Zynga: Jerk … or Just Capitalistic?

by James Brumley | March 12, 2013 10:37 am

Before you conclude that Zynga (NASDAQ:ZNGA[1]) Vice President Dan Porter is a jerk, following his acknowledgement that his company copies game ideas[2], there’s another reality you might have to digest:

Most other companies do exactly the same thing.

Indeed, some of the world’s best companies have gained success by borrowing someone else’s idea and making it a little better … or at least more economical.

He Said What?

In case you missed it, Zynga gave itself something of a PR black eye last week when Porter (whose company, OMGPOP, was purchased by Zynga for a mere $200 million last year) admitted, “Zynga is often accused of copying games, which is mostly true.”

The number of games isn’t small, either. The Ville looks an awful lot like Electronic Arts’ (NASDAQ:EA[3]) Sim Social, and a lesser-known game called Farm Town paved the way for Zynga’s much more popular FarmVille. Zynga’s Mob Wars and Hidden Chronicles also look quite a bit like games that were available before Zynga published its own versions.

The practice hasn’t gone unnoticed. Game publishers Maxis and Nimblebit both publicly pointed out that Zynga had ripped off their works, and even provided visual comparisons as proof. Electronic Arts went as far as filing a suit against Zynga, suggesting The Ville was a little too much like Sims Social. Although EA has since dropped the lawsuit, there’s little doubt as to Zynga’s MO: copy the best aspects of a game, stopping just short of infringing on intellectual property.

Despicable? Maybe. But in Zynga’s defense, it has won most of the infringement suits that have been brought against it. So, as far as the letter of the law is concerned, Zynga’s practice is perfectly legitimate.

Still, just because you can do something doesn’t mean you should, right?

Before you scoff and roll your eyes, just bear in mind that this kind of thing has been going on for centuries … and you’re probably glad it has.

Not the First Time

Before anybody gets on their high horse, know that if you consider yourself a red-blooded American, you’ve probably supported the copycat business.

Do you own a Dodge Charger that was made after 2006, or a Dodge Challenger made after 2008? You can thank Ford (NYSE:F[4]). Dodge unveiled those throwback muscle cars directly in response to the throwback Ford Mustang that was unveiled in 2005. Chevrolet even got back into the muscle car game with the new/old Camaro, introduced in 2009, in response to the new Mustang and the newer Charger.

Do you own a television made by Sony (NYSE:SNE[5]), Sharp (PINK:SHCAY[6]) or Panasonic (NYSE:PC[7])? The first device any of us would recognize as a television set (using cathode ray tubes) was actually made by a German company called Telefunken in 1936. It was a commercial success, relatively speaking. But Japanese companies borrowed the design and improved some tweaks made by American companies RCA, Westinghouse, Emerson (NYSE:EMR[8]) and others to eventually take the lead in the television manufacturing market.

And most people can probably remember the most recent high-profile case of one company crying foul because a competitor’s product was too similar to its own: The legal war that Apple (NASDAQ:AAPL[9]) waged against Samsung (PINK:SSNLF[10]) last year.

One of Apple’s beefs was that Samsung’s smartphones looked a little too much like Apple’s because they — and this is 100% serious — were flat, rectangular and had rounded corners. Another Apple complaint with Samsung was that the Galaxy Nexus smartphone also displayed its icons as a “matrix of colorful square icons” arranged in a row — a description that applies to pretty much all computers and laptops out there.

Somehow Apple managed to lay claim to the design, though, winning a cash award from Samsung for infringement, though not preventing the sale of the new Galaxy tablet in the United States. But make no mistake, if you own and like a Galaxy or Nexus, you can thank Apple for it.

The list of near-but-legal copies is a neverending one, going back for decades, and likely to be lengthened for the foreseeable future.

Love It or Hate It

Whether the competitive environment is morally founded is irrelevant right now. The current environment allows for close and near-equivalent copies of electronics, automobiles, medicines, and yes, online games. Indeed, copycatting is possible in any industry.

This is capitalism at its heart — taking advantage of an opportunity. Zynga is simply taking advantage by borrowing an idea, changing it just enough to escape infringement suits, then marketing the daylights out of its new and improved product.

It’s still miserable for the companies that have been on the wrong side of Zynga’s reproduction games; a lot of work and money goes into the development of those titles. On the other hand, if a particular game’s revenue or a particular game designer’s revenue isn’t strong enough to hire legal counsel to stave off Zynga’s near-equivalent versions, then (and this is going to sting a little) that game or company might not be as successful as some would like to believe.

Remember, a truly great company is able to handle all the contingencies that the present legal environment could throw its way. That’s the value Zynga adds to its games — the marketing relationship it used to have with Facebook (NASDAQ:FB[11]), the broad library of games that share legal counsel and other expenses, and the ability to cross-market to game players. That’s how Zynga’s FarmVille was drawing up to 84 million users per month, versus a reported high of 18 million Farm Town players.

Zynga managed to do all that by raising money — first privately, then publicly. If smaller game publishers like Maxis and Nimblebit choose not to partner up to pool expenses like legal counsel, or choose not to seek out a deep-pocketed partner (or partners), then it’s only matter of time before the big fish eats the little fish.

It stinks, to be sure, but until the legal landscape becomes more protective, Zynga’s just doing what any good capitalist would do.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

  1. ZNGA: http://studio-5.financialcontent.com/investplace/quote?Symbol=ZNGA
  2. acknowledgement that his company copies game ideas: http://news.cnet.com/8301-17852_3-57573326-71/zynga-oh-sure-we-copy-other-peoples-games/
  3. EA: http://studio-5.financialcontent.com/investplace/quote?Symbol=EA
  4. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  5. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE
  6. SHCAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SHCAY
  7. PC: http://studio-5.financialcontent.com/investplace/quote?Symbol=PC
  8. EMR: http://studio-5.financialcontent.com/investplace/quote?Symbol=EMR
  9. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  10. SSNLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SSNLF
  11. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB

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