Independent iPhone game company Nimbit took to the Internet this week to launch a theft accusation at social gaming giant Zynga (NASDAQ:ZNGA). Nimbit’s Ian Marsh posted side-by-side comparison images of Zynga’s Dream Heights, released last week to the Canadian market, and the indie company’s Tiny Tower, which won iPhone Game of the Year for 2011.
It’s not the first time Zynga has been accused of stealing a game. But it could mean the copycat tactic seems to have stopped working.
Zynga burst onto the scene with the farming simulator Farmville, a title that borrowed heavily from the previously existing Slashkey game Farm Town. Game-play mechanisms aren’t covered under U.S. copyright law, so what Zynga did wasn’t illegal. While the ethics were questionable, few could deny that Zynga took the farming game concept to a whole new level of popularity, attracting 80 million monthly users at its peak.
Zynga has had successes since Farmville, with CityVille actually surpassing its predecessor’s monthly users. Recent trends, however, haven’t been as optimistic. The difference between Zynga’s old school borrowings and the new class comes down to daily active users, or DAUs, a common measure of mobile game popularity.
CastleVille and Empires & Allies, both released by Zynga last year, managed respectable DAUs of 5 million in the first 12 days. Hidden Chronicles, the recently released hidden object version of Playdom’s popular Garden of Time, fell 85% to 710,000 in the same amount of time. A likely reason is that Chronicles was a copy of a game that had already achieved popularity in the primary market it was targeting. Dream Heights may face the same familiarity issue.
Cowen & Co. last week expressed concerns about Zynga’s ability to maintain its DAUs. Analyst Doug Creutz explained in a company report that Zynga has lost 18.4% DAUs for titles older than three months. “Assuming Zynga averages a 20 percent quarterly rate of decline for titles beyond their launch windows in 2012, the company must add 9-10 million DAUs per quarter from new games just to keep total DAUs constant,” he said.
The disappointing release of Hidden Chronicles caused Zynga shares to plummet to near record lows in early January. Shares have rebounded and are currently trading at $9.66, down 0.51% for the day and 3% below the IPO price of $10. Goldman Sachs and three other big-name firms gave Zynga shares a buy recommendation, today while Bank of America Merril Lynch issued a neutral rating.
The optimistic calls are due to speculation that Zynga will take advantage of a recent U.S. Justice Department ruling that may legalize online gambling, which could be a risky assumption to make.
Despite the promise of gambling revenue, Zynga may not be built to go the distance. Analyst opinions have been all over the map in the short time the company has been publicly traded. It seems innovation isn’t a strong suit for Zynga, even in the face of dwindling users. If the games it produces are ultimately too derivative and dispensable, the company might suffer the same fate.
