Tuesday, December 13, 2011

EnoughAlreadyVille - What's Zynga's Next Move?

As a fellow software entrepreneur I have to give a bow and genuine show of respect to Zynga, best known for it's hit [enter any word here] Ville games. They have created a networking gaming behemoth from scratch using Facebook as their platform.

Revenues each quarter are in the hundreds of millions as players continue to fork out real cash for 'virtual goods.' Moreover, the company's IPO is hotly anticipated. Only Facebook ranks higher in  quality internet/tech/software/gaming/social networking companies that have a profitable business that investors around the world are foaming at the mouth to get their hands on. Predictions are that the Zynga IPO will value the company at about $10 billion in its first day of trading.

However, recent quarters have showed that the company's profits and future revenue expectations are decreasing enough to warrant a bit more conservatism than investors might have had a few months ago.

What is happening inside Zynga? Why would a billion dollar company pre-IPO seem to be slowing down? I have previously written about the online-software giant claiming that it would be very susceptible to what I called the "Sim-City Effect." I describe the Sim-City Effect as what most all players who have played the desktop client versions of Sim-City ultimately experience. Great excitement turned to boredom built out of extended redundancy.

When I have played Sim City, I can play for hours and hours on end. This can go on for days and weeks at a time. And then suddenly, it gets old as fast as I was excited about playing the game in the first place. After all, how many houses, buildings, police stations, etc. can you build before it's deja vu all over again? I was a fervent CityVille player for upwards of 4 months until one day I had picked enough crops and built enough houses.

While I certainly can't speak for Zynga, I think that the Sim-City Effect is beginning to set in with their users. While at first the company experienced rapid growth by exposing themselves to the entire Facebook gaming market due to the genuine fun, simplicity, and interactive socialization of their games. Now that the market is saturated where will the company go for future growth?

How many Villes can Zynga create and expect anything but diminishing returns? They only have:

& YoVille

I acknowledge that the company has a plethora of other popular games such as "Words with Friends" recently highlighted by the infamous asshole Alec Baldwin as a reason for being kicked off an American Airlines flight. But, the big question is how will the company continue to grow revenues, profits and players into the near and distant future without flaring out like Sim City?

I have no doubt that Zynga will continue to be a software powerhouse in the online gaming world for sometime to come, but will the company venture into the world of high-budget XBOX, PlayStation & Wii consoles? Will they start acquiring other smaller niche players to enhance their own software gaming portfolio? For now we'll have to wait and see. But until Zynga provides a clearer picture of where they are going in the future, I'd be weary of the Sim-City Effect, especially if I was an investor.

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