Zynga was once the darling of the social gaming world with massive market share and incredibly popular games like Zynga Texas Hold ‘Em and Farmville.

But those salad days seemed a world away from the bad news that’s been pouring out of the company over the past few days.

Last Friday, Zynga stock prices dropped a whopping 16% after the company’s gloomy Q4 earnings report was issued. The report, which was packed with multiple dreary data points, covered everything from the company’s bungled football game to its recent loss of market in Texas Hold ‘Em.

In short, it was exactly the kind of the thing that causes stock prices to go down the drain.

The bigger question here is, How the heck did Zynga squander its incredible edge in the social gaming world?

By all rights Zynga, which was one of the earliest social gaming breakouts, should be sitting in the cat bird’s seat not clawing desperately for the next-big-thing.

Not All Bad News
Before diving into the details of Friday’s Zynga crash, the biggest one-day drop in the company’s brief history, it’s worth noting that all is not lost for the San Francisco-based company.

For starters, Zynga still controls a decent chunk of the social poker market with about a 25% market share. That number could be a lot higher but the company’s latest poker products haven’t exactly been big hits. Company COO Clive Downey told analysts in a conference call, as reported by CalvinAyre.com, that this failure was due to inadequate testing.

One might think that a software business as established as Zynga would have testing procedures down pretty well, but that doesn’t seem to be the case.

Other good news came from the Farmville front where desperate social gamers are still raising virtual crops and livestock at a pretty steady clip. Growth in that sector was up 35% over the previous year.

So What’s the Problem?
Zynga’s biggest single problem is its utter desperation to find its next big hit. This has manifested itself in huge outlays for new acquisitions such as Words with Friends. Even worse is the company’s habit of releasing games before they’re anywhere near ready for public consumption.

That was the case when the company launched NFL Showdown late last year. The game quickly slipped from the public eye after a shaky start Downey blamed on a rush-to-market. He says Zynga will be launching a new, presumably better, version of the game this fall.

Finally
Zynga’s rise and fall offers a great lesson for everyone who is looking to be the Internet’s next-big-thing. Though you may be king for a day, you have to keep innovating or risk being left behind entirely.


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