may be the way to go.
Become a platform for content discovery. Earlier this summer, the company launched Zynga.com, a game-focused social network. It was an overt attempt to build out its user base separate from Facebook, which Zynga had been until then, entirely dependent on. The company also announced initial partnerships with gaming companies like Konami and Playdemic, where their games would also be promoted. While distancing itself from Facebook is wise, so would the idea of building out Zynga not just as an independent entity, but also a hub for users to find games from different developers and publishers. Given users today have enough trouble easily finding new content -- an industry-wide problem -- Rick Summer, a senior analyst at Morningstar Securities, says there would be a clear upside for Zynga if it successfully managed to become a go-to platform for casual gamers to discover new properties.
Keep acquiring. Many analysts Fortune spoke with say Zynga's acquisition of OMGPOP for a reported $180 million was overpriced given the company remains known for one game, Draw Something. But the acquisition approach is a smart one nonetheless, particularly given Zynga's deep pockets. The key moving forward will be absorbing companies that have proven themselves capable of cranking out more than one successful game and having those properties compliment Zynga's existing portfolio. "Hits are harder to come by," observes Steinberg. And an increasingly hit-driven industry like gaming, sometimes it's easier to buy a hit, than trying to develop one yourself.