Who Will Be the Next Zynga?

Who Will Be the Next Zynga?

Zynga is obviously not just a leader in the social network game development and publishing field, but a big leader with a big lead. But as an industry category, the barriers to entry are low and it cannot possibly be “winner take all” in such an open type of environment. This provokes for me two big questions:

  1. What’s going to be their Achilles’ heel? Everyone has one.
  2. Who’s on the “Flip Side?” No matter how big the hit single, everyone eventually gets tired of it and will play the other song on the flip side of the disc.

Before doubting the Flip Side, consider these B-side songs that became hits and are still going strong today: We Will Rock You (Queen); Maggie May (Rod Stewart); I Will Survive (Gloria Gaynor); Don’t Let Me Down, Day Tripper and I Saw Her Standing There (Beatles). Okay, admit it, which one of those tunes is now running through your head?

Zynga has grown fast, but last year so did Playdom and Crowdstar, and right now so is Digital Chocolate. Nobody has a chokehold on growth. And another thing: We have all been trained to believe that growth turns into market share which turns into control of channels and shelf space. But that is now obsolete thinking when it comes to Web-style digital distribution. The big growth stories from last year don’t have any real control over their customers, the platforms they are on, or the shelf space in the channel. Not only are they unable to use traditional leverage to consolidate their position, but things are evolving rapidly and they have to worry about everything they have slipping through their fingers.

Playdom, Playfish, CrowdStar and others have emerged as strong competitors for the social gaming throne.

The question then becomes as follows: Where’s the real substance? Can game companies evolve out of the shallow, hamster-style games that tax users and depend on the now outdated-Facebook viral techniques? Are they going to become genuinely strong game developers and inventors of great IP (intellectual property) and technology, or just try to keep using scale when others seem to be easily climbing the same mountain towards the same scale? Nobody today has a defensible stranglehold on brand, channels, platforms or customers.

In my opinion, the one game that Zynga publishes that is certain to still be around in ten years is poker. But therein lies the problem; they did not invent poker and it is not their own original IP. They cannot expect to dominate and control consumer demand for poker, and will need to relentlessly defend their position from rival poker games. But at least we know it is a great game that people will always want to play. What Zynga must do is create that experience and value within new IP of their own. FarmVille is their best work, but it’s a glorified form of personalization. Zynga has to paddle as fast as they can to offer new stuff every week to avoid losing customers. Whereas with poker, they merely need to sell more chips again this week. That’s a nice position. Farming is like a hit song, film or video game – it’s such a big deal today that, like Tony Hawk, Grand Theft Auto or Guitar Hero it cannot possibly sustain this big a blip on the public’s radar.

FarmVille alone can’t sustain Zynga’s growth. Which new social gaming companies will emerge to fill the void?

Zynga has to take advantage of their current size advantage and find ways to create their own “pokers.” Meanwhile, the rest of the industry faces the same challenge. We all represent the Flip Side. We’re the alternative to farming and as a group we are getting plenty of traction.

Going forward, I think there will be multiple leaders, including Zynga. Leaders will have to develop competitive advantages beyond simply having a large number of free players, which is not that hard to obtain but is far harder to retain and monetize.

Five key factors going forward will be:

  • Access to capital.
  • Internal development based on a technology model. Like Pixar, this allows real technology companies to systematically build better games and to cover more platforms and markets. Without it, you are doing too much by hand and are too dependent on someone else’s proprietary tools.
  • Organizational scale, otherwise you can’t get to a cross-promotional and financial critical mass.
  • IP – clearly companies will need to develop their own intellectual property and brand value that has the depth and stickiness to hang onto customers. This includes product innovation, gameplay depth, brand development and other factors. Some companies lean too hard on brands from other companies or too many outside developers whose IP they won’t own or control, or just are not good at making relevant inventions in the sector, or they know how to build to some industry requirements, but not others. For example, some are viral but don’t retain, some retain but don’t monetize.
  • Post 3-1-10 growth: The guys that depended too much on the old Facebook rules need to adapt. Who’s got the right stuff to be a Flip Side hit?

As a cautionary tale, I would observe the rapid rise and fall of the Atari 2600 VCS which peaked in 1982 and enabled the IPO of the first Activision. But both companies were dead in the water within two years and the entire category written off as a hula hoop. Atari withdrew from the category and Activision went into bankruptcy. But a couple of new companies that met the criteria noted above brought innovation to the sector and despite initial skepticism brought about an incredible revival just a few years later. I’m talking about Nintendo and Electronic Arts.

Things will evolve even faster now with the disruption and speed of new platforms and digital media. The Flip Side to Zynga will probably be a group rather than a single company; there should be multiple winners.

Editor’s Note: To read more articles by Trip Hawkins, be sure to check out his OMG blog.

About Trip Hawkins
Trip Hawkins is CEO of Digital Chocolate, a top publisher of social applications like Millionaire City, MMA Pro Fighter and Tower Bloxx. A new media pioneer for 30 years, Trip helped define the personal computer at Apple and founded industry leaders Electronic Arts and 3DO.

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