The company behind Facebook smash hit Farmville has made multiple fortunes by adhering to a well-defined business formula: Zynga takes hyper-simple game concepts, hones their risk/reward ratio to a shining razor’s edge, slaps some simple aesthetics on the package and drops them into the unassuming, wildly lucrative world of Facebook or the cellular phone market and reels in buckets of cash from players enticed by each game’s hypothetically free-to-play nature (which is, in fact, a smokescreen concealing that once hooked, players end up shelling out tons of cash for largely meaningless in-game accoutrements).
The aforementioned Farmville is the quintessential example of this. Here is a simple two-dimensional Facebook game that lifts the vast majority of its gameplay concepts from decade-plus old, proven classics like Harvest Moon and SimCity, yet since it’s aimed at middle-aged women and kids too young to remember games from the Super Nintendo era this all seems shiny and new. While it is technically possible for a player to spend hours in Farmville totally gratis, the majority of users end up dropping real-world cash for new fence sections or biologically unlikely livestock, both because they want to create a unique homestead and because it’s disturbingly easy to justify a 99-cent in-game purchase, even if it’s the 50th time the player has done so.
Anecdotally, it seems like a depressingly lucrative business model, but you don’t quite grasp the full scope of Zynga’s success until you see the company’s financial reports. This morning Zynga issued a press released covering its latest quarterly financials, and as one would expect, the firm is doing very well for itself.
According to Zynga, the company pulled in $329 million in bookings during the quarter. That’s a solid chunk of change, but it’s important to note that “bookings” include only the cash generated up front. That is, a single booking is the amount of money a player pays to purchase a game. Given that the majority of Zynga games operate on a free-to-play business model, it’s bafflingly impressive that it was able to bring in $329 million from this alone.
Beyond those initial bookings, the company’s games drew $321 million — a substantial figure given that the majority of that was earned via sub-$1 in-game item purchases. This represents a 32-percent increase over the first quarter of last year.
The company reported $133.9 million in expenses (largely due to the firm buying back its own stock and acquiring Draw Something creator OMGPOP), though discounting this figure the company’s shares increased by a mere 6 cents. This is a 38 percent decline from the previous year, which TechCrunch attributes to “Facebook’s 30 percent revenue share and infrastructure investment.”
Most promising for those who own stock in Zynga is the increase in total monthly players the company has seen over the past year. The firm’s titles now attract 292 million players every month; that’s 182 million unique players and nearly enough repeat customers to populate Mexico. This is likely due to the burgeoning iOS and Android gaming markets, which are growing at an exponential rate as the cellular phone becomes increasingly ubiquitous amongst all walks of life. However, this news also means that growth among Zynga’s Facebook titles (which were long the company’s bread and butter) has begun to stagnate. Though Zynga titles currently account for 15 percent of all Facebook revenue, the company recently launched a new mobile gaming destination that it hopes will further bolster the growing mobile gaming sector.
“We think mobile is in the same place as where we saw the web in terms of business opportunities several years ago,” said Zynga CEO Mark Pincus. “We’re focused on getting the product right … and getting to where we can repeatably produce successful games. We’re excited about monetization opportunities on mobile, but with the advertising experience, it’s still very early days.”
If any of you “hardcore” gamers noticed that Mr. Pincus said a whole lot about fiscal results and absolutely nothing about game design or creative, novel ways to entertain his firm’s fans, congratulations, your reading comprehension is still intact. Now please ask yourselves what exactly that might mean for the quality of games emblazoned with the Zynga logo.
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