Advanced Strategic Management: Zynga

Topics: Zynga, Facebook, Video game console Pages: 24 (4523 words) Published: December 10, 2012
Advanced Strategic Management

Page 1

This report is an assignment of the Advanced Strategic Management course taught by Professor Andrei Vilarroel. The report consists in an assessment of the sources of competitive advantage on the giant gaming company Zynga.

The initial hypothesis we proposed are: Simplicity of the games offered; Accessibility of the games offered, focusing on the platform; and the social component that the games provide. The scope of our analysis is not only the social gaming industry; instead we assessed Zynga in the whole gaming industry context. The purpose of this analysis is not only to determine why Zynga is the best in social gaming but instead try to explain the roots of its success to comprehend the success of Social Gaming vs Traditional Gaming. Company’s Background

Zynga is now a private company, created by Mark Pincus, Scott Sale and Kyle Stewart in January 2007 as a social network game developer. With headquarters in San Francisco, California (U.S.A), it has started its operations in April.

Over the years, the company has launched a lot of games that quickly reached the top leading position in the social gaming industry.
Zynga Poker (July 2007), was the first social game developed by the company, being the largest free-to-play online poker game in the world. It was available for platforms such as Facebook, Myspace, Yahoo!, Google Android and Apple iOS and with MAUs (monthly average users) of 35 million, it is the fourth most popular game on Facebook.

Other games (Exhibit 1) were introduced during the last years including Mafia Wars (June 2008), FarmVille (June 2009), Treasure Isle (April 2010), Frontier Ville (June 2010), Words With Friends (November 2010), CityVille (December 2010), Empires & Allies (June 2011), and many others.

CityVille is the largest game on Facebook (MAUs: 70 million) consistent with AppData, followed by Farmville with an average of 37 million monthly active users. Both games are on Facebook and iOS platforms.

In September 2009, Zynga had an average of 99 million monthly active users, and in July 2011 it has reached 232 million MAUs (Exhibit 2) showing a positive evolution throughout the years (Exhibit 3), obtaining a growth rate of 232%.

As the company kept growing, the number of employees also has registered a significant increase, from 157 employees in December 31, 2008, to 2000 workers in July 1, 2011. Since the early beginning, Zynga had shown interesting financial results, having in 2008 $19,410 million of revenues. At this moment, it has increased its revenues by 1212% ($235,421 million). All this money comes essentially from the sale of virtual goods and a smaller part from advertising. More than 95% of users do not spend any money with games, but by the fact the company has 232 million active users per month, and by making the math (5% of 232 million = 11, 6 million users), there is a lot of people that really buys imaginary chickens for $5 on

Advanced Strategic Management

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Farmville and skyscrapers for $3 on Cityville, contributing to the overall optimistic growing of the company (Exhibit 4).
The core values of Zynga (Exhibit 5), since its inception, allowed the company to scale very fast as it keeps its high-speed growing pace coupled with innovation and the creation of new ways of playing games.

The projections for the upcoming years are not as enthusiastic as it could be predicted; there will be a declining in the growth rate of the number of users and active players (Exhibit 6), either for Zynga and Facebook.

Mark Pincus, Zynga’s current CEO, has now to face these new trends and understand how to react in order to keep this highly profitable company away from being out of gas, and try to continuously pursuit their mission: “Connecting the world through games”. A mission that is much more tangible since Facebook’s entry as a platform to gaming. Ten years ago, the videogame industry was pretty much dominated by the hardware...
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