Zynga's still getting a lot of press after their huge losses last Wednesday. Journalists are scrambling over one another to get an accurate prediction of Zynga's future established - but everyone admits that the industry is too new, and the changes we're in are too fresh to really have any sort of long-term idea about what the future holds for Zynga.
Frankly, few people can even give a very accurate assessment of where Zynga is today.
To share my insights, for whatever they are worth, we need to quickly define three terms: bubble, growth, and value.
What's a Bubble?
A bubble is something that appears to be growing, but isn't adding stability as it grows - like the soap-walls of a bubble becoming thinner and thinner. New products often create a bubble - because the market hasn't figured out what a sustainable size for that product might be. New game archetypes often create bubbles - look at first-person-shooters in the late '90s, or RTS games in 2000. Look back at the glut of CCG games in 1997. Look at the Munchkin and Dominion clones out now. A hot new idea spawns imitations, which over-saturates the market, and leads to a backlash.
Social games are obviously a bubble. They are only a few years old, they've seen massive growth & copycat games have spawned like wildfire. Mobile games are also a bubble - but most people agree that we're still in the early stages of that bubble. (Which is to say - still a lot of unsustainable growth is yet to come!) Zynga was the biggest winner of the gaming-on-Facebook bubble, by far.
The question everyone is asking this week is: is the Facebook bubble ending? (and thus Zynga's net worth is crumbling) or is Zynga simply transitioning badly to the mobile bubble? (these are not exclusive!)
What is Growth?
I'm not a fan of the Keynesian model of economic growth - it seems clear to me that relying on infinite growth is a sure-fire way to eventually be disappointed. Infinite growth relies on population increase. (both literally and through new segments of the world's population opening up technologically). And unless we get some new planets to live on our worldwide population is going to top-off pretty soon.
But a whole lot of market-trend-reporting is tied to this notion of growth, so I'll keep my incredulity in check.
Growth for a game company means two essential things: more people playing your games, and people spending more money on your games. There is some fear that Zynga is increasing the first value but falling behind on the second. (Console games have the opposite problem - consoles are losing raw customer numbers, but are successfully increasing profits per customer.) At the start of a bubble getting more customers is easy - because more customers are flowing into your space, looking around for games to play. But once the market is saturated, you need to distinguish yourself with value.
What is Value?
Value is a measurement of how much people want to play your game. How much will they pay for it? What is it worth to them to play it longer? Lots of similar games in a space tends to decrease the value of every game - that's capitalism at work! Zynga actually earned itself quite a negative reputation among game developers for ruthlessly copying any successful game - which is to say Zynga didn't originate many of their most popular concepts.
On the other hand, I heard Brian Reynolds (who I adore) talk about his process for designing Frontierville - and I think he made it clear that Zynga is very interested in improving their games - adding real value.
So here's what I see: Zynga enjoyed an explosion of growth, and now they are going to shrink. They used their growth to buy some great talent, and they are applying that talent well - so they will end up with a decent share of the long-term social game pie. That share will be smaller than their recent evaluations, which some people will view as a big negative. But I think Zynga will continue to be a winner compared to other social game studios. The social gaming sphere may be in for an overall reduction, but that doesn't compound Zynga's reduction.
In the mobile space, Zynga has failed to establish themselves as a major player. That's not really a problem - they might be able to manage it in the future, or they might be content to simply be top-10. Their first major acquisition in the mobile space (OMGPOP) turned out to be a loser just as the Facebook bubble started to come down - which is giving an exaggerated sense of Zynga's immediate losses.
Finally - there is the ongoing question about whether people hate Zynga, avoid it on principle, etc. I know that many developers cling to the notion that consumers support ethical business practices - but I haven't seen much evidence to support that. Consumers go to where the quality games are, and Zynga has always been a place that provides quality.