David Ko, Zynga's
Zynga and Ko want to build a viable business outside of Facebook, the world's largest social network, where Zynga generated more than 94 percent its revenue in the third quarter. With Facebook imposing a 30 percent tax on money made on its website, it is an economic imperative that Ko drive his company's users to other platforms so that Zynga can keep more money for itself. He is, in essence, on the front lines of Zynga's battle for independence, which could be one of the reasons why he dubbed his office enclave the “war room,” where he works on new game ideas, schedules and strategic plans. And so far, Ko's team has fired off a few successful rounds. Zynga's games are climbing their way up Apple's
On the App Store on Wednesday, Zynga had the No. 2 app overall on iTunes, while it was in second and fifth place in the top paid app category. It held No. 1 spots on both lists a week ago and has made the list for five top grossing apps, according to Appshopper.com.
With about 1 billion apps being downloaded each month on both Apple
“Those numbers are growing really fast and our users or player numbers reflect that,” Ko said in an interview. Zynga said on its IPO roadshow that it had 13 million active daily users on mobile devices in November, a 17 percent increase from the 11.1 million mobile players it reported in October. Trouble is, that's still 40 million fewer users than the roughly 53 million daily active Zynga users on Facebook this week.
The good news is that its growth rate on mobile devices is greater than it is on Facebook. In fact, the number of Zynga users on Facebook declined 5 percent year-over-year in December, according to data tracking website AppData.com. While Ko said popular mobile games “Scramble with Friends” and “Words with Friends” are poised for growth, it may be more wishful thinking than an actual business reality that these games could steal the spotlight from Zynga's main revenue source, Facebook games such as “CastleVille” and “FarmVille.” “There is a monetization difference between PC and mobile,” Ko said, without elaborating.
Wedbush Securities analyst Michael Pachter said mobile games make a fraction of the money what Zynga's games make on computers because handheld screens are smaller, the experience is less immersive and there are fewer opportunities for players to spend money.
The perceived Facebook crutch is one of the factors dragging down Zynga's shares since it went public on Dec 16. But extricating itself from the social network won't exactly be a financial walk in the park. Investing in mobile games isn't cheap, and the price to stay ahead of the curve could be high, said Steve Soranno, equity analyst at Calvert Investment Management, which has $12 billion of assets under management.
“The high demand for constant innovation — even if it's a word game — could lead to high costs for the company,” said Soranno, who is considering an investment in Zynga. Zynga bought eight mobile companies last year and has poached a roster of top executives from its rivals, the most recent being Barry Cottle, an Electronic Arts
It is also experimenting with different business models for handheld devices. Zynga makes money from selling virtual items in games, similar to its Facebook strategy, but it also offers games for free with ads and now sells ad-free games for about $3. Zynga may also branch out from its popular word games. It released a pet-care game late last year and is looking at making a so-called physics game like “Angry Birds” that people could play against their friends. Travis Boatman, vice president of mobile, said nothing is certain, but “there is a lot of interest in that genre.”
The priority for Zynga is replicating its Faceboook popularity by creating a network of mobile games under one brand that users can play with the same friends across all titles. Ko, the mobile chief, pointed to some recent pop culture events as signs that Zynga's mobile games are reaching a critical mass.
One was Alec Baldwin's highly publicized spat with American Airlines when he wouldn't put “Words with Friends” down. Then, a Missouri woman was credited with saving a man's life through the game.
The woman's word partner in Australia mentioned that her husband was sick and described his symptoms while chatting in the game. The Missouri woman's husband, a physician, was then able to figure out the man in Australia was having a heart attack and said he should rush to the hospital.
Stories like these could help the company chase “Angry Birds,” another pop culture gaming phenomenon everyone likes to talk about.
“I want more games of ours to have that 'Angry Birds' type of moment where they really go mainstream,” Ko said, referring to the game by Zynga's rival, Rovio.