Pay to play: how to lose friends and alienate people

The company behind FarmVille and Mafia Wars used to be valued at $1 billion, but profits are down and game players are moving elsewhere. As its woes begin to hurt Facebook, is it game over for Zynga?

YOU’D HAVE TO WONDER if the people who ploughed money into casual gaming – the type of entertainment you buy as a smartphone app or play on a website – will feel embarrassed in years to come. The computer-game company Zynga, which went public last December with a $1 billion valuation, now looks like an unwise investment: this week it reported a second quarterly drop in earnings, prompting its share price to slump by 40 per cent. Facebook, the platform where Zynga’s key games live, lost 18 per cent of its value on Thursday, and is now down 37 per cent over two months.

The problem with casual gamers is that they are just that: casual. They don’t queue to buy the latest release, like Call of Duty fans. They don’t invite their friends around to play Paper Toss. And they have little loyalty to games companies, unlike aficionados who will automatically pick up a new game just because Rockstar made it. Casual gaming is designed to fill moments at the bus stop or during an ad break.

Casual gaming comes in three forms: the quick-hit game that goes viral, such as Bejeweled, Cut the Rope and Angry Birds; a more cumulative hit that sucks you in time and again, such as Zynga’s FarmVille and Mafia Wars; and modern takes on classic games, such as Words with Friends and Draw Something.

There’s also a fourth category that Zynga is looking to in order to make gaming more compulsive: gambling. Poker and bingo (and Slingo, a slot machine-bingo combination) are already popular Zynga applications. The idea of the company’s becoming a gigantic casual-gambling force seems unlikely in the short term given that it lacks the infrastructure to change course completely, but by the middle of next year it will probably begin to turn a lot of its output in that direction.

Zynga has built its success on Facebook, which is the perfect platform for a company that needs to reach a wide audience willing to spend time (and money) on playing. Although Zynga blames its fall in revenue in part on changes on Facebook that make it harder to find games, Facebook is also suffering because of Zynga’s decline. Twelve per cent of Facebook’s revenue comes from the games company. You might imagine it would be smarter to base more than a 10th of a multibillion-dollar company’s earnings on something other than virtual sheep, but that’s the situation, and a huge chunk of Facebook’s disastrous week has to do with Zynga’s decline and unclear future.

The largest group of online gamers is made up, perhaps surprisingly, of women over the age of 35. They’re prepared to do two things that games companies need: spend more time playing and spend real cash buying virtual goods and add-ons. But, with games going in and out of fashion, it can be hard for companies to hang on to their players.

Other gaming fads, such as the Sims series, which began in 1989 with SimCity and progressed to The Sims in 2000, becoming the most successful PC game ever, have had longevity because the revenue was upfront: players had to buy the game. Online and on smartphones, it’s harder to hold on to players when their custom is as virtual as the guns they’re buying in Mafia Wars.

Zynga still has a hold. Its recently launched bingo has proved a success, and its version of Texas hold’em poker is still extremely popular. When the New York gaming company OMGPOP took over Zynga’s top spot on Facebook with Draw Something, beating Words with Friends, Zynga bought the game and the company for $180 million.

Zynga has more than 300 million players, with about 72 playing every day thanks to its games’ presence on smartphones and their integration with social networks.

The company’s woes would have been part of the gossip in Seattle this week, when thousands of developers gathered at Casual Connect, a key industry conference – lectures included Why Tweens Aren’t Playing Your Games; Newbie to Big Spender: Understanding the Player Lifecycle; and The Secret to Longevity: How to Build a Gaming Company for the Long-Haul.

Over all of this industry looms the F-word: fad. Damien Mulley of Mulley Communications equates casual-gaming companies with the likes of Simon Cowell. “I almost see Zynga and companies like the pop-music industry trying to create hit after hit. Zynga only had two hits, really – FarmVille and Mafia Wars – and they squeezed them for all they were worth. But, like in pop music, you lose your chart position, the hits fades away and fans move on to something else.

“It’s remarkable that a company that IPO’d at $1 billion is now struggling,” Mulley says. “When Zynga bought Draw Something I just thought, That’s crazy money. It smacked of desperation to me. A lot of people who were using it stopped when all of the new add-ons started. They have a couple of problems: users mightn’t be spending as much, and they’re irritating those who aren’t playing with all that spamming stuff. People get annoyed with invites and notifications, so people just block apps . . . You’re talking about an audience that’s very easily distracted by something new.”