Zynga is continuing to get HAMMERED on Wall Street this week for a big, splashy rollout of new social games that investors found underwhelming.Talk about missing the point. Zynga just revealed a bold new strategy to take the company forward — one that folks down in Tinseltown figured out a long time ago.
If Zynga screwed up anything, it was making too big a deal out of the games it revealed, like TheVille and Matching With Friends. No one was excited by them — at one point, the applause was so tepid that the crowd of journalists broke out in laughter.
Whatever. Top Zynga engineer Kostadis Roussos made a keen observation later in the day: The amount of code written before a Zynga game launched is a hundredth of the code that eventually gets written for it. Features keep getting added to Zynga games all the time, which keeps the most active, profitable players hooked in the long run.
That’s a lot like television series, where the profitable ones get tweaked all the time with new plot lines and characters.
The mistake people make about Zynga — and the social-gaming business more broadly — is to think of it as a hit-driven business, like the movies. For movies, it’s all about the initial box-office pop.
But television production is a far steadier, reliably profitable business for the likes of Warner Bros. That’s because those franchises stretch on for years, and there are lots of different ways to monetise them.
That’s more like Zynga, which has shown that the longer a game runs, the better it can get at inducing players to pay up for new in-game features.
This week, Zynga revealed another way it’s like a big Hollywood studio. Warner Bros. invests a lot in its production facilities. A new $240 million one in London, one and a half times the size of its iconic Burbank back lot, can film two blockbuster movies at once.
Likewise, Hollywood giants build out distribution and marketing arms that can handle independent studios’ film for a fee — think of the way Disney distributed Pixar films before buying that smaller animation studio.
Zynga’s zCloud Web infrastructure is the social-gaming equivalent of a Hollywood back lot — the infrastructure which allows for the efficient production of creative works.
And with Zynga’s new platform for third-party games, it’s also offering marketing and distribution services to indie developers. With those games, it takes none of the risk of creating games, but profits from its existing infrastructure and huge ability to cross-promote titles.
It’s not a given that Zynga will succeed with these new efforts. They’re all opportunities for Zynga to pursue. CEO Mark Pincus and the rest of the crew could easily screw them up royally.
But it seems crazy for Wall Street to focus on a volatile business of developing hits and ignore the capability for Zynga to develop profitable annuities in social gaming — annuities that could one day deliver the steady profits most investors claim to love.
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