CASE ANALYSIS OF ZYNGA HBS CASE
LUK KA LAI
FACULTY OF ENGINEERING OF THE UNIVERSITY OF HONG KONG
Zynga is the world's fastest growing social game company, it brings online games with social platforms. According to Zynga reports of 2nd Quarter 2012 financial results (http://investor.zynga.com/releasedetail.cfm?ReleaseID=695419), it has a DAU of 72million and MAU of 306 million. With the vast amount of active players, Zynga offers incentive opportunity for marketers.
As a case study, this paper gives a detailed analysis on Zynga's business model, its success key factors, competitive advantages as well as key challenges. Zynga has demonstrated an online game which is highly dependent on social network and generate revenue with virtual goods. It has built up an enormous community in the virtual world , there are numerous ways of potential monetizing from virtual world to physical world. I have created an infographic which highlight some information about Zynga as a virtual world business.
Zynga is founded in July 2007 by Mark Pincus, the company is named after this CEO's dog and the logo is the depiction of his American bulldog. Within 5 years time, this bulldog iconic image becomes familiar to the social game players over 175 countries. Basically, Zynga monetize through four main streams in-between two “planets” (physical and virtual).
Virtual goods sales
Display advertisements in the two “planets”
Affiliate offers marketing
Application install of ads company
1. Virtual goods sales
Following chart shows the trend of average bookings per user (ABPU) in three-year-time. For Zynga business model, ABPU is referring to the average virtual goods sales per MAU. Virtual products generate a majority of the revenue for Zynga, they involve almost 90% of total revenue. According to a research done by OnlineSchool.org, virtual tractor being sold in-game everyday is more than number of tractors being sold in US every day. Zynga is following freemium model, its business model is offering free games aim to attract more gaming audience, and to make money by virtual goods sales. Zynga creates a two-sided market in Zynga planet, one set of customers is subsidizing another set . It is proven by the figures provided by Zynga report in February 2012 (http://www.alltechienews.com/posts/zynganomics-4-secrets-of-the-social-gamingbusiness-model), given that only about 3% of people pay for the games in average , and the average revenue per user (ARPU) is probably closer to $60 per user, bringing a result of ARPU for the entire Zynga population around $2 per user.
The 97% of the gamers though never made a purchase, they are valuable asset to Zynga. Because they devote their time to create entertainment, excitement and challenge for the 3% .
2. Display advertisements in the two “planets”
Second way of bringing revenue to Zynga is via Ads disply. And there are two categories of Ads display, either in-game ads or physical world ads.
In-game advertising could be displaying banner ads during game loading. Or it could be product placement in the game. For example , McDonalds has its branded farm in FarmVillie (one of the most popular Zynga game) ,the farm is eye-catching, gamers receive rewards with McDonalds branded farm if they visit the farm . The ultimate goal is to create some viral effect by engaging players to say something about the brand. Such kind of launching a product placement into the game is considered as a disruptive marketing method in online game industry, as it is innovative and inspirational in gaming 2.0 world.
Affiliate offers marketing
There is also game-branded physical world products as a kind of affiliate advertising between Zynga and its partners. By this way, it generates win-win...