Why This Developer Thinks Zynga Is Evil
The latest move was that the game maker acquired smaller developer OMGPOP for an estimated $200 million, which certainly sets an ugly precedent, since the deal practically sets a standing acquisition offer to anyone that's able to climb the charts in Apple's (NAS: AAPL) iOS App Store.
It's like golf: A lower score is better
The App Store is a cruel mistress, and there have been some awfully silly apps that somehow make their way to the top. Speaking of ugly, as I glance at my iPhone, Ugly Meter ($0.99) is marching higher and now sits at No. 4 -- just two spots below the Draw Something app that Zynga just paid so handsomely for. Think Zynga is interested in an app that tells you how ugly you are? It has built-in social integration, too!
Eh, this one probably won't be a sustainable revenue generator. Must only be worth $50 million, but only after you slap the red silhouette of a dog on it.
Thanks, but no thanks
I'm not the only one who's skeptical of Zynga's ways. One of OMGPOP's developers jumped ship and decided not to join up with the company's new parent. Developer Shay Pierce turned down the chance to go work at Zynga and recently shared why.
He wrote an article for Gamasutra that explains his stance. Pierce has his own puzzle game for iOS, Connectrode, and he had concerns that it would present a "conflict of interest" with the terms of the new Zynga contract he was offered. It wasn't a huge moneymaker for him as a "spare-time indie game project," but it was his baby and he didn't want to give it up.
Pierce was eventually faced with an implicit ultimatum to sign on the dotted line (which could possibly mean giving up his game eventually) or he'd be on his own. The game itself wasn't really making any money at this point, but the situation was indicative of something larger for him.
He lives near a Zynga studio, yet had never applied because the company's values have always conflicted with his own professional and creative beliefs. Pierce notes in the Gamasutra article that critics have long called Zynga "evil." This is why he thinks Zynga fits that description:
When an entity exists in an ecosystem, and acts within that ecosystem in a way that is short-sighted, behaving in a way that is actively destructive to the healthy functioning of that ecosystem and the other entities in it (including, in the long term, themselves) -- yes, I believe that that is evil. And I believe that Zynga does exactly that.
He takes it further by pointing out Zynga's penchant for focusing too much on chasing revenue growth with little regard for the creative quality of its games. Pierce believes that an evil company "views players as weak-minded cash cows; and it views its developers as expendable, replaceable tools to create the machines that milk those cows."
While it may be a little extreme to characterize Zynga entirely in this way, CEO Mark Pincus hasn't done much to help his company's perception since several ex-employees have attested to his narrow focus on the bottom line.
Zynga's revenue pipeline is shrinking, as revenue has now caught up with billings. In the earlier days when bookings were dramatically larger than revenue, it showed that there was plenty of revenue waiting to be recognized as virtual goods were consumed.
Nowadays, bookings is less than revenue, which spells rapid top-line deceleration for a company that's trading at 8.3 times sales, generated $404 million in net losses last year (most of this was due to stock-based compensation expenses), and sports a market cap larger than that of Electronic Arts (NAS: EA) , which has been around for three decades and has over three times the revenue.
Perhaps Zynga is getting desperate to live up to the lofty expectations that investors are pricing in, so it's turning to acquisitive growth.
Late last year, TheNew York Times profiled Zynga's notoriously competitive corporate culture -- to the point where the company risks losing talent. Pierce represents how Zynga is bound to see increasing difficulties integrating acquisitions into that cutthroat culture.
When you put it all together, we're talking about a company that carries a lofty valuation by almost any measure, faces decelerating revenue growth, has dubious corporate ethics, and is pursuing an unsustainable acquisition strategy in terms of both dollars and integration.
Oh, and it also has little control over its own destiny right now due to its over-reliance on Facebook, and its investors' voting rights are a mockery to corporate governance.
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