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Zynga’s Jagged Path to and Third-Party Partnerships

Since last fall, the company has endured a rocky IPO, the launch of a new platform, a major acquisition, and personnel changes


Zynga (NASDAQ:ZNGA) has juggled a lot of issues over the past several months: a bumpy run-up to its IPO in December; a bumpy initial response to the IPO; ongoing tension over its relationship with Facebook, which has long played host to Zynga’s social gaming platform; the unveiling in early March of its platform, which is designed to host its games and serve as a platform for other social gaming developers; and, on March 21, the acquisition of Draw Something creator OMGPOP for $210 million.

And in recent weeks, Zynga saw the departure of its vice president of engineering, Neil Roseman, a key figure in the development of the new platform, after only 15 months at the company. All Things D reported that Roseman, who also managed the company’s Seattle office, left nearly a month ago after overseeing the launch of the new Zynga Platform, which had been code-named Project 7 and is a key part of the company’s strategy to accommodate gaming on mobile devices.

Roseman says he resigned to spend more time with his family and to cut down on his commutes from Seattle to Zynga’s home base in San Francisco. The news came as Zynga prepared for its 43-million-share secondary offering, which will allow some of the company’s current shareholders, including co-founder Mark Pincus, to cash out some of their shares. In the company’s secondary-share filing with the Securities and Exchange Commission, Pincus indicated he planned to sell 16.5 million shares, worth about $227 million.

Striking a new balance with Facebook

Project Z was designed, some say, to diminish Zynga’s reliance on Facebook, though there are complications that prevent a clean break at this time.

In Facebook’s pre-IPO documentation, the social networking giant revealed that Zynga accounts for 12% of its total revenue. Zynga, in turn, receives 90% of its revenue from Facebook. A fraction of those earnings comes from advertising; most come from players’ purchases of Facebook Credits, the in-game currency Zynga players use to enhance the gaming experience.

Facebook Credit purchase transactions pay 30% back to Facebook. When the credit system was first imposed on Zynga, in 2010, the company threatened to make a break for it, taking all of its games when it left. The two companies struck a murky backroom deal that will keep Zynga primarily on Facebook, with the credits, until 2015. Even with the platform up and running, players still must login via their Facebook accounts, and credit purchases made on the new platform still are processed through the existing Facebook payment system.

Zynga had to agree to a deal with Facebook because it lacked a solid alternative. There was Zynga Live, a precursor of sorts to the current Project Z platform, but it lacked player adoption. It’s not clear the new platform won’t meet that same fate.

The platform currently hosts five popular Zynga titles, including Words with Friends and CityVille, but they all still have Facebook-only versions in place. With the Facebook login and payment requirements still in place, it’s a bit like entering the same house through a different door.

Building, and monetizing, a lineup of third-party games

The third-party games joining the platform seem more likely to benefit the third-party developers than Zynga. The first game company affiliates announced were Konami, Rebellion, Playdemic. Mob Science, Row Sham Bow, and Sava. The first two companies are well established but mostly known for console and/or PC games. Playdemic’s primary success was the Facebook game Gourmet Ranch, which, AppData notes, has rather low player metrics of 110,000 daily active users (DAUs) and 700,000 monthly active users (MAUs).

Metrics are vital to social gaming success. Free-to-play games rely on heavy traffic flow because a very small percentage of players make the in-game purchases that provide most of the company’s revenue. needs strong titles that will draw players away from Facebook. Zynga itself is dissuading Facebook users from leaving thanks to the success of Zynga Slingo, the bingo-slots hybrid game that debuted in March, albeit only on Facebook. Slingo is currently attracting 4.1 million DAUs and 11.5 million MAUs … to Facebook.

Zynga Slingo was launched out of the Seattle office that Neil Roseman vacated. That office has acquired game development talent in recent months, though, thanks to small acquisitions. Jim Veevaert, formerly of Microsoft (NASDAQ:MSFT), stepped up to assume Roseman’s managerial role. Keep your eyes on the news for future developments involving Things might look hectic at the moment, but Zynga has a knack for pulling out of tight spots.

Article printed from InvestorPlace Media,

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