If you work for Zynga, now is a good time to quit.
And if you’re a Zynga employee who owns company stock, you might want to get a good lawyer.
The Wall Street Journal reports (via CNET) that Zynga execs have been telling its employees that it wants them to return their stock options before the company’s IPO. The reasons are silly and insidious. When speaking to employees, Zynga argues that it wants the shares back to make the company look more attractive to future talent. Behind the scenes, Zynga is apparently trying to avoid a scenario in which some of its lower-level employees become millionaires because they own a piece of the company.
In other words, GREED, GREED, GREED! Zynga doesn’t care about its employees. It doesn’t care about future talent. It only cares about its own bottom line. Its chief executive, Mark Pincus, has admitted to doing “every horrible thing in the book” to get revenues. So why should employees believe him now when he says he’s only thinking of the company’s future?
They shouldn’t. We know better. The truth is that Zynga is and always has been a greedy, questionable firm with a weak business plan and a lackluster distribution model. As someone who has been reporting on the game industry for more than 10 years (and watching it with a close eye for many years before that), I know how this market works. It has always been competitive. But what few seem to realize is that it has never thrived on fads.
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Thus, I’ve been predicting Zynga’s demise for quite some time. Early this fall, the company’s profits declined by roughly 95%. There have been numerous reports that the social game developer is cannibalizing its own market by releasing new games that steal players away from older Zynga titles. I find that revelation particularly amusing. While social games require consistency (players must return often and spend money regularly for Zynga to profit), traditional video games do not.
If every single one of the 6.5 million people who purchased Call of Duty: Modern Warfare 3 stopped playing right now, it wouldn’t matter because Activision has already made its money. With Call of Duty, consumers paid for the game up front. Map expansions and other online goodies are secondary.
Thus, if Modern Warfare 3′s buyers decided to start playing another Activision game instead, the company will continue to thrive. No cannibalization takes place. While a decline in Call of Duty play time today could certainly hurt Activision’s bottom line with the next Call of Duty release (scheduled for – wait for it – November 2012), the company has a full 12 months to ensure that doesn’t happen.
Zynga, on the other hand, does not have 12 months. It does not have a cash cow to carry it through the bad times that are surely ahead (and, looking at the numbers, may have already arrived). It does not have a big, all-powerful franchise with a diehard fan base that will ignore the incoming competition from Electronic Arts (NASDAQ: ERTS). Zynga does not have any of that. Simply put, Zynga builds time-killers, not franchises. And it sells those time-killers to a group of people who will pack up and leave the instant another fad catches their attention.