Drawing Zynga Higher
Gaming company Zynga (NAS: ZNGA) has been criticized for two things -- its excessive dependence on Facebook and its lack of originality. The company has attempted to answer both with an estimated $180 million acquisition of OMGPOP.
Does it change anything? Here are some of my thoughts.
Draw something original
OMGPOP's Draw Something, which was launched merely six weeks back, is an extremely popular game. Downloaded 35 million times in one week alone and landing on top of the "top paid" and "top free" lists in the Apple's app store, this game has created quite a sensation. Keeping that in mind, it's easy to see why the OMGPOP deal is likely to add more users to Zynga's burgeoning customer base.
But the one question that's troubling me is: How long will this game sustain its top position? My guess is not too long. That's when Zynga will inevitably try to use OMGPOP's team of 40 people to create fresher, more innovative games, something it hasn't been able to do for a long time now.
Although Draw Something (essentially an online variation of Pictionary) is not very original, I think the OMGPOP team has immense potential and should be able to bring in more original games for Zynga.
Unhooking from Facebook
Another huge positive with Draw Something is that it does not use Facebook Credit as its virtual currency. That means that while the game is extremely popular on Facebook, the company does not need to pay the social-networking giant a cut. With a stand-alone app, Facebook earns nothing but Zynga continues to have access to the former's huge user base.
Stretching it a bit, the combination of Zynga's new platform, Zynga.com, and the not-chained-to-Facebook-apps factor could well be the formula for success the company has been seeking lately. Zynga can now look to grow rapidly through acquisitions, which has, in fact, been the general trend in the industry for the last couple of years. Last year, Electronics Arts (NAS: EA) paid $1.3 billion to acquire the maker of the popular game Plants vs. Zombies. In 2010, Zynga itself acquired Newtoy, the maker of Words With Friends.
Things are changing...
...and for the better. While it's anybody's guess as to how things will finally pan out, I am turning bullish on this company. My caveats for now are: (1) OMGPOP has created just one hit game during the past six years. (2) In 2010 and 2011, Zynga made as many as 22 deals worth $105.1 million, and most did not add significant value. Fools, remain watchful.
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At the time this article was published Navjot Kaur does not own shares of any of the companies mentioned in this article. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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