Can EA Top Zynga?

Electronic Arts' (NAS: ERTS) The Sims Social has officially launched. It has attracted more than 54 million monthly active users (MAUs) and has become the second most popular game on Facebook.

It seems that Zynga's free ride on Facebook has finally come to an end.

Zynga's Cityville still holds the top spot with around 73 million MAUs -- but that's down from an all-time high of 101 million. The company's latest title, Adventure World -- which launched shortly after The Sims -- has 11 million MAUs. If Cityville and TheSims follow their current trends, it's very likely that The Sims will become the top Facebook app.

The rise and fall of Zynga
Frankly, I'm not surprised. Zynga didn't grow as rapidly as it did because it made great games. EA's previous efforts were mostly ports of popular core franchises such as Madden and Dragon Age. Although the games attracted a small group of players, they never took off. Take-Two Interactive (NAS: ATVI) also failed to grab many players with CivWorld -- the Facebook version of the popular Civilization franchise. Meanwhile, Zynga focused primarily on the casual market and built a staggering user base. The company began to look unbeatable, but it operated with practically no real competition.

However, social gamers will have a lot more options in the coming months.

  • THQ (NAS: THQI) plans to launch Margaritaville Online -- a resort simulator aimed at Parrot heads -- this fall.

  • Casual-gaming specialist Majesco Entertainment (NAS: COOL) , a developer of free-to-play sports titles, recently announced plans to beef up its social-gaming division.

  • Although it hasn't made a direct move into the social-gaming market, Microsoft (NAS: MSFT) has put together a free set of developer tools for budding social-game makers hoping to host the next Facebook hit on Azure.

I think we may be witnessing the beginning of legitimate mounting competition for Zynga. Even worse, the company's management doesn't have its priorities in the right order. A company VP recently described the company to The Wall Street Journal as "an analytics company masquerading as a game company." In other words, Zynga doesn't set out to create a novel and enjoyable player experience; it designs excuses for you to drop a couple of bucks on Facebook credits. When there aren't many viable competitors, that strategy works, but now companies that have real experience with games have entered the space.

The most significant danger to Zynga is that the bigger companies can disrupt its old method of developing new properties -- find a promising game, copy it, and hope the developer will settle out of court. EA, on the other hand, has the resources to shut down a Sims clone if it chooses.

The truth is that Zynga just doesn't have the creative power to create a unique franchise. It can analyze its user data to find new ways of monetizing existing games, but that doesn't do much good if the players have moved on.

The more I read about Zynga, the more convinced I become that it's not a company for the long haul. When its IPO finally comes around, I'll be staying far away.

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