Peak Zynga: Why the Farmville Creator's Stock Tanked

Farmville creator Zynga's stock debuted at $10 last year, and almost immediately declined sharply. Now, after the company published a weak outlook for 2012, it's down to about $2 a share, and is even beginning to hurt Facebook's stock.

The games people play

Zynga's main products are virtual items for its free "social games" on Facebook, which spam players' friends with announcements and punish players for not logging in regularly. Players can play for free, but only within strict time and gameplay limits, and are pressured to buy virtual items to improve their performance or personalize their experience. The games themselves strongly resemble ones made by other companies -- Zynga CEO Mink Pincus reportedly told employees to "copy what [competitors] do and do it until you get their numbers", according to SF Weekly, and EA Games sued Zynga for copyright infringement this August.

?Draw Something, please??

One reason Zynga's stock fell is because of its disastrous acquisition of game studio OMGPOP, and its hit mobile game Draw Something. Zynga had to write off about half of its $183 million price as a loss; its usual model of selling virtual items didn't work nearly as well for the game, as its gameplay was based on drawing things for other people instead of investing time and money into a virtual farm or other experience. Zynga instead took sponsorship deals with companies like Doritos, which had players draw branded products for each other instead of Pictionary-style random words. Partly because of this -- and partly because of its repetitive gameplay -- players left the game in droves.

?Failure to mobilize?

Another reason Zynga's regarded poorly by investors is because of its failure to dominate the mobile space the way that it took over Facebook. More than four-fifths of Zynga's 2011 revenue came from its Facebook games, and the company accounts for more than a tenth of Facebook's revenue. But as mobile games played on Apple and Android devices are starting to take over, Zynga has been slow to get in gear. Even acquiring OMGPOP -- known for its mobile expertise -- backfired.

?Can Zynga recover??

One thing Zynga is doing to build up its strength in the mobile space is its Partners for Mobile program, where Zynga basically acts as a publisher for indie games and promotes them. The first such game, Horn, launched last month to critical acclaim, featuring 3d gameplay reminiscent of Team Ico's PlayStation titles and nary a virtual good in sight.

?Zynga's backup plan

Besides investing in game studios making high-quality mobile games, Zynga is using its $1.6 million nest egg to invest in online gambling games using actual money, which are not yet legal in the United States.

Jared Spurbeck is an open-source software enthusiast, who uses an Android phone and an Ubuntu laptop PC. He has been writing about technology and electronics since 2008.



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