The Zynga Debate: Is the FarmVille maker doomed?

It has been a rough seven days for gaming giant Zynga. Last Wednesday, the company's stock nearly crashed and burned after the company revealed that it lost money in the second quarter, despite an increase in revenue. Then, while reeling from the that blowback, the company was hit with not one, but two lawsuits alleging that the big Z hid negative information on the outlook from its stockholders, for instance, that the sale of virtual goods in games, i.e. limited edition cows in FarmVille, has been on the skids.

This news comes in addition to what's going on with Zynga's games. While the game maker still dominates the charts, it faces serious competition from Bubble Witch Saga creator King.com. The company's recently-launched The Ville game sits pretty with 36 million monthly players, but many of its other games continue to lose players at a steady pace. Does the killer combo of last week's events, games losing players and a lack of innovation spell doom for the social game maker?

Follow along as Games.com Editor in Chief Libe Goad and Associate Editor Joe Osborne debate the future of Zynga.

Libe: It's tough being top dog; you're an easy target. But, even as the Zynga apologist of this debate, it's hard to give the events of the past week positive spin. I will say, however, that stock prices are indicative of investors' moods and those moods tend to change often. If Zynga shows positive gains next quarter, then we'll probably have a different conversation in a few months.

Joe: If stock prices indicate investors' moods, then Zynga's stockholders have been blue since the start of this year. But Zynga's tanking stock price shouldn't be a surprise. Simply put, the company went public far too early. Its ideas of Zynga.com, the publishing program and increased focus on mobile all came to fruition long after the stock drop. Zynga should have waited until after these moves were made--or at least realized to where they are now--before hitting the ticker.

Libe: Hm, I still think it's too early to determine if Zynga went public too soon, but I have heard that criticism before. Another thing that I hear a lot -- and this drives me crazy -- is that Zynga's games launch, gain an unthinkable number of players for a while, then start to lose them.

While that's factually true, you have to put this into perspective: CityVille currently has 22 million monthly players, down from 100 million players in Jan. 2011. Call of Duty: Black Ops broke all sorts of game sales records when it sold 25 million copies worldwide roughly 10 months after release. Blizzard's ridiculously popular MMO, World of Warcraft, reached a peak of 12 million subscribers before numbers started to decline (and the company has not released numbers since).

You can make all sorts of arguments as to why these three games shouldn't be compared, but it's easy to argue that Zynga losing players doesn't necessarily point to its demise. The fact that Zynga games have 292 million players worldwide, shows that there are still people out there willing to spend time with these games.

Joe: You're right: There's no denying that Zynga is number one on Facebook, and it will sit there for some time. In fact, its monthly players are up since this time last year. But take a look at Zynga's most iconic games: FarmVille, CityVille, PetVille. Nearly every "Ville" game in the company's library is down.

Not only is Zynga's ability to create a lasting franchise in question, but so is its stake in the mobile games world, where every major game company is headed. Zynga's largest successes--Words With Friends, Draw Something, etc.--on mobile are all properties that it purchased. Nearly every original mobile game that the company has put out has been a flop, including its most ambitious, FarmVille. Buying your way to the top is a fine strategy, but is it sustainable?

Libe: If a company makes smart buys, then there's no reason it can't rise to the top. But let's talk about Zynga's innovation, or what critics call a lack of innovation. Zynga has undoubtedly taken the "don't reinvent the wheel" concept a bit too literally with numerous games, making enemies in the development community. That's disappointing and doesn't do much for the company's ball-crushing reputation.

Zynga has, in many cases, created a better widget. Yes, FarmVIlle was just like Farm Town, but there's a reason why Zynga's version turned into a Facebook sensation. Zynga has a magic formula that makes its games more desirable to fans of these types of games. They look better, play better and update often.

In addition to cranking out numerous "Ville" games, Zynga has started to roll out more casino games, a bubble game and others in common with the so-called "casual" gaming sphere. Zynga has started to diversify, and if rumors are true, will continue to do so. Will Zynga take a risk with a truly unique game that we've never seen before? Probably not, but I can imagine Zynga acquiring a studio that does that kind of thing. Never underestimate the power of acquisition. In fact, don't underestimate Zynga. Right now the company is down, but certainly isn't out--I'm truly interested to see what other new tricks Zynga will teach the old dogs of video games.

Joe: Sooner or later, the whole "copycatting" issue will catch up to Zynga, no matter how strong its legal team is. This is a matter of reputation, which could hurt its ability to acquire truly genuine game creators if not kept in check. Look at Dream Heights. Have you heard anything about it since the Tiny Tower debacle? You can thank the press (sorry, Zynga) for that.

Zynga needs to focus more resources on R&D of original ideas to become category leader that it hopes to be, especially on mobile. (With some 3,000 employees, you'd think the developer would already be there.) We know that Zynga is capable of relatively genuine games, like Empires & Allies. I hope you're right that it can acquire more studios with the Midas touch. Without that, Zynga stands to continue to get nailed in the press and elsewhere, which could eventually mean its doom.