Hindsight is 20/20, or so they say. For this reason, I won’t claim to have predicted the eventual and seemingly continuous fall of Zynga and social gaming in general for the right reasons. I did believe that it was more of a fad than a sustainable business model, but it wasn’t until tonight as I was exploring Zynga stock in hopes of finding a silver lining, a reason to hop on board now that it’s so darn cheap.
I couldn’t find a reason to buy, but I did identify what caused the fall. It comes down to three things: impatience for growth, the annoyance factor that was caused by the impatience, and the greed component that has hurt more startups lately than helped.
Rather than go into a long explanation, I’m going to keep it simple and try to describe the reasoning in a few paragraphs. They saw that they had something good with games like Farmville. They knew that they needed to grow it because growth meant more growth – in essence, the more people that they could get to play it, the more people they would be able to get to play it. Circular reason? Not really. It’s about viral growth.
They were driven by greed. There’s a difference between greed and desire for growth. Growth at a steady rate through innovation and creativity is sustainable but risky. Traditional businesses don’t face the same risks, but on the internet and particularly with social media the trend has been to get big as quickly as possible so that you can get the money while the window is open. Greed determines the pace and was the driving force that helped them grow so quickly. They became the social gaming provider, partnering with Facebook and others to create something that would continue to grow indefinitely… or so they thought.
Because they wanted to grow quickly to keep others from making it in their niche, they relied on sharing to make their growth spike as much as possible. It worked. They offered incentives to players of the games in order to get them to bring in more players. They encouraged players to tell their friends and family. It was beautiful and self-sustaining up until the point where it was no longer an acceptable activity.
They encouraged annoyance. This was the beginning of their downfall.
It got to the point that Facebook users started rebelling against the invites. They started talking about the annoyance, calling it a plague amongst other things. They made it to where the players of the games were no longer willing to share their activities. Nobody wants to be “blacklisted” by their friends because of game invites, so the invites slowed. Only the spammiest and/or new social media users were willing to invite their friends to play games. When they did, they often got an earful from the people they invited.
What they should have done was gone with a limited invitation approach rather than allowing the mass approach. If they could have kept it limited to just a few invites at a time or forced manual invites only, they could have avoided the annoyance factor. They would not have grown as quickly, but they would probably still be growing today rather than their current state of fighting for their existence.
Hindsight is 20/20, but even hindsight could not tell for certain if a less-aggressive strategy would have worked better. They could have invested into marketing rather than turn their players into spammers. They could have built more games. They could have tried to expand outside of the social platforms more aggressively. They could have done a lot of things. It’s hard to imagine that any of these strategies could have done worse than where they are now, sitting at $2.31 a share.