why zynga should focus on real money online gambling services

Running head: Why Zynga should focus on providing Online Gambling Services

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Why Zynga should focus on providing Online Gambling Services

Kashyap Uppuluri

NYU Polytechnic School of Engineering


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ABSTRACT

Zynga Inc was a market leader in development of social games, known popularly for

titles like FarmVille, Words with Friends and Zynga Poker; the past years Zynga had to

face a myriad of problems that now threaten its very existance. Despite having a major

share of the market, Zynga has operated at loss for past three years. This can mainly be

attributed to lack of sustainable revenue streams and a bunch of failed costly acquisitions.

Recently, Zynga has decided to abandon its plans on real money online gambling in

United States in order to focus on social games (Takahashi, 2013). This comes as a

shocking revelation, considering that its operations in United Kingdom are performing

well. Given the estimates (Agnello, 2012), the rise in online gambling industry provides

Zynga a perfect opportunity to succeed, considering it already has the necessary

infrastructure and expertise needed.


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BACKGROUND

With a mission to connect the world through games, Mark Pincus founded Zynga

Inc. in April 2007. With a success streak hard to replicate, Zynga churned hit after hit

games under its banner, it had millions of players hooked onto the desktop and mouse. It

became a billion dollar company within just 4 years of its inception and market leader for

this industry for almost half a decade. In doing so, it glanced over a few details, which

would later prove to be costly oversights. Firstly, the revenues that came pouring in were

mostly from the sale of virtual goods of new releases that tasted success. Advertising and

Lead generation contributed only a small portion of their revenue. This meant that if this

streak ended, so would the inflow of money into the organization.

Figure 1: Revenue. Reprinted from Zynga Q4’ 13 Earnings Slides (12)


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The two charts above help us figure out, how we lost most of the revenues

through failing titles. This also helps us recognize the one product offering which has

stood steadfast all this while. Zynga Poker, previously known as Texas Hold’em Poker

despite lower daily active users (DAU) and monthly active users (MAU) compared to its

other offerings, built a loyal customer base in which each customer had a high average

revenue per user (ARPU) and has sustained its run where others have failed

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INDUSTRY STRUCTURE

Both social gaming and online gambling industries are oligopolies with a low cost

of entry. However there are some marked differences between the both. While the social

Figure 2: Revenue. Reprinted from Zynga Q3’ 14 Earnings Slides (13)


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gaming industry is flooded with inflow of new entrants, online gambling has relatively

lesser competitors and entrants. A product launched by the social gaming industry will

instantly have global presence; the products by online gambling are more regional, as

they have to be in line with the regulations of each target market.

Zynga has advantages and disadvantages in both the industries. Zynga markets

share has been crumbling away in the social gaming industry with the runaway success

story of King with its immensely popular Candy Crush Saga among other competitors.

The lapse of adapting to the mobile industry resulted in huge losses and only recentl have

they migrated to this platform fully. FarmVille 2 triggered a last kindle of fire into their

otherwise lamenting social gaming division.

Zynga Poker is one of the most popular free sites in online gambling industry.

Zynga also has other casino game offerings that have fared moderately. Up until now

they haven’t taken their online gambling division as a priority. But in the recent light of

events, with launch of Zynga Plus Poker and Zynga Plus Casino, they can make a

breakthrough in this industry. The competitors who were not concerned much about a

free poker offering have much more to worry about, so they are providing a stiff

opposition to Zynga’s entry into the real money online gambling market.


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Situation in United Kingdom:

Figure 3: Zynga Plus Casino Website http://www.zyngapluscasino.co.uk/

Zynga has launched the Zynga Plus Casino platform in the United Kingdom

where people can gamble online using real currency on different kinds of slots, roulette,

and blackjack. The same account can also be used with the Zynga Plus Poker, simplifying

by providing overall integration of different services.

Situation in United States of America:

Some of the states of the United States like Delaware, New Jersey and Nevada

have laws legalizing the use of real money online gambling websites. The decision of

many other states is yet to be determined. Additionally Zynga also faces competition

from other players in the market like Caesars Entertainment Corp. and MGM Resorts

International which have both physical as well as virtual casinos.


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MARKETING PLAN AND ANALYSIS

In order to shift our focus from a social gaming to online gambling, one of the

most important tasks involve identification of the target market. We need to identify the

demographics interested in online gambling. Based on spending habits, it can be safely

assumed that majority of the players involved are young to middle-aged males. We can

also profile each category to determine what interests people the most about online

gambling and try targeting them that way (Mavros, 2011).

A SWOT Analysis can help understand the situation and help formulate strategies

and contemplate the available options.

If Zynga keeps heading down the same track, it is sure to exhaust its resources

and at some point declare bankruptcy. Though a certain degree of risk exists in changing

the primary focus of a company to a new one. I believed Zynga is equipped to handle it,


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with years of experience dealing with Poker customers and the new knowledge gained

from its venture in UK. It has the infrastructure, expertise, and knowledge of the industry,

which should help it excel and give a 1 - 2 year head start before a chance of new

entrants.

The company will have to stay abreast with the regulations affecting its business

as they tend to be announced with little or no prior information. Depending on

regulations passed, Zynga’s ability to utilize and leverage its existing infrastructure,

collaborations and the customers will play huge factors in determining the stock price.

Just as when the real money online gambling program in UK succeeded and led to a

increase in the stock price, I believe the similar will happen once its program is fully

function but on a much larger scale as the revenue reaped here will be much higher than

compared to UK because USA is its biggest geographic contributor in revenue.


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CONCLUSION

Figure 4: Gambling Capital Estimates. Reprinted from

http://www.onlinecasinoselite.com/post/global-rise-of-land-based-casinos-to-fight-online-

competition

Based on the estimates provided above, we can estimate quite a growth in this

industry. Lately, there have been indications that could shed some light on what the

company wants to do, like the extension on contract with Contagious Gaming Inc., a real-

time money operator (2014). The top leaders must sense the urgency of the situation and

deploy all measures to set their plans in motion before they any new situations arise.


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REFERENCES

Takahashi, D. (2013, July 25). Zynga exec explains why it's abandoning online gambling

in the U.S. Retrieved December 2, 2014, from http://venturebeat.com/2013/07/25/zynga-

exec-explains-why-the-company-is-abandoning-u-s-online-gambling/

Agnello, A. (2012, September 12). Social Casino Games will Generate $ 2.4 Billion in

Revenue by 2015. Will Gambling save Zynga? Retrieved December 2, 2014, from

http://www.digitaltrends.com/gaming/social-casino-games-will-generate-2-4-billion-in-

revenue-by-2015-will-gambling-save-zynga/

Mavros, M. (2011, December 27). How to Market to Online Gamblers. Retrieved

December 7, 2014, from http://www.casinoaffiliateprograms.com/blog/online-gambling-

player-profiles/

Contagious Gaming and Zynga extend contract (2014, November 12). Retrieved

December 7, 2014 from http://www.reviewed-casinos.com/news/contagious-gaming-

zynga-extend-contract.html

Quarterly earnings of Zynga (2014). Retrieved December 7, 2014 from

http://investor.zynga.com/results.cfm

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