Approximately one year after expanding to Japan, Zynga announced it would be closing its office there in January of 2013. Zynga entered a joint venture with Japan-based Softbank in mid-2010, a partnership that fell through shortly after. This most recent downsize is one of many for Zynga, which closed offices and laid off staff in Austin, Texas earlier this year. Zynga’s struggles further prove that mobile applications are not only the new frontier of technology, but are destroying various made-for-desktop technologies as they forge ahead.
Zynga’s path to success has been fraught with challenges. Its rise, despite the frequent past failures of its CEO Mark Pincus, seems in part attributable to a series of serendipitous circumstances and pure luck. In Pincus’ own words, after being fired from every job he had, the only option left for him was to become an entrepreneur. In addition to gaming, Pincus had a knack for knowing who would be the next big player (even if some of them later failed). He invested in Napster, eGroups, Technorati, Socialtext, Friendster, Ireit, Nanosolar, Merlin, Naseeb, EZboard, Advent Solar, Xoom — and Facebook. The same know-how of who to follow led to Zynga’s success. While he was reaping its first revenue streams from MySpace, Pincus had the foresight to know that Facebook was going to be the next big thing. In 2007, he released his first free game for Facebook. Since the games were free, Zynga had to come up with other ways to generate revenue; ways that even Pincus admits were not on the up-and-up. One of those ways was offering free chips in exchange for users installing a hard-to-remove wiki.
In 2008, the company raised $5 million in funding from a group of investors that included Peter Thiel. Three venture rounds and seven months later, Zynga had $40 million in venture capital. The road from then on was supposedly smooth. The company was valued in the range of $7 billion to $10 billion in December 2011.
Life for Zynga started to go downhill after its initial public offering. It reported two consecutive losses, and Electronic Arts sued it for copying Sim’s Social in its game The Ville.
Zynga’s failure has been attributed to many reasons. As Facebook became popular, so did its ad space. Zynga could not longer purchase ads inexpensively. Facebook limited its viral activities in response to frustrated users, adding another barrier to multiplying its user-base. Previously, everybody with friends who played Zynga’s Farmville would receive updates of their gaming activities. Facebook limited those to users who played Farmville.
All of those factors may not have mattered if Zynga was adequately prepared for the mobile revolution, which was the core of its downfall. Zynga had thus far relied on riding on Facebook’s coattails. Pincus once said it did not bother him to be “a fly on Facebook’s ass,” but that strategy began to sour.
Zynga made attempts at entering the mobile market, but had limited success. Its Words With Friends game became popular, but others, such as Farmville, did not adapt well to the small screen. As many industry analysts noted, mobile users wanted a different type of game; it wasn’t enough to adapt desktop hits to the small screen. Competitors like Glu Mobile, which focused on the mobile industry from its early days, held a clear advantage.
Perhaps Zynga can make a comeback. After all, Pincus proved doubters wrong when he took his company to a valuation of billions. Regardless, a turnaround will be difficult and costly. Zynga illustrates the importance of a constantly changing business strategy and the consequences of lagging behind. In today’s fast-paced technology industry, it is not enough to start at the right place and right time; companies must be constantly on the go to ensure they are in the right place.