Abstract
Zynga Inc. had fallen under nancial hardship shortly after the company decided to go public in 2011. The company has struggled due to both external and internal factors aecting the company. utside pressures such as stoc!holder expectations and pressures to succeed may ha"e pushed Zynga to expand itself too #uic!ly. Internal mista!es ha"e produced negati"e conse#uences in dierent departments such as $uman %esources& 'anagement& 'ar!eting& (inance& and Technological research and de"elopment. The company must de"elop a ne) strategy to turn itself around before the losses become too much to handle. A ne) *+ )ith a history of success and cost cutting decision ma!ing is a good start in the right direction for Zynga. An in,depth analysis )ill sho) areas that the company is struggling in and from there the company )ill be better e#uipped to decide )hat steps to perform next. The next fe) steps made by Zynga )ill be "ery important in deciding ho) the company performs in the future.
Table of *ontents - *s Analysis *ompany
/ /
*onsumers *ompetitors 11 *ollaborators *ontext
1
1
Zynga 3T Analysis trengths
14
3ea!nesses 1 pportunities Threats
15
Timeline
21
1
6roblems Analysis 2/
14
Industry *hain
2/
trategy Analysis
2/
(inancial Analysis 2 Technical Analysis /'ar!eting Analysis /5 $uman %esources 7'anagement
-1
olution Approaches
0
1. 8e"eloping Inno"ati"e 9ames0 2. +xpand to Asian countries: *hina& ;orea& and
-
/. Impro"e $uman %esource 'anagement and *ompany *ultur e *onclusion
42
%eferences 4/
- *s Analysis *ompany Zynga Inc. )as founded in April& 2004& in an (rancisco by 'ar! 6incus )ith the name =6residio 'edia&> a limited liabilities company. In ?o"ember 2010& 6incus changed the company name to Zynga Inc. after his late belo"ed American @ulldog =Zinga>. The company also used the bulldog image for its logo& gi"ing the company a spirited and loyal meaning behind its name. The company rst successes )ere on 'ypace )ith ad,based games. $o)e"er& the *+ of the company realied the bright future of (aceboo!. In 'ay 2004& (aceboo! created its (aceboo! 6latform& )hich in"ited de"elopers to create their o)n applications on (aceboo!.com and reach customers through their site. 6incus decided to Bump on the )agon by creating applications for (aceboo!. Zynga #uic!ly launched its rst (aceboo! game& Zynga 6o!er& in eptember 2004. ?o)adays& Zynga has become the )orldCs leading social games pro"ider )ith 270 million monthly acti"e users and 0 million daily acti"e users in o"er 14- countries. Zynga pro"ides =free> online social games through social net)or!s platforms such as (aceboo!& Zynga.com& 'ypace& Dahoo& and 9oogleE& and mobile platforms is and Android. 3ith Internet access& players can Boin Zynga games from any)here in the
)orld& )hene"er they )ant. They can play alone& )ith friends& or )ith random players through a "ariety games such as: har"esting cropsF raising li"estoc!F running a restaurantF and playing po!er. (ounder 'ar! LTa!ahashi& 2011M 6incus mo"ed to ilicon Jalley in 155-. $e borro)ed N2-0&000 dollars and started his rst company& (reeHoader. e"en months later& 6incus )as able to sell it for N/ million dollars. After the rst success& 6incus Boined the ilicon Jalley ne) entrepreneurs and had enough money for his ne) ad"entures. In August& 1554& 6incus started his second company& %eplicace& )ith cott 8ale and *adir Hee. They created upport.com& a pro"ider for online ser"ice and support automation soft)are. This company )ent public in 2000 for N17 per share. In the rst day of releasing& the stoc! price )ent up //OF follo)ing that& 6incus managed to sell some of his shares and made a lot of money before upport.com price crashed. 6incus then partnered )ith 'artin %oscheisen to establish Tan! $ill 6roBects& an incubator& in 6incus )as !ic!ed out of this company in 200-F ho)e"er& a year later he too! it bac! and sold it to *isco in 'arch 2004 LTa!ahashi& 2011M. 6incus is !no)n to be "ery good at in"esting. $e is an angel in"estor of many start, up companies )hich later became multiple billion dollar companies such as: ?apster& e9roups& Technorati& ocialtext& (riendster& Ireit& ?anosolar& 'erlin& ?aseeb& +Zboard& Ad"ent olar& Poom and (aceboo!. Zynga.org Zynga.org )as established in 2005 after the $aiti +arth#ua!e as a *orporate ocial %esponsibility to help rebuilding $aiti. In 2012& Zynga.org nally became an independent non,prot organiation. It has partnered )ith many non,prot organiations such as (eeding America& $abitat for $umanity& and many industry partners such as (aceboo!& 9ames for *hanges& and ?e)schools "enture fund.
Through ZyngaCs games& this organiation has raised more than N million for se"eral international nonprots and more than N10 million for )orld social causes. 'anagement Team ' ar! <. 6incus
Q *hairman R *hief 6roduct Scer
8 on A. 'attric!
Q *+ Q
' ar! Jranesh
Q *( Q
Q
%eginald 8. 8a"is Q 9eneral *ounsel& ec R r. J6 Q te"en *hiang
Q +xecuti"e J6,9ames
@arry *ottle Q +xecuti"e J6,9ames J ish 'a!hiBan Hisa *ha
Q
Q
Q r. J6,@usiness perations
Q
Q 'anager 'ar!eting and *ommunications
Q
+xecuti"e *hanges ?ameQ 8ate Q te"en *hiang
Q 1-,AG9,1/ Q
*ol leen 'c*reary Q 1-,AG9,1/ Q 8 a"id ;o
Q 1-,AG9,1/ Q
*onsumers
6layers under 1 years: 8emographic perspecti"e: ex: They could be both males and females. Hi"ing condition: ?ormally& they li"e in )ell,o families& and are not usually poor. ccupation: They are primarily students in Bunior schools or high schools. +ducation bac!ground: They are recei"ing education in schools.
9ro)th en"ironment: Any en"ironment& such as single parent or large family& is possible. 6sychological perspecti"e: Hife style: They could go for uni#ue or stylish style. 6ersonality: They could be idealists or perfectionists. Intention or moti"ation: ometimes& they could get the opportunity as a re)ard& for example& good grades or nice beha"ior. And sometimes for entertainment& for example& during "acations and festi"als. @eha"ioral perspecti"e: Time: They )ould be permitted to play online games during 3ee!ends and "acations. (re#uency: In school seasons& they )ould play games about t)ice a )ee!F during "acations& it could be e"ery day. 8uration: There is time limitation for boys and girls. $abit: They are easy to be immoderate or e"en obsessed if there is no reminder. 9ame preference: %ole play games @ecause most of them ha"e rich imaginations and fe) experiences of social life& playing as heroes they admired can enable them to ha"e a sense of achie"ement and sense of mission. 6layers 15,/- years: 8emographic perspecti"e: ex: both males and females. Hi"ing condition: 9ood conditions& fe) are rich& fe) are poor. ccupation: college students& Bob,)aiting indi"iduals& or part of the )or! force. +ducation bac!ground: Any bac!ground& from Bunior school le"el to graduate le"el& is possible. 9ro)th en"ironment: Any en"ironment& such as single parent& or large family& is possible. 6sychological perspecti"e:
Hife style: They could go after special& distincti"e& or immoderate life. 6ersonality: They could be escapists or indi"idualists. Intention or moti"ation: To dominate their li"es themsel"es. @eha"ioral perspecti"e: Time: Any time they )ant. (re#uency: It could be e"ery )ee!& e"ery day& or e"en e"ery second. 8uration: Any amount of hours they )ant. $abit: They )ould normally not focus on one single game and !eep trying ne) ones& especially if they seem really interesting or challenging. 9ame preference: Tactical and strategic games As for players li!e college students& )ho ha"e less responsibilities and more free time& )ould li!e to try games re#uiring more tactical and strategic points. *asual games 8ue to the time limitation& )or!ing stas play casual games for relaxation.They adore casual games because they are easy to operate and can pause )hene"er they )ant. 6layers o"er / years: 8emographic perspecti"e: ex: both males and females. Hi"ing condition: They are good generally& or at least not bad& but fe) are rich. ccupation: Any occupation& house)i"es& )hite collars& retired people. +ducation bac!ground: Any bac!ground& from Bunior school le"el to graduate le"el. 9ro)th en"ironment: Any en"ironment& such as single parent& or large family& is possible. 6sychological perspecti"e: Hife style: They could go after comfortable and easier life. 6ersonality: They could be easy,going and high compatibility.
Intention or moti"ation: They prefer to ma!e the best of each situation. @eha"ioral perspecti"e: Time: Any time they )ant. (re#uency: It could be e"ery )ee!& e"ery day& or e"en e"ery second. 8uration: Any hours they )ant. $abit: They )ould adore classical& easy to playing& or beautiful,designed games. 9ame preference: *lassical games *lassical games& such as po!er& are popular in this group& because those games are a"ailable in social occasions and could help them better communicating )ith each other. +asy to play games Those games ha"e short durations for each round& usually ha"e a bunch of le"els& and are beautifully designed. 6eople in this group might be attracted by the simple but )ell,moti"ated games. *ompetitors According to the 2012 Annual %eport of Zynga& Zynga Inc. has competitors both locally and globally in all aspects. 6articularly& they compete for consumers leisure time& attention& and discretionary spending )ith other social game de"elopers. This is based on a number of factors& including #uality of player experience& brand a)areness& reputation& and access to distribution channels. 8ue to the rapidness of the industry and erceness of the competition& Zynga is struggling to sur"i"e. ther social game de"elopers ha"e de"eloped more compelling content to compete )ith ZyngaF thus& competitors ha"e ad"ersely aected Zyngas ability to attract ne) game players and retain current players entertainment time. Zyngas competitors include: 9ame 8e"elopers for (aceboo! and ther ocial ?et)or!s: ome of these competitors ha"e signicant nancial& technical& and other ad"antages such as greater name recognition and longer operating histories. It is easy for them to create similar games to reach Zyngas players. 'aBor game de"elopers include: 8e?A& +lectronic Arts Inc.& ;ing.com& ocial 6oint& The 3alt 8isney *ompany& Jostu& Htd. and 3ooga 9mb$. 9ame 8e"elopers for 'obile: This sector is characteried by the fre#uency of product introductions& the speed of mobile platforms introductions&
ne) technologies and ne) mobile application storefronts. *ompetitors for the mobile game sector include: Addmired& 8e?A *o. Htd.& 8isney 'obile& +lectronic Arts& 9ameloft& 9lu 'obile& 9%++ International Inc.& %o"io 'obile Htd& torm& Inc. and upercell. ther 9ame 8e"elopers: 9ame players may also play other games on computers and other electronic de"ices& such as an i6ad or consoles li!e the 66 and 3ii. *ompetitors include: Acti"ision @liard& Inc.& +lectronic Arts& +9A of America& Inc.& The 3alt 8isney *ompany and T$U Inc. These competitors exist in the social game sector indirectly& because some games of these competitors ha"e social features and community functions )here game de"elopers can engage )ith their players. @ased on the di"isions of Zyngas competitors and competitors o"erlapped in all these di"isions& +lectronic Arts Inc. and 8e?A *o. Htd. are dened as the main competitors of Zynga Inc. In order to ma!e it clear& comparison of nancial data is needed as +xhibit 1 sho)ed belo). +xhibit 1 V *omparison of (inancial %atios * ompany QZynga Q+A Q8e?A Dear Q 2012Q 2011Q 2012Q 2011Q 2012Q
Q
6 rotability%+ LOM+6 LNM Q ,77.00O,0.2 Q /.0/O0.2/ Q //.0O/.-Q Hi#uidity*urrent %atio(inancial He"erage Q 1.2/2.2/ Q 1.401.00 Q
Q ,11.42O,1.70
Q 2.521.71
Q /.0/1.77
Q 7.15O0./1 Q 1.212.27
9ro)thW Hoss?et IncomeLNM?et 'argin LOM Q ,205.7-'7/.7O Q ,707./2'5./1O Q 5'2.-O Q 4'1./O Q 754.1'2/.10O Q L8ata %esource: 2012 Annual %eport of Zynga& +A and 8e?AM 3e can easily nd that Zynga faced a net income loss in both 2011 and 2012& as the data indicates that Zynga did )orse in 2012 than in 2011 )hile +A and 8e?A performed better in 2012. Although Zynga had the highest current ratio& )hich le"erages the sol"ency of a company& it also indicated that during the past t)o years& Zynga retained a lot of money on current assets )hich negati"ely aected the protability of the company. 3hats more& during the past t)o years& Zynga had a negati"e %+ Lreturn on e#uityM& )hich measures a corporationCs protability by re"ealing ho) much prot a company generates )ith the money shareholders ha"e in"ested. LIn"estopedia& 201/M In the mean)hile& competitors such as 8e?A did much better L//.O and -.O in 2012 and 2011 respecti"elyM than Zynga on %+. Zynga also faced a negati"e +6 Learnings per shareM& )hich is the portion of a
companyCs prot allocated to each outstanding share of common stoc!& )hile both +A and 8e?A performed much better than Zynga in this regard. The follo)ing +xhibits 2 and / sho) the comparisons of stoc! prices since the I6 of Zynga Inc. and the dierences bet)een Zynga and its competitors. +xhibit 2 V *omparison of toc! 6rices bet)een Zynga R +A
L8ata %esource: Dahoo (inanceM
Although +A faced a do)ntrend from 8ecember 2011 to August 2012& its stoc! started to increase in eptember 2012. (or Zynga& they had an uptrend during the beginning fe) months Lfrom ?o"ember 2011 to 'arch 2012M after their I6F although& they started to decrease in stoc! price shortly after. +xhibit /V *omparison of toc! 6rices bet)een Zynga R 8e?A
L8ata %esource: Dahoo (inanceM As far as the comparison bet)een Zynga and 8e?A& on one hand& they both faced a do)ntrend in 201/ to 201/F on the other hand& 8e?A is a de"eloped
+xhibit 7 V *ompetiti"e 6role 'atrix Q
QZynga
Q+A
Q8e?A
Q
* ritical success factors Q 3eight Q 3eight core Q %ating 'ar!etshare 0.-2 Q
Q 0.1/
*ompellingcontents Q 0.0 Q Inno"ati"eness 0.- Q
Q %ating Q 3eight core Q 3eight core Q
Q 2 Q 0.2
Q 0.1-
Q 0.17
9lobalexpansion Q 0 .04 0.2 Q
Q 7 Q 0.-2
Q 2 Q 0./0
Q %ating Q 7 Q
Q / Q 0.7-
Q 7
Q 2 Q 0.2
Q 2 Q 0.2
Q 7 Q
Q 1
Q 2
Q 7
Q 0 .04
Q 0 .17
Q
A)arenessofgames Q 0./ Q
Q 0 .12
Q /
Q 0 ./
Q /
Q 0 ./
Q /
9ood)illofcompany Q 0./2 Q
Q 0 .0
Q 2
Q 0 .1
Q /
Q 0 .27
Q 7
*ustomerloyalty Q 0 .12 0.27 Q
Q 2
Q 0 .27
Q 2
Q 0 .27
Q 2
Q
Ad"ertising Q 0.11 Q
Q 2 Q 0.22
Q / Q 0.//
Q 1 Q 0.11
6layingfees Q 0 .07 Q
Q 7 Q 0.1
Q 2 Q 0.0
Q 2 Q 0.0
ocial media connection Q 0.10 Total Q 1.00
0.0-
Q
7 Q
0.20
Q
/ Q
0.1-
Q
2
Q Q
Q 2.2-
Q
Q 2./
Q
Q /.14
Q
The +xhibit 7 competiti"e prole matrix sho)s that Zynga has the lo)est )eight score L2.2-M compared )ith competitors L+A )eights 2./ and 8e?A )eights /.14M. In other )ords& Zynga is less competiti"e in the current mar!et based on these critical factors. It is important to note that there is great potential for Zynga to impro"e. *ollaborators
(aceboo! and Zynga prior to early 201/ had a mutual relationshipF has since dissol"ed %ecently partnered )ith $@ and 8isruptor @eam to bring a& 9ame of Thrones& social game to the )orld L8yer& 201/M Ac#uisitions include: '966 @onre tudios @u 'on!ey ?e)toy P68 'edia *hallenge 9ames AreaW*ode (loodgate +ntertainment 'ar!etZero In"ested o"er N/10 million into ac#uisitions
*ontext Uuic! changing industry ocial gaming is estimated to gro) in to a N4 billion dollar industry by 201- if it is left unregulated L$ar"el& 201/M ocial and mobile gaming "ideo Ads has the highest completion rate in the online Ad industry& i.e.& 51O. ocial games are centered on shared user experience )ith in the social media application frame)or! Lsuch as (aceboo!M in )hich they are played. The a"erage engagement rate of ocial 9aming Ads is 20O& as compared to 0.-0O of (aceboo!,brand pages In the past year numerous regulators ha"e called for stricter rules surrounding the industry& multimillion,dollar "enture funds ha"e been established& and the granting of online gaming licenses in ?e"ada& ?e)
Zynga loo!ing into partnering )ith ?e"ada casinos to enter the gambling gaming industry. @y 2017& -0O of social net)or!ing users and /7O of total internet users )ill play social games. 8emographics of ocial 9amers: Lolder femalesM 9ender: -7O (emale and 7O 'ale A"g. Age: (emale 70 and 'ale /4 Zynga 3T A?AHDI trengths Heading pro"ider of social game ser"ices LX270 million users playing gamesM 9ames on global platforms starting to expand L(aceboo!& 9oogleE& Tencent& Apple ios& 9oogle androidM trong story behind brand name ?e) *+& 8on 'attric!& turned Pbox around and made it protable *ompletely focused on social and mobile gaming 3ea!nesses toc! plummeted 14O this year L201/M. Their stoc! is under N/. The company Bust under)ent t)o rounds of layos L1O of its )or!forceM and shut do)n oSces in ?e) Dor!& Hos Angeles& and 8allas L;ain& 201/M *ompany co,founder 'ar! 6incus stepped do)n as *+ at the beginning of
+"en though G. games mar!et is Yat at around N21. billion& the online and mobile games are gro)ing L9lobal 9ames *onsoles Industry 6role& 201/M. The global games consoles mar!et )ill be )orth N22&212. million. *ompare to 2012& it )ill increase by 1-.7O L9lobal 9ames *onsoles Industry 6role& 201/M. Asia is "ery dominant in the game industry. 7O of *hinese population playing "ideo games compared to 5O of Americans L'c8onald& 201/M. Jirtual 9oods is estimated to gro) signicantly. The current global "irtual goods re"enue is N billion and it )ill increase to N22 billion by 201- L'c8onald& 201/M. The main "irtual goods and subscriptions mar!et is proBected in *hina and +ast Asia. 4O of i6ad and /O of Android tablet *hinese users buy "irtual goods L'c8onald& 201/M. /4O of i6ad and //O of Android tablet American users buy "irtual goods L'c8onald& 201/M. Jirtual goods are accounted for 0O of social game re"enue& 20O from ad"ertising& and 20O from others oers L*asual 9ames Association& 2012M. ocial gaming ocial gaming is forecast to ha"e a "alue of N5 billion by 201-& and it )ill be the leading games mar!et L*asual 9ames Association& 2012M. 71O of G internet users& about 00 million users& are acti"ely playing games on social net)or!ing sites and half of them play social game e"ery day L*asual 9ames Association& 2012M. 'obile games The main mobile re"enue in 201/& 41O& comes from games Ltreet& 2011M. Apple tores is dominated - percent of total mobile re"enue& but 9oogle 6lay is gro)ing. 3ith android mar!et has gro)n larger than i& O global mar!et& in future 9oogle 6lay )ill ta!e the lead Ltreet& 2011M. 12O of +uropeans& 22O of Americans& and 74O of
The mobile games mar!et is proBected to gro) to N1./ billion by 201 Ltreet& 2011M. In *hina& mobile gaming is the most popular mar!et. 45O of total players use a tablet and -4O of them use smart phone L'c8onald& 201/M.
Threats
'ar!et After decades of years de"elopment& online game industry is no) in the life cycle of mature period. *hanges& such as ne) technologies and dierent types of games& are expected to brea! through for a ne) era. 9ame ma!ers no) struggle to dierentiate& as copycat games are released #uic!ly to counteract any release of a popular title. Technology Zynga is currently the =)orlds leading pro"ider of social game ser"ices>& ho)e"er& both current and potential competitors are de"eloping rapidly as )ell. The reason is that core techni#ues& li!e game engine& are no longer absolute ad"antages for Zynga& its competitors& such as +lectronic Arts& 6laydom& Acti"ision @liard& Tencent& *ro)dtar& etc. are all strong opponents. %egulations %egulations& such as timer and classication& are proposed to protect certain group of population. Ta!e the timer for example& if 1O of the =270 million acti"e players> minus one minute per month& the total amount of online time )ould lose 2.7 million minutes& )hich could be a huge lost for ad"ertising re"enue. $ac!ers $ac!ers& such as Anonymous& ta!e Zynga as one of their targets. They attac! tech companies for fun and for sense of achie"ement& or sometimes because they feel unhappy for certain issues.
Timeline
6roblems Analysis
Industry *hain
The industry chain of social games is composed of de"elopers& publishers& distributors and game players from upstream to do)nstream. The sophisticated operation process starts from the consumers desire of high #uality games from publishers and ends )ith the satisfaction of users playing these high #uality games. This is the tale of ho) the industry is structured and ho) its main players function in it.
As illustrated abo"e& publishers& such as +lectronic Arts& ony& 3arner @ros.& and Acti"ision @liard& play a crucial role in the industry chain because they are the connecting lin!s bet)een the preceding and the follo)ing& yet at the same time they are in charge of both the game agencies and promotions. The publishers ensure that the industry chain )ill mo"e on to some extent. 8e"elopers& such as ?intendo and Gbisoft& )ho ha"e many related resources and channels& are responsible for games research and de"elopment. This illustrates ho) sometimes companies can o)n publishers and be the de"elopers at the same time. (urthermore& platforms such as (aceboo!& )or! as the doc!ing bet)een the games and the game players by pro"iding access to do)nload games.
trategy Analysis @ased on the information pro"ided by Zynga& its strategy at the time included se"en aspects& )hich are: 1M To ma!e games free& accessible& and fun 2M Haunch ne) games /M *ontinue mobile gro)th 7M +nhance existing franchises -M *reate the leading game net)or! M +xpand into real money gambling 4M +xtend technology leadership position
In order to gure out )hether those points are accurate& eecti"e and could be eScient and )ell implemented& )e )ould li!e to rst analye those aspects through three dimensions:
1. Internal factor e"aluation matrix ; ey +lement
Q 3eight
Internal trengths Q
Q
@ rand e#uity
Q 0.0- Q /
Q core Q
Q 3eighted core
Q Q 0.1- Q
H eadership of online social game de"eloper Q 0.10 Q 7 9 lobal platforms
Q 0.0- Q /
A cti"e usersQ 0.10 Q 7
Q 0.70 Q
Q 0.1- Q
Q 0.70 Q
'i nimied ris! of single social partner Q 0.0- Q /
Q 0.1- Q
+ xtended platforms and ser"ices ' ore net)or! operators Q 0.0- Q /
Q 0.1- Q
Internal 3ea!nesses
Q
Q
Q 0.0- Q / Q 0.1- Q Q
Q
3 ea!ened %R8 and inno"ation Q 0.1- Q 1 8 eclined acti"e users
Q 0.10 Q 1
Q 0.1- Q
Q 0.10 Q
3 ea!ened collaboration )ith social media
Q 0.10 Q 2
I nsuScient repeated purchases Q 0.10 Q 1
Q 0.10 Q
* ontinuous net loss Total Q 1.00 Q
Q
Q 0.10 Q 1
Q 0.20 Q
Q 0.10 Q
Q 2.20 Q
The elements& )hich are selected from Zyngas current strategy& are "ery signicant in Zynga being a leader in the online game industry. Zynga could impact the industry if it has any maBor acti"ities or changes. Zyngas )ea!nesses such as poor research and de"elopment added )ith a lac! of inno"ation are a "ery concerning statistic that is brought up. 'oreo"er& the total result of 2.20 indicates that both the internal and external conditions are not positi"e because the index is no) lo)er than the a"erage le"el& )hich could be a nightmare for big shot li!e Zynga. Therefore& it )ould be necessary for Zynga to re"ise its strategy.
2. +xternal factor e"aluation matrix ; ey +lement +xternal Threats
Q 3eight Q
Q
Q core Q
Q 3eighted core
Q
H arge amount of casual players Q 0.10 Q 1
Q 0.10 Q
@oth existing and ne) *ompetitors
Q 0.0/ Q 2
Q 0.0 Q
* hanges of consumer preference
Q 0.10 Q 2
Q 0.20 Q
% apidly upgraded technology
Q 0.10 Q /
Q 0./0 Q
'ore comprehensi"e la)s and regulations +xternal pportunities
Q
Q
Q
Q 0.02 Q 2
Q 0.07 Q
Q
? e) business in %eal 'oney 9aming Q 0.10 Q /
Q 0./0 Q
T he gro)th of ad"ertising mar!et
Q 0.1- Q 2
Q 0./0 Q
T he gro)th of social games mar!et
Q 0.1- Q /
Q 0.7- Q
T hird,party de"elopers
Q 0.20 Q
Q 0.10 Q 2
Trends of ne) platforms and ser"ices Q 0.10 Q / T rends of /8 games Total Q 1.00 Q
Q
Q 0.0- Q /
Q 0./0 Q
Q 0.1- Q
Q 2.70 Q
This table represents the degree of eecti"eness and eSciency of Zyngas current strategy has acted& on )hich it "alues most. The index total of 2.70 re"eals that Zynga could realie the threats and opportunities to some extent& but there are far more than they claim to encounter. The possible explanation of a lo)er index here is that the loss from threats cannot be )ell neutralied by the benet from opportunitiesF in other )ords& Zynga has not made full use of their opportunities. The prot generated either direct or indirect from opportunities is reduced& and the expenses and costs are someho) increased on the other side.
/. *ompetiti"e prole matrix ; ey+lement
Q3eight
QZynga
Q8e?a
Q+lectronicArts
Q
Q Q core Q 3eighted core core Q 3eighted core Q A d"ertisement
Q 0.0- Q 7
9 ame #uality
Q 0.10 Q /
Q 0.20 Q / Q 0./0 Q 7
Q core
Q 3eighted core
Q 0.1- Q / Q 0.70 Q 7
Q 0.1- Q Q 0.70 Q
I nno"ation Q 0.10 Q /
Q 0./0 Q 7
Q 0.70 Q 7
Q 0.70 Q
6 opularity
Q 0./0 Q 7
Q 0.70 Q 7
Q 0.70 Q
6 rice competiti"eness
Q 0.0- Q 2
Q 0.10 Q /
Q 0.1- Q /
Q 0.1- Q
* ontrol management
Q 0.0- Q /
Q 0.1- Q /
Q 0.1- Q /
Q 0.1- Q
6 latforms and de"ices
Q 0.10 Q /
Q 0./0 Q 7
Q 0.70 Q 2
Q 0.20 Q
Q 0.10 Q /
6 artner loyalty
Q 0.0- Q 2
Q 0.10 Q 7
Q 0.20 Q /
Q 0.1- Q
* onsumer loyalty Q 0.10 Q 2
Q 0.20 Q 7
Q 0.70 Q /
Q 0./0 Q
* onsumer satisfaction ' ar!et share
Q 0.10 Q 2
Q 0.10 Q /
( inancial conditionQ 0.10 Q 1 Total Q 1.00 Q
Q 2.-- Q
Q 0.20 Q 7
Q 0./0 Q / Q 0.10 Q 7 Q /.4- Q
Q 0.70 Q 7
Q 0./0 Q / Q 0.70 Q 7
Q
Q 0.70 Q
Q 0./0 Q Q 0.70 Q
Q /.70 Q
This table tells us the !ey performance index in online social game industry and )hat po)erful competitors "alue most )hen they ght for higher performance. It is clear that right no)& Zynga is much less competiti"e than its competitors& 8e?a and +A& according to the index of 2.--& /.4- and /.70.
1M (inancial perspecti"e: 9oals: increase protability& decrease expenses and costs Index: %+& sales re"enue& net income& unit margin 2M *ustomer perspecti"e: 9oals: increase users satisfaction Index: users protability& users retention rate& users life& users lifetime "alue& repeat purchases /M 6rocess perspecti"e: 9oals: impro"e inno"ation and creation& narro) the inter"al of launching eye, catching games& increase popularity Index: )eighted,a"erage days of ne) game introduced& ratio of successful games& ratio of sales re"enue from ne) users 7M Hearning and gro)th perspecti"e 9oals: complete and impro"e rules such as career planning and system of re)ards and penalties& impro"e the ability of team)or! and communication& increase employee satisfaction Index: #uantitati"e data from #uestionnaire and peer e"aluation& demission rate& employment rate& net labor turno"er rate.
(inancial Analysis To begin )ith the analysis& the business model should be rst ta!en into account. @asically& Zynga ma!es money "ia t)o )ays: payments from players and partner businesses. (or example& Zynga can collaborate )ith or ad"ertise on (aceboo!& 'ypace& and other social media platforms. 'any Zynga games re#uire =+nergy> to play& )hich is a characteristic that consumers can pay for to become better engaged in a game. After expending a certain amount of energy& gamers must )ait a specic amount of time for the energy to slo)ly replenish. After energy is replenished& players can engage in games again. Zyngas support mechanisms ta!e ad"antage of this strategy. Zynga games are lin!ed to oers from some partners& )hich oer sur"eys and ser"ices to players to earn game credits. 6layers can choose to buy these sur"eys or ser"ices from Zyngas partners& thus allo)ing them to replenish their energy instead of )aiting for their allotted time function to pass. 6layers also ha"e the option to purchase game credits from Zynga directly. (rom
)ithin the game& players can buy the points for a feeF for instance& 10 dollars for -0 game credits that can be used to purchase "irtual goods or extend playing times. Zynga started running ad"ertisements and sponsored stories on (aceboo! from
Q
Q
Jirtual goods Lgame creditsM 6artner businesses Ad"ertising
*ost of goods sold Q 3eb hosting R data center costs 6ayment process fees alaries R benets for customer support and infrastructure employees Q %esearch R 8e"elopmentQ alaries R benets for soft)are de"eloper and engineers utside consulting and ser"ice fees (acilities and o"erheads Q ales R'ar!eting Q 6layers ac#uisition costs @randing R mar!eting costs alaries R benets for sales and mar!eting employees Q 9eneral R Administrati"e Q alaries R benets for executi"e& legal& nance and $% teams utside consulting and legal ser"ice costs Q Zynga Inc. )ent public under the tic!er Z?9A on ?A8AU in 8ecember 2011& at an srcinal price of N10. As +xhibit - sho)s& it reached the pea! of N17.5 in 'arch 2012& but then dropped steadily& hitting the bottom stoc! price of N2.05 in ?o"ember 2012. The reasons for the fall of the stoc! price are rele"ant to some maBor issues )ithin the company. +xhibit - toc! 6rices Trend
8ate %esource: LUuotes.morningstar.com& 201/M There )as a report about the )or!ing en"ironment and atmosphere about Zynga& as former employees complained that Zynga )as ne"er a )arm and fuy place to )or!. LThe Atlantic 3ire& 201/M This former employee said Zynga )as one of the most e"il places to )or!& both from a culture perspecti"e and in its business approach. ?egati"e reports ne"er stopped about Zynga. The founder and former *+ 'ar! 6incus didnt encourage inno"ation though he had employed many de"elopers and engineers. Instead& Zynga chose to purchase games from other companies& sometimes e"en buying out the )hole company to become part of Zynga. This trend of purchasing instead of de"eloping )ill later be explained as a main factor contributing to Zyngas demise.
n 'arch 21& 2012& Zynga announced that they purchased game de"eloper& '966& for N10 million in order to ac#uire the "ery popular game 8ra) omething. $o)e"er& after the ac#uisition& a remar!able drop in popularity of this game )as noticed& as daily acti"e users dropped from 1- million to 10 million in the rst month post,ac#uisition. n ctober 2012& Zynga announced that they had o"erpaid for the company& "aluing the '966 asset at around N50 million& a star! contrast from )hat they had srcinally paid. (urthermore& in
+xhibit Zynga Income tatement ummary Q Dear +nded 8ecember /1
Q
Q 2010Q 2011Q 2012Q % e"enue
Q -54&7-5
Q 1&170&100 Q 1&21&24 Q
Total costs and expenses Q 741&54
Q 1&-7-&41 Q 1&77&2/ Q
p erating Income LHossM Q 12-&742
Q L70-&1M Q L12&541M Q
ther Income L+xpensesMQ 1&-4
Q L-2M
Q 2/&/5
Q
+ @IT Q 124&0-5
Q L70&1-2M Q L1-5&-4-M Q
6 ro"ision for Income Taxes
Q /&77
6 referred toc! and ther AdBustments ? et Income LHossM Q 24&5-
Q L1&2M
Q 75&4/
Q
Q 2&400
Q ?WA Q ?WA Q
Q L707&/1M Q L205&77M Q
L8ata resource: 2012 Annual %eportM
To loo! deeper into Zyngas protability and sol"ency of the past four years& one should compare return on e#uity& earnings per share& current ratio& #uic! ratio& nancial le"erage and gross margin as the follo)ing +xhibit 4 sho)s. +xhibit 4 (inancial %atios Analysis Q 2012Q 2011Q 2010Q 2005Q % + LOM+6 LNM Q
Q ,77.00O,0.2
Q ,11.42O,1.70
Q 1.5O0.17 Q ?WA?WA
*u rrent %atioUuic! %atio(inancial He"erage Q 2.522.471.71 Q 1.471.712.2 Q 0.5-0.5/?WA Q ? et Income LNM9ross 'argin Q ,-/'-/./ Q
Q ,205.7-'42.-
Q /.0/2.5/1.77
Q ,707./2'41.1
Q 51'40.-
As seen in +xhibit 4& Zynga did )ell in year 2010& not only because it made prots of 51 million dollars& but also because it had a good sol"ency. In detail& Zynga had a current ratio of 1.47& )hich measures the ability of a company to pay its short,term liabilities Ldebts and payablesM. ?ormally& the higher the current ratio is& the better the is& and current ratio 2 is seen good. If )as the current is o too lo)&sol"ency for example& 0.5in 2005& it around suggests that theas company unable ratio to pay its obligations. $o)e"er& if current ratio is too high& 2.52 and /.0/ in 2012 and 2011 respecti"ely for instance& it may negati"ely aect the companys li#uidity and ma!e the sol"ency seem better. The current ratios in the most recent t)o years sho) that Zynga )as not in good nancial health. Although it does not necessarily mean Zynga is going to go ban!rupt& it is denitely not a good sign. In addition& during the past t)o years& Zynga had a negati"e %+ Lreturn on e#uityM& )hich measures a corporationCs protability by re"ealing ho) much prot a company generates )ith the money shareholders ha"e in"ested. @asically& in"estors )ish to see a high %+ in order to feel condent enough to in"est in Zynga. The negati"e %+ is a bad sign for in"estors especially for those )ho hold a
lot of stoc!s of Zynga. As of this
Q ?ine 'onths +nded
Q eptember /0&
Q
Q
Q 201/Q 2012Q 201/Q %e"enue:
Q
Q
nline game
Q
Q
Q N 147&/40 Q N 2-&-4 Q N 04&22 Q
A d"ertising Q 2&210 T otal re"enue
Q /1&0-0
Q 202&-0
*osts and expenses:
Q
* ost of re"enue
Q -5&011
ales and mar!eting
Q /1&/4
Q
Q 50&1-0
Q 15&72
Q
Q 1&02/
Q 1--&05
Q
Q 21&140
9 eneral and administrati"e
Q
Q 5&507
Q
% esearch and de"elopment
Q 5&72
Q
Q /&-
Q /7&012
Q //7&-2
Q 4 5&70
Q /-&/-/
Q
Q
Q 121&15/
Q
I mpairment of intangible assetsQ 10&214 Total costs and expenses Q 20-&7// Income LlossM from operations Interest income
ther income LexpenseM& net
Q 71/&151
Q L2&-/M
Q 5- Q 1 &177
Q / &2//
Q
Q
Q L/&1-7M
Q
Q
Q L 5-5M
6ro"ision for Lbenet fromM income taxes Q
Q 10&214
Q 4/-&0-
Q L5&--7M
Q 525 Q L/-0M
Income LlossM before income taxes
? et income LlossM Q N LM
Q 5-&75/
Q L7&7-M
Q
Q L 5-&40M
Q L /5&/M
Q L51M
Q L7/&0/-M
Q
Q L24&7M
Q N L-2&42-M Q N L11&470M Q
L8ata %esource: Zynga U/ 201/ +arningsM
ther %ele"ant Issues Aecting (inance It is hard for Zynga to retain loyal players& especially since the life cycle of social games are becoming shorter. These social games must be updated "ery fast to meet players needsF if not& players may get increasingly bored of the same content. (or example& )hen Zynga bought 8ra) omething& the game )as one of the most popular games in the )orld as players from all around the )orld played it together. ne )ee! after the ac#uisition& Zynga lost - million players. The reason is simply due to players getting bored and the game losing their attention. The mobile and social gaming industry is an extremely tough industry to compete& as users can mo"e on to ne) games extremely #uic!ly. Hoyalty is extremely hard to build in this business and )ithout more creati"e inno"ations and ideas introduced& Zynga games may seem li!e one,hit,)onders. The high turno"er rate is another factor inYuenced nancing. As stated in 2012 Annual %eport& =3e ha"e experienced signicant turno"er in our headcount o"er the last year& )hich has placed and )ill continue to place signicant demands on our management and our operational& nancial and technological infrastructure.> LZynga& 2012M Although Zynga had tried some cost reduction initiati"es to align expenses )ith re"enue& it has to continue to spend money to hire ne) #ualied employees as )ell as moti"ate and retain current employees. The former *+ 'ar! 6incus tried to reduce the costsF ho)e"er& he failed at doing so. +arly in
n
Technical Analysis
6roduct 8ata Analysis There are four statistical tools a"ailable for Zynga )hich are (lurry& Hocalytics& 'ixpanel& and 9oogle analytics for mobile. Ta!e (lurry for example& it pro"ides strong statistical functions. After years of accumulation of technology and product iteration& 8; Yurry is "ery stable statistical bac!ground function. ther strengths include: supporting the application toolsF unlimited custom timeF funnel analysisF user grouping analysisF cohort analysisF custom reporting ad"anced payment function. L$abgood R "ermars& 200M There are usually se"eral #uestions Zynga should fre#uently face. Architecture Architecture is designed based on decision model of ? or ''& dierent characteristics of dierent architecture. Gsers are the partial real relationship bet)een chain game players& so position is not important to the game players. ingle,threaded or multi,threaded ingle thread execution has only one principal line& )hich is easy to be trac!ed& adBusted& and locatedF ho)e"er& it pro"ides much better performance. o Zynga uses multi thread )hen it necessary and minimies the needs of complicated and time,consuming interaction bet)een threads under using. cript
%egard to ser"er side& the demand for the script from game players is really high& basically& Zynga chooses the mode of *W*EE frame)or!& the main logic is )ritten using *WEE& script is used to do some local expansion. ?et)or! communications There are usually t)o types of net)or! communications for game companies: one is to tie together )ith the game ser"er& the other is to strip the net)or! communication from the game ser"er& pro"ide a message as a unit& and be capable for intermediate ser"ice. Zynga uses the second option because it simplies the processing logic game ser"er and reduces the diSculty of programming. After years of operating& Zynga has pro"en this mode is easier to enhance the bac!ground processing performance& and the optimiation of dierent parts can be independent. 9ame communication protocol 9enerally& there are t)o !inds of agreements& text protocol and @inary protocol. Text protocol has better "ersion compatibility but )orse eSciency. As a matter of fact& game launchers al)ays do the best to ensure games are compatible to most platforms. This is a big challenge for operators as binary protocol is not intuiti"e and the compatibility process is relati"ely complex as )ell. ?et)or! synchroniation Three,step rule is Zyngas usual approach. (irst& to probe game players net)or! #ualityF then& to cloc! synchroniation bet)een the game players and ser"er machinesF third& to create synchronous mechanism based on the game features. 6erformance benchmar! 6erformance benchmar! includes client and ser"er& including benchmar!ing the target mar!et. 3ith the help of ser"er& Zynga can analye the amount of users it can aord. (or example& a single physical ser"er of 1 *6G and dual core& )ith the a"erage consumer traSc of 12,20;bps& could support around 7&000 online users. *ode reuse bet)een dierent proBects *ode reuse is eecti"e )hene"er Zynga is de"eloping or launching se"eral proBects simultaneously. In order to expand capability& Zynga uses process data to ensure ser"ice and ade#uate toolsF and meets the re#uirements. L$abgood R "ermars& 200M
tatistical analysis
*hannels& such as ad"ertising platforms& limited free of charge& and integral promotion form free )all& are de"eloped rapidly for game companies. Ta!e the I platform for instanceF numbers of channels could be put in at the same time& each channel to bring the calculation and analysis of the actual number of acti"e users& as )ell as the single user ac#uisition cost. L'oore R ?o"a!& 2005M (urthermore& the !ey ratios& such as customer retention rate& payment rate& are helping )ith feedbac! analysis of promotion strategy. As a matter of fact& the mar!et has emerged in a number of I platforms for statistical channel tracing analysis tools& as they pro"ide a concise statistical code& help realie the trac!ing data I application do)nload )ithout an embedded 8;& and they help realie the simple analytical functions. In general& Zynga needs to complete the follo)ing t)o steps to generate eecti"e statistical data: The use of statistical tools to generate channel promotion code To pro"ide the corresponding channel in the application built into the statistical code L'oore R ?o"a!& 2005M
Third party channels analysis ome tools are pro"ided by third parties )hich could be done by ad"ertisers& app de"elopers& and ad"ertising platforms. They often o)n data based on statistical platform and deri"ed channel eect analysis products& some of )hich need to be paid for use. Tapstream: The leading direction is to help de"eloper statistics from the )eb promotion eect. Although apps pro"ide a large number of traSc sources for mobile phones& there are still a lot of 3eb channels because of the higher price of apps.
LTapstream& 201/M
The integration of Tapstream re#uires t)o steps: one is to embed the statistical code in promotion )ebsite and the other is to embed in application of 8; free. 'ean)hile& the Tapstream also pro"ides no )ay to integrate 8; free. This platform pro"ides se"eral free trial days after that there is a need to charge dierent users accordingly. LTapstream& 201/M
@it.ly: Is the one of the most popular short lin! ser"ices. @it.ly helps game companies by allo)ing them to "ie) the clic!s on the lin! information daily. Zynga could generate channel statistics through this method to better analye trendsF although this approach is simple& it is "ery eecti"e and easy to implement for a company. L$abgood R "ermars& 200M
Ad"ertising platform analysis Those tools described abo"e are useful to ad"ertising platform of accumulating data and experiences in the ad"ertising business and are "ery suitable for Zynga products. $o)e"er& because these analysis tools are launched by an ad"ertising platform& the data could ha"e been decorated to some extent. Therefore& Zynga must use dierent channels of analysis to compare their data trends& as it pro"ides a better& unbiased "ie) of the data. Throughout the de"elopment history of online games& the general path by no) is 6* end game& 6* )ebsite game& and mobile game or social game. ?o) along )ith the competiti"e de"elopment of smartphone and tablet& )hat Zynga faces is the period in transition from )ebsite games to mobile and social games. In recent years& especially in the second #uarter of 201/& there )ere at least 1&000 research and de"elopment teams )or!ing on more than 2&000 mobile or social game products in the nation. The larger amount of gaming companies mixed )ith the high de"elopment pace of the industry ine"itably resulted in a plethora of gaming #uality issues. Zynga )as "ery much a part of this trend& as it consistently produced bad #uality games. In order to sa"e time and cut corners& Zynga sometimes produced copied "ersions of popular games. This )as a feeble attempt to try a ta!e some of the popular games mar!et shareF ho)e"er& the results of this strategy )ere mixed. In fact& the company )as hit )ith multiple la)suits stemming from the accusations of copying games. Another disturbing trend found at Zynga )as that players )ould nd game products made by Zynga that they )ould actually li!eF but& 2 or / days later& those products )ould be immediately scratched. This )ould lea"e customers confused and angry at the company& as they nally found a concept they li!ed that )as de"eloped by Zynga. Hast but not least& Zynga is )or!ing on its technology stac!. As they pointed out in their 2012 Annual %eport& they tried their best to impro"e =the ability to handle sudden bursts of acti"ity o"er a short period of time>& for the sa!e of =higher le"els of performance and reliability> to bac! up the de"elopment of the business. The proprietary technology stac! includes =datacenter and cloud computing management>& )hich ha"e shared =code base net)or!> and =cross,promotional features and proprietary data analytics>F as )ell as& the gro)th of both 28 and /8 game engines across the mobile platform business along )ith =high,le"el security and anti,fraud infrastructure>. LZynga& 2012M
'ar!eting Analysis @usiness 'issions and trategy Zyngas mission statement is =to connect the )orld through games.> ZyngaCs 201/ mar!eting obBecti"es: 'a!e 9ames Accessible and (un +nhance +xisting (ranchises: continue to impro"e the leading games. Haunch ?e) 9ames *ontinue 'obile 9ro)th +xtend our Technology Headership 6osition *ontinue International 9ro)th Increase 'onetiation of ur 9ames ource from Zynga Annual %eport 2012 6rice Jirtual 9oods Zynga pro"ides =free games> to customers. $o)e"er& Zynga pro"ides "irtual goods& "irtual currency& )hich helps players progress faster and impro"e their performance in the game. 6layers can directly purchase these by credit card& in,game play& or from a promotion letter. (or instance& in the (armJille game& after planting the crop the player )ill ha"e to )ait for the crops gro) )hich can ta!e hours. 'any players do not )ant to )ait& so they use a fe) dollars to help the crops gro) faster. Jirtual goods are Zyngas main re"enue. According to the 2012 annual report& "irtual goods accounted for 41O and /O of online game re"enue in 2011 and 2010& in )hich online game re"enue accounted for 57O and 5O of total re"enue L+xhibit 5M. $o)e"er& the number of customers )ho is )illing to pay is much smaller than free players. Hess than 10O of users spend money into these items. 'oreo"er& some players resale Zyngas "irtual goods to other players. They use other )ebsites to run these transactions and Zynga gains nothing from that. In addition& there are many game hac!ers. They de"eloped programs )hich can hac! Zynga systems and get ad"anced game features )ithout playing money. These hac!ers not only cost the company money but they also teach other players to do so& further endangering the companys business model. 'any games companies ha"e faced the same problems. The Internet is too broad and ma!es these problems much more diScult to control. Ad"ertising
Zynga pro"ides ad"ertising ser"ices for mar!eters and ad"ertisers to use its huge customers base. @randed Jirtual 9oods and ponsorships that integrate ad"ertising )hile playing the games +ngagement Ads and ers in )hich players can ans)er certain #uestions or sign up for third party ser"ices to recei"e "irtual currency 'obile Ads through ad,supported free "ersions of mobile games 8isplay Ads in online )eb games that include banner ad"ertisement According to the annual report 2012& ad"ertising re"enue increased 22O from 2010 to 2011: re"enue from in,game oers& sponsorships& and engagement ads )as N2.0 million and re"enue from other ad"ertising acti"ities )as at N2-. million. Ad"ertising is a great source of re"enue for many social game companies. ?e"ertheless& Zynga still has not gured out ho) to ta!e ad"antage of this source yet. According to the annual report& Zynga ma!es contracts )ith mar!eters and ad"ertisers for its game and depend 100O on these agencies. The company does not set the ad"ertising price as )ell as ho) much the clients pay for the ads. It Bust recei"ed the di"idend from contracted agenciesF thus& Zynga has no relationship )ith its clients. Zynga may thin! it is a game company and it is better to ha"e a professional company handle their ad"ertisingF ho)e"er& the company )ould extremely benet from running their o)n ad"ertising acti"ities due to increased re"enues and better relationships. In Zyngas games& it is easy to see *oca,*ola& Amaon& 'c8onaldCs and 3almarts logos L+xhibit 10M. They are big companies and long,term contracted clients. If the company does not establish good relationship )ith these companies& it )ill be really hard to increase its re"enue. +xhibit 5 V Zynga %e"enue
Q Q
Q Q
Q
Q Q
Q Q
Q Q
Q Q
Q Q
Q Dear +nded 8ecember /1&
O *hange
Q
Q
O *hange
Q
Q
Q Q
Q 2011Q Q
Q
Q Q
Q
Q
Q
Q 2010 to 2011
Q 2005 to 2010
Q Q
Q
Q Q
Q 2010Q Q
Q
Q 2005Q
Q
Q
Q
Q
Q Ldollars in thousandsM
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q %e"enue by type: Q Q Q nline game Q QN QO Q Ad"ertising Q Q Q Q Total Q
Q Q
Q Q
Q
QN Q -&47
Q
Q Q
Q Q
Q
Q
Q 1&0-&7 Q Q Q Q
Q Q 47&7-2 Q /-&415 Q Q
Q Q
Q
Q
Q Q
Q Q
Q
Q -
Q Q
Q
Q Q
Q
QN Q -47&/2 QO Q Q
Q Q 22&24 Q 22 Q O Q Q
Q
Q
QN Q 1&170&100 Q Q 121&74 Q Q Q
Q
Q
Q Q
QN Q -54&7-5 Q 51 Q O Q Q
Q
Q
Q
Q Q -40
Q Q L/ Q MO Q
Q Q
Q QN Q /52 Q O Q
ource: Zynga Annual %eport 2012 +xhibit 10 V Ad"ertising in Zynga 9ames
6roducts (aceboo! games: $idden chronicles& @ubble afari& *astleJille& +mpires R Allies& *ityJille& Zynga 6o!er& 6ioneer Trail& 3ords )ith (riends& 'aa 3ars& *af 3orld& (armJille& DoJille. 'obile 9ames: 8ra)ing omething& *astleJille Hegends& Zombie )ipeout (ree & 9ems )ith (riends& 'atching )ith (riends& 3ords 3ith (riends& cramble 3ith (riends& $anging 3ith (riends& Zynga 6o!er& 8ream Zoo& *hess 3ith (riend& *ityJille $ometo)n& (armJille +xpress& 8rop 4& 8ream $eights& 8ream 6et$ouse& lots by Zynga& Aya!ashi: 9host ther 6latforms: *ityJille& Zynga 6o!er& DoJille. Zyngas leading games are (armJille L24O of online game re"enueM& *ityJilleL1/OM& Zynga 6o!er L1-OM& and (rontierJille L1-OM. Zyngas product problem is that the company did not focus on building its srcinal games. 'ost of Zyngas current games )ere bought from other game de"elopers. The gaming industry is changing rapidly in order to satisfy customers. If a game company does not build its o)n game& it cannot compete in this industry )hich thri"es on inno"ation. 'oreo"er& Zyngas negati"e net income )ill no longer allo) the company to purchase games.
The gaming industry is mostly dri"en by creati"ity rather than producing the same thing. Zynga has made many additional "ersions for its old gamesF but& se#uels hardly e"er produce the same amount of re"enue as the rst editions. *ompetitor +lectronic Arts Inc. has made money producing the same thing. ?e"ertheless& +A is able to do that by using its po)erful brand and targeting a more simplistic demographic. Zynga does not ha"e enough brand recognition execute this strategy. Zynga has been struggling )ith so many la)suits. In early 201/& +lectronic Arts sued Zynga for copying its game& The ims. Zynga sued +A bac! for stopping employees from s)itching companies. At the end& both companies agreed to a settlement LThomas& 201/M. nce again& in ctober 201/& a pri"ate settlement )as made )ith @ang 3ith (riends o"er t)o games: 3ords 3ith (riends and *hess 3ith (riends L9ullo& 201/M. +"en though Zynga )as able to sol"e all of these la)suits and information about those agreements )as not made public& the companys reputation still too! a hit. *ustomers seemed to #uestion its game de"eloping ability& )ith many customers abandoning their games. n
a message promoting the game. This feature had helped build Zynga brand a)areness among (aceboo! users. $o)e"er& many non,players felt annoyed because of this feature and they complained to (aceboo! about it. As a result& (aceboo! had to ta!e that feature out. %ight no)& a user playing a game does not appear on their pages or their friends feed. Another reason for problems at Zynga )as that they )ere too dependent on the (aceboo! platform. (rom the beginning& Zynga )as "ery focused on de"eloping (aceboo! games. Zynga had made an addendum )ith (aceboo! and their current deal. The addendum demonstrated that (aceboo! )ould control the promotion& distribution& and operation of Zynga games through the (aceboo! platform and players had to use (aceboo! *redits as the primary payment method. (aceboo! is re#uired to remit to Zynga an amount e#ual to 40O of the face "alue of (aceboo! *redits purchased by our players for use in our games. This addendum )ith (aceboo! expires in 'ay 201- LZynga Annual %eport& 2012M. Zynga noticed this problem and the company )as trying to de"elop its o)n platform to get out of (aceboo!& but it )as not successful as the company expected. (urthermore& it hurts the relationship )ith (aceboo!. In 8ecember 2012& ne) agreement )ith (aceboo! )as made& =(aceboo! )ill no longer guarantee Zynga certain )eb or mobile gro)th targets continuing to in"est in games on games.> the platform. (aceboo!the also )illinnoexchange longer befor prohibited from de"eloping its o)n The moment agreement bet)een t)o companies is re"ealed& Zynga stoc! price dropped 12.O to N2.25 L9lasser& 2012M. Zynga o"erestimated the po)er of (aceboo!. (aceboo! is still dominant in the social net)or!s& and Zynga did not ha"e the capability to li"e on its o)n.
$uman %esources
The Issue at $and It is no secret that the gaming industry is "ery competiti"e and fast pace. 8ue to its nature& industry companies re#uire inno"ati"e and talented employees that can )or! at the same pace as the industry. Zynga !ne) that if it )anted to !eep its competiti"e edge they needed to be inno"ati"e in their gaming de"elopment at a faster pace than their competitors. Zynga and most of the gaming industry tends to ha"e )hat most call a meritocratic culture& )here indi"iduals are promoted based on their talent and achie"ements L'erriam 3ebster& 201/M. %e)arding employees for their eorts doesnt sound li!e a bad )or! en"ironment& but unfortunately in its eorts in trying to stay ahead of the competition& Zynga too! this system to another le"el. They began to de"elop the reputation of creating an uncompromising )or! culture for its employees )here they )or!ed long hours )ithout additional compensation and gi"en stressful completion deadlines. In addition& the company
fostered a "ery hea"y metrics focused system )here managers constantly trac!ed employees progress and those )ho )ere considered )ea! employees )ere either demoted or let go immediately L%usli& +"elyn& ?o"ember 24& 20011M. (or those )ho performed at high le"els& they )ere re)arded )ith la"ish gifts such as "acations and N100&000 in "ested stoc!. The issue )as that there )ere more penalty measures than re)ards in the Zynga )or! en"ironment. In 'arch 2005 Zynga hired ne) $% people oScer )ho created a ne) hiring structure and red about /0 employees by the beginning of the summer that same year. It )as also rumored that 'ar! 6incus !ept an ='.I.A> Lmissing in actionM list that helped him !eep trac! of the senior employees )ho held high e#uity in the company and )ere not performing )ell or needed more ambitious proBects. In that same 2005 year& the company began to reduce employee e#uity pac!ages. $igher management le"el employees )ho )ere not performing at the companys standards& they )ere gi"en t)o options& )hich )ere to either ta!e dierent positions )ith the same salary but )ith a lo)er e#uity pac!age or lea"e the company. ome employees can handle this type of stressful en"ironment& but others cannot& especially after )or!ing in this en"ironment after a couple of years. Zynga sur"eyed its employees regarding their )or! satisfaction. To former *+s& 'ar! 6incus& dismay& sur"ey results from 1&00 e"en employees indicated thatplanned they )ere "ery and unhappythe )ith the company and some indicated that they to lea"e cash out from the companys stoc! as soon as there )ere public oerings. In addition& many employees indicated that 'r. 6incus tended to ha"e many loud outburst and emotionally charged encounters that bro!e employees do)n& some )ould e"en brea! do)n into tears L%aice& $ayndi&
entertainment industry and ?e) Dor! in"estment ban!ing industry& )here they treat their employees W talents "ery poorly and ma!e them feel as though they are disposable if they dont perform at top managements desired le"el. This is denitely a "ery high pace and high stress en"ironment. 3or!ing )ith the fear of getting red e"ery second of ones day is a thought behind most employees )ho )or! in this type of unhealthy )or! en"ironment. (urthermore& 'ar! 6incus also stated in the inter"ie) that more that 0O of their )or! force has gotten some sort of promotion e"ery year for the past three years. ome employees L1-OM mo"e up in as short of time as three months. Their meritocratic system re)ards hard )or!ers and pro"ides up)ard mobility )ithin the company. In addition& 'r. 6incus has admitted to ha"ing the 'IA list at the beginning of his career at Zynga to help remind him of the employees that need help nding large proBectsWmissions. $e sa) it as a )ay to help his employees as opposed to the )ay the media portrayed it to be as a )ay for him to !eep an eye on the underperforming employees )ho )ere percei"ed to be future liabilities to the company. In addition& he also stated that the reason he decided to reduce higher managements e#uity plans and oered them dierent le"el positions because the company )as gro)ing at a "ery fast rate and to a certain degree also outgro)ing the senior leaders management capabilities. needed to be made in order for the company to gro) )ith the properAdBustments management. Gnfortunately& based on the companys current nancial state& this adBustment didnt ha"e the intended results L%aice& $ayndi&
)e are not perfect and beyond those personal issues& the company still focuses in ma!ing their company the best. $e is "ery happy )ith the technology that Zynga builds& its bright engineering teams& and their openness for continuous experimentation and ris! ta!ing in the industry L%oussos& ;ostadis& should be made feel comfortable and supported by the company. 3hen an employee does not feel the company is loo!ing out for their )ell,being or appreciating their eorts& they )ill not trust the company and as a result lea"e the company. As competiti"e as the industry might be& many employees& including those )ho ha"e been in the industry for many years& cannot sur"i"e the stressful en"ironment that Zynga has or can only endure a couple of years before they reach their burnout points. Also& )hen these talented employees lea"e the company& they ta!e a signicant amount of company insight and ta!e it )ith them to other competitor companys. 3ith this information these former Zynga employees ha"e the potential of using it strategically create better products for the competitors or gi"e them insight on Zyngas future inno"ati"e proBects. This is something that is common in this type of industry and Zynga has had to ta!e legal action against former employees )ho ha"e done this. It is important for companies li!e these to ha"e good communication bet)een the IT security and human,resources department so that they are able to trac! the indi"iduals )ho are going to be laid o and ma!e sure
that they dont ta!e any condential company information )ith them before they lea"e L;ing& %achael& ctober 201/M. In conclusion& losing good talented employees causes Zynga to also lose potential production of inno"ati"e products& )hich is )hat dierentiated Zynga in the social gaming industry and ga"e it success initially. As pre"iously mentioned& if Zynga does not ha"e talented personnel to de"elop great games for the public& this )ill ine"itably aect their prots. The company is in "ery bad shape nancially partly due to its negati"e institutional culture and )ea! management. In addition to not being able to produce the same #uality of games that they used to produce& they are also losing money through employee la)suits. 8ue to their unhealthy )or! en"ironment& many former employees ha"e ta!en legal action against the companys unfair labor practices and failure to pay o"ertime to the employees L3eingarner& @eth& August 201/M. In fact& on
Zyngas a)areness of its negati"e oppressi"e )or! en"ironment reputation and the negati"e the negati"e impact this )as ha"ing in the companys prots& it instilled change in the company by top management. *hanges at the employee and management le"el )ere made under dierent administration. Gnder 'ar! 6incus administration most of the changes )ere made on the lo)er employee le"els. After 'ar! 6incus left the company and 8on 'attric! too! o"er& he made a combination of higher management and lo)er le"el employee system changes. 'ar! 6incus attempt to x the companys )or! en"ironment )as primarily by trying to ease the )or!load on its )or!force. $e added data centers and expanded teams to ease the )or!load on the engineers. In addition& he also encouraged managers to gi"e employees a little do)n time bet)een proBects and a )hole )ee! o before their games debut to a"oid burnout. In addition& the company in"ested millions of dollars on leadership training programs that included focus groups and other methods for the managers. 'oreo"er& 'ar! 6incus did some self,reYection on his management style and attempted to soften and rene his management approach by getting a coach )ho assisted him )ith his message deli"ery tone and using constructi"e feedbac! to)ards his employees. $e also hired an outside company to do a /0,degree re"ie) on him to pro"ide feedbac! and suggestions. (urthermore& Zynga !ept their already onorganic site employees such as acupuncture& happy hour established (ridays& and cafeteria pampering food L%usli&per!s +"elyn& ?o"ember 24& 20011M. 3hen the ne) Zynga *+& 8on 'attric! entered the company& his re"amping approach consisted of restructuring top,le"el management. 8on 'attric! )anted top,le"el management to be more in"ol"ed and hands,on )ith product and game decisions. This )as implemented across three areas of the company& the studios& technology engineering& and functional areas such as the legal and human resources departments. According to some of the current Zynga sta& thus far this ne) restructuring and accountability system has been ha"ing a positi"e impact on the companys )or! en"ironment L*utler& ;im,'ay& August 201/M. This illustrates Zyngas resiliency trait that they are !no)n to ha"e. Zynga and its employees ha"e built a reputation of being able to #uic!ly adapt to changes in the company& )hich ma!e it one of the cultures greatest strengths. 3ith the culture transformation that the former *+& 'ar! 6incus established before lea"ing the company and the ne) leadership of 8on 'attric!& Zyngas human resource issues ha"e the potential of impro"ing. 'anagement
"er"ie) 'anagement at a company is one of the most important factors to focus on )hen analying a companys performance. 8ecisions by management& especially in a
centralied business structure& are extremely important as they decide )hich strategic direction the company )ill head in. 'anagement that is able to optimally utilie resources and put it to)ards a strategic goal )ill often lead to a successful company. 'anagement )ill also dictate the culture of the company& as employees )ill follo) the example set forth by the managers. 'anagement is responsible for ma!ing all parts of the company coexist and )or! togetherF )ithout a strong management team& the company )ill struggle to be successful. Gpper management at Zynga has made some #uestionable decisions in running the company. The continued drop in stoc! price since their I6 and their failure to produce more hit games is a direct result of poor management s!ills and decisions. (ailed ac#uisitions& no oScial long term direction& and a lac! of inno"ation in the )or!place are Bust more examples of the many problems that ha"e caused Zynga to spiral do)n)ards. (ormer *+ and founder& 'ar! 6incus& has struggled to retain top talent due to his management style and the ma!eup of the company. 3ith so many problems focused Bust on the core of the business& Zynga )ill continue its path to becoming obsolete )ithin the next fe) years unless some tough changes are made. 6roblems in 'anagement In analying the decisions made by top executi"e and founder& 'ar! 6incus& many problems )ithin the company can be brought to light. In the beginning& 6incus )as "ie)ed as an entrepreneur that had capitalied on the gro)ing social media mar!et. Zynga de"eloped big game hits such as (arm"ille and 'aa 3ars& games that )ere exciting and )ere able to gro) large fan bases. $e also built a strategic partnership )ith (aceboo!& )hich allo)ed Zynga to be the number one supplier of social media games throughout the )orld. 3hile the early success )as an amaing start to a promising company& the maBor pitfalls of 6incus and )hat he had built had yet to be seen. Zyngas relationship )ith (aceboo! )as a genius rst mo"e& as both companies proted from one another. $o)e"er& Zynga failed to expand and deli"er their games for dierent platforms and their reliance on (aceboo! as a platform for their games )as made public )hen (aceboo! ended their exclusi"ity ties )ith Zynga in 2012. L*onstine& 2012M The end of this exclusi"ity agreement mar!ed the start of the decline for Zynga& )ho clearly did not ha"e another option )hen (aceboo! bac!ed out on them. This strategic mista!e put Zynga in troubled )aters& as the company has continually faltered at regaining the large user base lost through (aceboo!. 3hile this is not the only problem that is aecting Zynga& it is important to note that Zynga is still searching for )ays to access ne) users )ithout (aceboo!. L%usli& 201/M Another issue that 6incus has created is a culture that does not foster creati"ity or inno"ation for their games or platforms. ?e) games that ha"e been de"eloped and released to the public ha"e mostly been Yops. Zynga has been unable to produce a maBor hit li!e (arm"ille and pre"ious )or!ers ha"e complained about ho) Zynga stiYes creati"ity. 'anagers at Zynga ha"e been !no)n to reBect ideas that do not
follo) the mold set forth by the pre"iously successful games. 9ames that ha"e been put out focus only on earning the company money. Zynga no longer creates "alue li!e they had in games li!e (arm"ille& a game that )as able to !eep users coming bac! for more. L(ari"ar& 201/M The inability to retain long term customers is troubling for Zynga& especially since the company )ill ha"e to !eep generating ne) customers for each game. If Zynga )as able to generate long term customers& it )ould open up opportunities for se#uel games because they )ould already ha"e a loyal consumer base. The company has also been "ery slo) to adapt to changes in technological ad"ances. Zynga has not adapted to the gro)ing use of mobile phones as a platform for gaming. L(ari"ar& 201/M The slo) mo"e into the mobile gaming industry is a direct result of the lac! of inno"ation at the company. nce again& Zyngas management team has their de"elopers )or!ing only on models that they appro"e and !no) such as the (aceboo! platform. +"en if the de"elopers ha"e great ideas to adapt to the ne) technological ad"ances& the ideas are often pushed aside by management. 3hat is e"en more disturbing is that the mobile apps that Zynga does ha"e out are actually outgaining the (aceboo! games the company has out. Lhontell& 2012M Zyngas refusal to focus on the de"eloping mobile platform is a critical mista!e by management. The culture created by 6incus is a poor t in an industry that )as built upon inno"ation. Zynga must nd )ays to change their culture and foster creati"ity in order for them to compete )ith other game de"elopers. 'ar! 6incus and his top executi"es ha"e also made a crucial mista!e in focusing on short term gain )hile not fully committing to any long term goals. Zynga has no true identity& as they ha"e bounced around from social media gaming to real money gambling. Their focus on short term prots has bac!red rapidly since the company )ent public. The company has steadily lost users& )ith their total daily user base dropping to their lo)est point e"er of /5 million users. L(ari"ar& 201/M Zyngas early success caused its management team to expand the company too #uic!ly. The company has lost sight of de"eloping successful games& the main factor that led to its early rise in the gaming industry. Zynga needs to establish long term goals before they can get bac! on trac!. The establishment of long term goals )ill benet both the small employees and the big executi"es at Zynga. The goals )ill help dene )hat roles each employee needs to play and ho) important their parts are to the success of the company. 'anagement that better understands the long term "ision of the company )ill ultimately pro"ide the company )ith better leadership and direction. The importance of a"oiding short term thin!ing is "ery e"ident and Zyngas management team should act #uic!ly in analying and setting long term goals so that the company can succeed once more. Zyngas failed ac#uisitions& most notably the purchase of '966& can be put upon the shoulders of 'ar! 6incus and his management team. After the company had achie"ed its rst taste of real success& management decided to purchase ri"al gaming companies to eat up more mar!et share and put Zyngas name out on more
games. 3hile this idea has its merits& a company that pursues this strategy must ma!e sure that ha"e fully researched and identied companies that )ill continue to impro"e Zyngas line of games. In the case of '966& Zyngas former *&
his focus on numbers )ould ultimately be the deciding factor on ho) games )ere de"eloped and deployed. 6incus )as a "ery animated manager and )as not afraid to ha"e an outburst in front of his employees.
shrin! in sie. The company must also reestablish their focus on game de"elopment for the expanding mobile platforms and possibly more. Zynga must be ready to adapt to these ne) challenges in their future. The rst step to correcting managements problems has already been put in place by replacing 'ar! 6incus )ith someone )ith more business experience that has pro"en success in the gaming industry. 6incus problems )ere )ell documented: pending la)suitsF short term thin!ingF disrupti"e management style and personalityF #uestionable ethical practicesF poor moti"ational tacticsF prot before creati"ity. 3hile 6incus did put this company in a tough hole to na"igate out of& he )as able to accomplish some amaing feats. $e had the tenacity to ta!e his small startup company and turn it into a billion dollar company by ma!ing tough decisions. 6incus also had a good eye for talent& as Zynga has been able to replace many of the top executi"es that ha"e left by promoting from )ithin. The former *+ is also responsible for gi"ing bac! millions of dollars to the )orld through Zynga.org. (inally& 6incus )as )illing to ta!e a reduced capacity in the company by stepping do)n from *+ )hen he found someone that )as capable of turning the company around. 8on 'attric! is an excellent choice for *+ as he is fully capable of turning around troubled gaming companies and ma!ing them stars once more. +"idence of 'attric!s success can be seen )ith his refocusing of the Pbox from hard core gamers to a family friendly console that can be enBoyed by both a"id gamers and casual ones. LHaporte& 201/M 3hile 'attric! has not directly )or!ed in the social and mobile gaming eld& his experience in management )ill be greatly "alued. Zynga has ne"er brought in a manager li!e 'attric!& a man that !no)s ho) to manage and produce inno"ati"e products. 'attric!s history is rich )ith gaming rsts as he )as able to de"elop a motion sensor unit for the Pbox& play a main role in producing ims& and pioneer the rst game that put a players point of "ie) from behind the )heel of a car. LHaporte& 201/M These distincti"e characteristics and inno"ations are main attributes that ha"e been lac!ing at Zynga. 'attric! has also been !no)n to be "ery detail oriented& meaning that he is meticulous in his )ays )hen he runs a di"ision or company. $is attention to detail )ill be "ery important for the next year as Zynga )ill be forced to o"erhaul their entire system to conform to 'attric!s design. Although 6incus has relin#uished his role as *+& he still has his positions of *hairman of the @oard and *hief 6roduct Scer. There is the potential that the t)o strong minded indi"iduals )ill butt headsF ho)e"er& one can assume that 6incus )ill let 'attric! run the sho). This can be deduced because he has already made the sacrice to charm 'attric! into Boining the company. (urthermore& 'attric! )ill not be reporting directly to 6incus. Instead& he )ill be reporting to the entire board of directors& made up of a panel of business minded indi"iduals that 6incus respects and "alues for their opinions. LHaporte& 201/M 3ith 'attric! in as the ne) *+& Zynga and in"estors must be ready for some changes to occur in the structure of the company. ne main change that 'attric!
has already implemented is that he is sharply trimming the payroll do)n. Zynga once had o"er /000 employees )or!ing on de"eloping ne) products. The sheer amount of people often led to an excess amount of employees )or!ing on Bobs that only needed t)o to three people to accomplish. ften times& product launches too! extended amounts of time because of all the extra ideas being thro)n around on a simple proBect. This delay in updates caused Zynga to lose out on gaining more daily users and had the company paying more for a product that )as not e"en produced on time. L(ari"ar& 201/M Zyngas rapid expansion made the company thin! that it needed more employees than it really did. @efore 6incus departure as *+& he started to lay o people and closed oSces as the stoc! price fell. 3hile this )as "ie)ed as an indicator of Zynga performing poorly& it is of strict necessity for 'attric! to continue this trimming process. 'attric! should hold inter"ie)s )ith de"elopers and engineers& seeing )hich ones of the bunch are eager to start a ne) chapter at Zynga. After 'attric! is done cleaning house& Zynga can then refocus on becoming more of a true gaming company. Zyngas strategy )ith 6incus )as focused more on the short term payos of the company rather than the long term future of the company. 6incus )as "ery concerned )ith re"enue coming in immediately and this )as done by ma!ing sure that the dailyituser base continued 3hilephilosophy. that outloo! )or!s as short term perspecti"e& is critically Ya)ed astoagro). long term (ocusing directly on ma!ing a prot )ill often lead companies to cut corners or pro"ide lo) #uality products or ser"ices. This )as extremely e"ident under 6incus& )ho )as )illing to force his o)n users into signing up for bad products Bust for the sa!e of gaining more re"enue. 'attric! has the opportunity to learn from 6incus mista!es and change ho) the company operates and thin!s. 'attric!s rst strategic mo"e to ma!e is to clearly dene the long term goals that Zynga is focused on accomplishing. The company should initiate a - year plan that )ill set certain attainable goals for the future. toc! price should Bump from the current price of N/.0 bac! up to its I6 of N10.00,11.00. The company should also see a bump in re"enue from LA; HA?AM. After setting the companys long term goals& 'attric! can go about changing )hat the company focuses on. It is time for Zynga to di"e head rst into the gro)ing mar!et of mobile gaming. Gnder 6incus& the concept de"eloping a line of mobile games may ha"e been discussedF ho)e"er& the eort put into the de"elopment of those games )as lac!luster at best. 6incus missed the ball on the mobile gaming mar!et& as he )as so consumed )ith the social media gaming structures that got the company started. Huc!ily for Zynga& 'attric! is excellent at de"eloping inno"ati"e games and )ill #uic!ly get teams going on nding creati"e approaches to games for the mobile platform. Zynga has not released a successful mobile game that has been de"eloped in house& so 'attric! must focus his employees on rallying around the ne) concept. $is attention to detail )ill again be put to the test& as the company )ill need solid guidance throughout this rebuilding phase.
In order for 'attric! to successfully implement a change in Zyngas "ision to mobile& he must adBust the culture that )as set forth by 6incus. The old culture stymied creati"ity and inno"ation& forcing de"elopers to follo) the outdated models of games that )ere successful years ago. Huc!ily& the de"elopers that 'attric! has !ept )ill be the top de"elopers of Zyngas )or!force. 'ore than li!ely& these de"elopers ha"e already been thin!ing about ideas on ho) Zynga can transfer into the mobile mar!et successfully& they Bust need an opportunity for somebody to tal! and listen. The problem lies in that many of the de"elopers )ere shot do)n under 6incus regiment and may be un)illing or afraid to discuss ne) ideas. 'attric! must be )illing to sacrice his time to get to !no) the )or!force on a more personal le"el& only then )ill they begin to really open up once they ha"e seen that the culture at Zynga has changed. ther ideas that 'attric! should start to explore for Zynga is de"eloping games for platforms such as gaming consoles. 'attric! has plenty of experience )ith consoles and it )ould denitely help Zynga out if they can expand their games to more than Bust t)o platforms. Another idea is to ma!e sure that Zynga is pro"iding the best possible experience for its users. Gnder 6incus& re"enue )as promoted as the most important conceptF subse#uentlyF the company lac!ed in their performance in simple areas such asas customer sure that they pro"ide the intangibles such friendly ser"ice. experts Zynga helpingshould users ma!e out )ith troubleshooting. This little change )ill increase the )ay consumers loo! at Zynga and )ill sho) that the ne) change is for the better. *ustomers )ill Yoc! bac! to Zynga if the company can pro"e that they ha"e increased the "alue of playing Zynga games. 'attric! and Zynga must also thin! about ta!ing o"er ad"ertising for the company. As of no)& ad"ertising has been contracted out to third,parties as stated in Zyngas 2012 Annual %eport. This has created a direct rift bet)een Zynga and their sponsors& as the t)o parties ha"e not been able to build or de"elop a relationship. ince the third,party also negotiates the contract fees& Zynga has little control of ho) the ad"ertising is executed. 'attric! should loo! into creating an ad"ertising budget for the company to perform ad"ertising on their o)n. The company should hire out an ad"ertising team and delegate a manager that )ill understand exactly )hat Zynga is trying to accomplish through their ad"ertisements and ho) it is )or!ed into their games. The company could cut out the middleman& gi"ing a big prot boost to the company. The company )ill ha"e better control of )here ad"ertisements pop up during gameplay& meaning they )ill be able to scale bac! on obtrusi"e ads. This could easily build more "alue for their customers& as they )ill no longer be bombarded )ith ad"ertisements. ne of Zyngas biggest competitors& +A& completely controls the ad"ertising for their company. This has paid o immensely as +A found ho) to better reach their customers through in,game ad"ertisements and engagement. Lhields& 2012M This does not mean that Zynga should discontinue their ad"ertising and promotional relationships )ith (aceboo!& as (aceboo! is still the top social net)or!ing site in the )orld. %ather& they should start small in
ad"ertising by controlling their o)n site& slo)ly gro)ing it so they can be less reliant on (aceboo!. Zynga should ta!e proacti"e steps in ta!ing o"er ad"ertising for their company& as the benets of doing so are great.
olution Approaches 3ith the bad nance situation& do)n,to,bottom stoc! price& and loss of talented people& Zynga has to be hyper,"igilant about all decisions to reco"er from the bad situation. (irst and foremost& Zynga should focus on de"eloping inno"ati"e games instead of purchasing from others. n one hand& this can help Zynga dierentiate itself from ri"alsF on the other hand& its helpful to attract players by =brand ne) stu by Zynga> instead of the =old same stu>. Zynga also has to release updates rapidly of current games and launch ne) games #uic!er to maintain players as )ell as gro)th. econdly& Zynga should loo! to expand globally. The potential mar!ets in the Asian regions are huge& so if Zynga can earn some mar!et share and adapt to local preferences in Asian mar!ets& it )ill be a sa"ior to Zynga. Third& they must impro"e their company culture and nd )ays to foster inno"ation to de"elop better games. It is important to note that the gaming industry is "ery "olatile& as change is the only constant in the industry. 3ith that in mind& the follo)ing solutions are suggested for a t)o year plan to get the company bac! on trac!. 1. 8e"eloping Inno"ati"e 9ames A. 6roducts *ontent 9aming is an entertainment channel. 'ost people play games for fun. If the game is easy to play& anyone can play it. Zynga )as successful attract many non,gamers by this strategy. $o)e"er& this strategy is no longer useful. 3hen players become familiar )ith the game and nothing ne) is introduced& they )ill nd another game to play instead. 'any Zynga players said they games )ere fun and enBoyable at rst& but after a )hile they got bored. In addition& many gamers complained about ZyngaCs customer ser"ice. Zynga did not listen to its customers as )ell as respond for their re#uest. $ere is a #uote from one of the customer: =K all fun games& but Zynga needs to listen to the gamers. I lo"ed the concept behind 6ioneer Trail at rst. $o)e"er& I soon got bogged do)n )ith hundreds of #uests that are almost impossible to nish. The constant pop up ads on 6ioneer Trail is also annoying as hell> LZynga *ommunity (orums& 201/M Thus& de"eloping ne) games is an important !ey to !eep the current players and to attract the potential ne) players. 8e"eloping a ne) game is "ery important& but understanding the needs of customers is more important. Instead of buying ne) games from other companies& Zynga can use the current in company games de"elopers to create ne) srcinal games. The game content also can be impro"ed by mar!et research. 'ar!et research )ill pro"ide important data about customers and the industry& so that the
company can identify )hat type of games customers )ill respond positi"ely& and )hat type of mar!eting tool the company should use to reach these customers. (or instance& customers tastes and preference has changed dramatically in the current mar!et. According to +ntertainment oft)are Associations +ssential (acts about the *omputer and Jideo game industry& player seems to de"elop interest )ith casual and social games. +xhibit 11 and 12 sho)s that online pule and board games decreased from 72O to /7O and mobile "ersions decreased from 74O to /-O in 2012 to 201/. n the other hand& action games and social games players increased signicantly. (urthermore& this report also indicates that )omen older than 1 years old are more playing game than other segments. These facts sho) the dierent "ie)s from the belief that men are more playing game than )omen. Traditionally& companies di"ide customers into demographic groups. $o)e"er& this strategy does not )or! for the current game industry. The benet segmentation is more suitable to Zynga situation. This segmentation is based on customer benets from the purchase of goods and ser"ices. @ased on the benets that each of the segments recei"es& the company )ill concentrate to engage )ith each of the specic customers segments. 6ro"iding the right game to each segment )ill help the company gain the most customers. The table belo) is an example of age segmentation.
+xhibit 11VTypes of online games played most often in the G. Q 2012Q 2011Q 6 ule& board games& game sho)& tri"ia& card games Q A ction& sports& strategy& role,playing 8o)nloadable
Q 1/.00O
*asual& social games
Q
Q
Q 2-.00O
Q5.00O
Q.00O
Q 2.00O
Q /7.00O
Q
Q
Q 15.00O
6 ersistent multi player uni"erseQ 1 1.00O ther
Q 72.00O
Q Q 17.00O
Q
Q
+xhibit 12V Types of 'obile,games played most often in the G. Q 2012Q 201/Q 6 ule& board games& game sho)& tri"ia& card games Q
Q 74.00O
Q /-.00O
A ction& sports& strategy& role,playing 8o)nloadable
Q 24.00O
*asual& social games
Q
Q
Q 12.00O
Q 17.00O
Q /-.00O
Q 1/.00O
Q
Q
6 ersistent multi player uni"erseQ 7.00O ther
Q 1/.00O
Q Q 7.00O
Q
Q
ources: +ntertainment oft)are Association 2012& 201/ @. 8e"elop mobile games In 2012& //O G players )ere playing games on mobile phones and 2-O of them )ere playing games on other handheld de"ices. In 201/& the number of mobile use players increased to /O. nline and mobile gaming is gro)ing rapidly to become po)erful mar!ets. +xhibit 1/ sho)s the gro)th in G. computer and "ideo game industry. Jideo games are decreasing from 10.1 billion in 2005 to .4 billion in 2012. Also& computer games decrease from 0.4 billion in 2005 to 0./ billion in 2012. n the other hand& other deli"ery formats such as mobile games and social net)or! games are increasing from -.7 billion to 4.4 billion. +xhibit 1/ also illustrates that physical format game is losing its mar!et. Instead of that& digital format is getting bigger and bigger. Although Zynga already has some mobile games& it still needs to de"elop more mobile games. +xhibit 1/ V G. *omputer and Jideo 9ame ales 9ro)th
+xhibit 17V %ecent 8igital and 6hysical ales Information
?ot only in the G. but also )orld)ide mar!et& "ideo games are losing its leading position. Instead of that& mobile games are rapidly increasing. +xhibit 1- sho)s that Yoating screen and personal screen are accounted for 2-O of the global game mar!et. +specially& personal screens or mobile gro)th rates are far exceeding other de"ices )ith 22O a year. +xhibit 1- The global 9ames 'ar!et per screen 201/ 2. +xpand to Asian countries: *hina& ;orea& and
+xhibit 1 V 9lobal games mar!et re"enue
$o)e"er& this mar!et is "ery challenging mar!et. According 8igi,*apital& an in"estment ban!ing rm& game in"estments are primarily controlled by Asian game companies. out of 10 of the biggest mergers and ac#uisitions of game companies are Asian companies& )ith most being *hinese&
8ata source from Hin!edIn LTappin& 201/M
/. Impro"e $uman %esource 'anagement and *ompany *ulture In regards to $uman %esource 'anagement in the company& it is ad"ised for Zynga to focus on creating a culture transformation )ithin the companys )or! en"ironment. ne of the maBor issues in the company is their inability to !eep talent due to their o"erly strict and micro managed en"ironment. 3hen 8on 'attric! entered the company he emphasied that top [le"el management needed to be more in"ol"ed and hands,on )ith product and game decisions& along )ith a "ery hea"y coaching leadership approach. 3e )ould li!e to maintain 'attric!s leadership approach has a top bottom& centralied management approach because it has a lot ofthat credibility based on his pre"ious success trac! record. In addition& )e )ould li!e to compliment his approach by adding a transformation leadership approach that can be taught to all management. In addition& the company should aim at creating a robust corporate organiation culture that emphasies healthy communication& trust& team)or!& and most importantly Yexibility as means to culti"ate inno"ation. 3e )ill propose )ays that the company can enable this type of cultural transformation that )ill lead to a healthy )or! en"ironment for its personnel A. Transformational Headership 'attric! has been "ery successful in the past building successful products& partnerships& moti"ating sta& creating strong producti"e teams& and platforms in companies. $e is the type of leader )ho belie"es in moti"ating his sta to attain their highest potential rather than creating an en"ironment full of regulations that dont allo) Yexibility in the )or! en"ironment. $e has a leadership style that )ould be more in tune )ith )hat is !no)n as transformational leadership. Transformational leadership is leadership style that goes beyond ordinary expectations by transmitting a sense of mission& stimulating learning experiences& and inspiring ne) )ays of thin!ing L9iSn& 201/M. In a rapidly changing )or! industry this type of leadership is good because it promotes adBustment to ne) and unforeseen situations in the )or!force. Transformational leadership has se"en traits that a "ery popular article once identied to be !ey in leadership LHabich& 155M. These se"en traits include trusting ones subordinates& de"eloping a "ision& !eeping cool& encouraging ris!& being an expert& in"iting dissent& and simplifying things. 3e
propose that 'attric! hire an outside consulting ser"ice that pro"ides leadership training that focuses on this transformational leadership style to train all of his management sta. Although Zynga has pre"iously pro"ided leadership training to his management sta& it didnt ha"e this leadership approach. A good example of a company that implemented this leadership approach is /'. The *+ )anted to ma!e the company more eScient and protable& )hile maintaining its leadership style that promotes product inno"ation. They too! on this leadership style and applied it to their employee re)ards system& o"erhauled procedures& and restructured the entire rm LGseem& 2002M. This approach )or!ed "ery )ell thus far for /' and it has the potential to ha"e the same eect on Zynga. @. %obust *orporate rganiation *ulture In addition to ta!ing on a transformational leadership approach& Zynga should aim at building a culture that is inspired by purpose& guided by "alues and rooted )ith trust. In addition& the goal is to increase business outcomes related to inno"ation& ris!,ta!ing& and employee loyalty and trust. A )ay to create this type of en"ironment is to create )hat is !no)n as a robust corporate organiation culture. A robust corporate organiation culture is one that has a leadership system that emphasies healthy relationships bet)een sta by promoting open communication& trust& team)or!& and continuous impro"ement in their )or! en"ironment. In a recent article in the $uSngton 6ost& it )as stated that in a recent study by the $ar"ard @usiness chool they found a correlation bet)een robust& engaged cultures and high performance in business Leidman& 201/M. This culture style has sho)n to ha"e credibility and a !ey factor in the success of many companies because of the "alues that it promotes. A robust culture emphasies four attributes: Trust& Acceptance of failure& Yexibility& and open communication L*ameron& 2012M. 3hen it comes to trust& employees must feel comfortable )ith their co)or!ers and the corporate inno"ation strategy. Acceptance of failure applies more to the leadership in the company because the company leaders must be able to con"ey to their sta that failure is acceptable )ithout stigma& especially in this type of industry )here inno"ati"e de"elopment is a !ey to success. (urthermore& Yexibility is highly instrumental for Zynga to increase because the goal of the company is to create inno"ati"e games in the industry and in order for the sta to do this they need Yexibility from their en"ironment and leadership in order to be able to )or! from home or )here e"er they feel more comfortable to generate good creati"e ideas. Hastly& open communication bet)een managers and sta needs to be established so that managers are able to set the tone of their support for the inno"ation process and establish deadlines for the proBects. There are many more things that Zynga can do to create a robust en"ironment& among these the ones )e )ould li!e to highlight are creating a focus on coachingWmentoring for the employees& regular employee brain storming meeting& and pro"iding learning )or!shops for its employees. 'attric! is a huge belie"er in the po)er of coaching employees because he belie"es that coaching empo)ers and
inspires people to do their best )or! and build strong& producti"e teams. 'attric! should implement an oScial coaching structure in the company )here lo)er le"el employees are partnered up )ith a higher,le"el employee Leither in a management position or notM and meet on a monthly basis to help each other. The managers can initially meet )ith their sta to get an understanding of their capabilities to help lin! them )ith suitable partners in the organiation based on reciprocal responsibilities. This coaching approach )ill foster positi"e de"elopmental gro)th of each team associate. In addition& they should ha"e monthly meetings )here all soft)are de"elopers and !ey members of other departments such as accounting& mar!eting& $%& and the legal department attend and discus ne) ideas. It helpful for employees to meet and brain storm ideas along )ith members from other departments so that they are able to get dierent points of "ie)s and assess the feasibility of their ideas in holistic )ay for the company. (inally& Zynga should pro"ide learning opportunities for the sta and create a continuous learning culture that helps employees create good inno"ati"e ne) products. (urthermore& there are certain culture changes that )ere recently implemented by Zyngas pre"ious *+ that should be maintained. 'ar! 6incus emphasied decreasing the )or!load on the game de"elopers by adding data centers and expanding teams and and a as!ed managers gi"e their employees little do)n timeburnout. bet)een proBects )hole )ee! o to before gamesa debut to a"oid Zyngas established on site employees pampering per!s such as acupuncture& happy hour (ridays& and organic cafeteria food should be !ept because it lets the employees !no) that the company cares about them and is loo!ing out for their )ell,being L%usli& +"elyn& ?o"ember 24& 20011M. *. +mployee Incenti"es In the any inno"ati"e product dri"en industry& additional incenti"es need to be in place as a )ay to moti"ate employees to create great products. 8ue to Zyngas nancial situation& the incenti"es that )e propose cannot be to monetarily la"ish. (irst& Zynga should restructure their soft)are engineers time )here they are as!ed to )or! on their assigned proBects 0O of their time and use the remaining 20O of their time for their o)n personal creati"e proBects that they can present to the company. 3ith time& employees creati"e time can be increased if they sho) that they are bringing in nancially lucrati"e inno"ati"e products to the company. This is an incenti"e gi"en to the engineers that is benecial to both the employee and the company because the employee is able to ha"e time to be creati"e and de"elop )hat they are passionate about and the company benets from the creations that the employees bring to the table. In addition& employees should be gi"en the Yexibility and option of )or!ing o site. ometimes a xed location doesnt allo) for creati"ity to Yo) and a change in en"ironment can help employees get the creati"e Buices Yo)ing in their brains. Another incenti"e for employees )ho produce successful products is a "acation. The company already pro"ides "acation incenti"es and )e )ould li!e to !eep this because it compensates the employee for
its good Bob and also allo)s for the employee to relax& recharge and pre"ent burnout. In addition& )e )ould also li!e to maintain the monetary bonuses that Zynga tends to gi"e its employees& but not as expensi"e. 3e chose not focus on gi"ing company shares to the employees as an incenti"e because the company is not doing )ell nancially and thus this might not be percei"ed as an incenti"e to employeesF at least not at this moment. 3e )ould reduce the monetary bonus and compliment it )ith another non,monetary incenti"e. In addition& all employees )ill be gi"en their basic healthcare and 701; benets. (inally& )e belie"e that this cultural transformation )ill be "ery lucrati"e for the Zynga. 3e recommend for Zynga to implement this approach in the company and three months after its implementation& they should do employee assessments to see )ho has been able to adapt to the ne) culture. Those )ho ha"e not adapted or refuse to adopt the ne) culture& they are to be red from the company because by not adopting to the ne) changes& they are slo)ing do)n the culture transformation and being a nancial liability to the company. Hastly& according to 9allups research& all of the culture suggestions that )ere stated demonstrate to employees that the company cares about their gro)th and as a result )ill allo) for impro"ement in employee performance& employee retention& and company gro)th LAbdallah R Ahlu)alia& 201/M. *onclusion 6oor management choices& an unforgi"ing company culture& and a steadily declining user base ha"e all been maBor factors in the do)nfall of Zynga. The company has continued their decline from the gaming industry shortly follo)ing their I6. The company has strongly failed to li"e up to their lofty expectations and big spending sprees& causing massi"e Bob cuts and tough losses in both talent and re"enue. Gnrest )ithin the company has caused employees to feel uneasy& as many )ill )onder )hen their Bob )ill be next on the list to get cut. Huc!ily& Zynga has nally decided to ma!e changes to help bring them bac! to rele"ance. A ne) *+ in 8on 'attric! is a pro"en leader and successful gaming businessman. %educed spending& long term planning& and an inYux of ne) ideas ha"e all contributed to Zynga inching closer and closer to their brea!,e"en point for 201/. Zynga )ill impro"e their standing e"en more by de"eloping in,house games& expanding to the mar!ets of Asia& and fostering a company culture that encourages inno"ation. 3ith a push in the right direction from their ne) *+ partnered )ith a rene)ed focus on mobile gaming& Zynga may once again be a giant in the gaming industry )ithin a fe) years.
%eferences Abdallah& +hssan& R Ahlu)alia& Ahlu)alia L?o"ember -& 201/M. $o) 'anagers *reate $igh,6erformance *ultures. %etrie"ed ?o"ember 10& 201/ from http:WWbusinessBournal.gallup.comWcontentW1-407Wmanagers,create,high, performance,cultures.aspx Arrington& '. L2005& ?o"ember M. Zynga *+ 'ar! 6incus: \I 8id +"ery $orrible Thing In The @oo! Zynga @log. Zynga& /0 Apr 201/. 3eb. 1- ?o". 201/. Xhttp:WWblog.ynga.comW201/W07W/0Wynga,partners,)ith,hbo,and,disruptor, beam,to,bring,game,of,thrones,ascent,to,ynga,playersW]. +lectronic Arts Inc.& L201/M& +lectronic Arts Inc. (iscal Dear 2012 6roxy tatement and Annual %eport& %etrie"ed from http:WWin"estor.ea.comWar2012W$T'H2Wdefault.htm +ntertainment oft)are Association L2012& 201/M. +ssential (acts about the *omputer and Jideo 9ame Industry& 1,1. (ari"ar& *. L201/&
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