Obvious mistake made in the calculation. From "We also know that they had 3.4 million unique payers in the September quarter, which is up from 3 million at the end of December 2010." lead them to "In other words, they added 400,000 additional payers and they spent $120 million to acquire them.”
This is an obvius mistake, as not all of the 3 Million from Dec 2010 continued to be a customer in Sept 2011. I roughly assume they lost 800.000 customers in that span (i think its more), then the newly aquired customers triple to 1.2 Million. Thus Zynga makes 50$ profit per customer.
I'd go farther, if players stick around 12-15 months historically, and they had 3M users, then in 9 months they could lose 60%-75% so 1.8M to 2.25M players! This of course depends on distribution of lifespans, and assumes that the 12-15 month figure remains accurate.
If that's true, they're getting users for as cheap as $50 each, and making $100 on each.
Oh, come on, guys...
You all are over simplifying a complicated calculation.
Have you considered that you don't know the distribution of the 3M players? How many of them had just joined compared to how many had been around already for a while? (this could push both ways)
Also, have you considered how many new users they were expect to get just by word of mouth and no investment?
What is the percentage of regeneration of users that quit in 12-15 months but maybe also brought in other users to play with them?
Without knowing the details you can't say anything.
I'm not saying that I agree or not with the article, but I assume that every person working as an analyst learns on their first day what you were suggesting above. So, it could be that the analysis is wrong (and it does look wrong), but the calculation that an analyst should do is much more complicated that you guys seemed to think from what you wrote (and two wrong analysis won't make a correct one).
I would have spent at least part of those $120M in funding startups to develop new games (and later bring them in, in case...). I'm pretty positive the return might have been better...
Yeah, the math is a bit wonky and requires speculation about many numbers we don't know, but the fact is that Zynga spent $120MM to grow...slightly. It's not the straw to break the bulldog's back, but a straw nonetheless.
But that skews in the opposite direction: If they lost more users, that means they lose customers more quickly, so the value of a customer decreases the higher you raise your estimate here.
Losing more users is good in that it means they gained more in the same timespan - for fixed changes in the number of users (which is the datapoint we have). But it also means they are having a hard time keeping them.
The biggest problem I have with Zynga is that they do not have any creativity. The games they churn out are just another [insert random noun]'ville or a ripoff of a popular existing game (scrabble, hang man, poker, etc). A video game's shelf life doesn't usually last for more than 12 months, and if they can't come up with any unique new product that can capture the attention of a mass number of users they may be up a certain creek without a paddle.
A video game's shelf life doesn't usually last for more than 12 months
This compares rather favorably to the video game industry, where exponential sales decay sets in after 1 to 3 weeks for almost all titles, including ones which cost more to produce than every Zynga game produced to date combined.
I don't love Zynga, but their model has a lot to recommend it over "Lets make another big-budget war movie/game with $10 million of programming, $80 million of art assets, and $120 million of launch marketing and then try to get it in front of every 18 ~ 30 year old male in America."
The wii is a great example of a system that everyone has and nobody plays.
I can't count the number of times I've visited people's houses with the wii unused. All the casual gamers Nintendo attracted won't be buying another system again.
This is endemic of the games industry as a whole. SW:TOR is just World of Warcraft with lightsabers. Modern Warfare 3 is an expansion packaged as a sequel. Angry Birds is just Castle Crashers with a different firing mechanic. We've become so efficient at extracting money out of the hits, it becomes hard to truly innovate.
While I agree that there is a lack of major innovation in the video games industry and there is a problem with most gamers just waiting for the next AAA title from a major publisher, I think your examples are all flawed.
SW:TOR is definitely World of Warcraft with a Star Wars skin. It also has the most voice acting of any game in history and it is the first MMOs that actually has a story for each player character that is worth following.
Modern Warfare 3 as an expansion is now arguing semantics. What makes it an expansion? Two years of development where they didn't really innovate but they continued to tightly tune their well oiled machine and CoD Elite is a great platform that almost every game would benefit from. Is it simply price you are annoyed with because you don't perceive the incremental improvements to be worth it? Modern Warfare 3 is definitely not going to push the video games industry forward in any major ways but Modern Warfare 1 & 2 have already done that.
As another poster has stated you're confusing Castle Crashers with something else. Castle Crashers is more like Battletoads or Double Dragon or River City Ransom.
The "hardcare" video game industry is moving forward albeit slowly. The "social" video game industry seems to have stagnated already and is just rehashing their current game mechanics with new graphics.
I think you are confusing Castle Crashers with some other game. Castle Crashers is and old-school beat them up with very nice art.
Also, the problem you describe exists in all entertainment industries. I don't think we've innovated much in literature since Shakespeare or in cinema since Hitchcock. But there's always some work that stand above the rest in their originality. And then a lot of other works that improve on them or at least try. I don't think that's bad.
I think you (any many other commentors) have touched on part of a problem. It's not the lack of creativity per se, and not entirely related to the whole oh X is just Y with one new gimmick/game mechanic and different graphics.
Rather, Zynga's game development is heavily metrics driven. They can tune their games to max out metrics, and make them stupidly addicting, and 'fun' and get their customers. But in general, you really cannot create 'new' or 'innovative', or at least in the way people like those words to mean by following the metrics. You can just create more and more polished and targeted variants of existing games.
Anyone know where Zynga spends its marketing dollars? Is it mostly Facebook? $13mm a month stikes me as huge considering I don't think I've ever seen one of their ads.
Primarily Facebook (they're FB's #1 advertiser IIRC), but they also had big-budget offline promotions with the likes of 7Eleven, where you could (bastardizing the heck out of this) buy a bag of branded chips and get a free thing of special potato seeds in-game.
The one near the Oyster Point exit (going North) always just advertises the latest game, so that's definitely a customer acquisition one. The other one I've seen has bounced between recruiting and the latest VilleVille.
Our concern is [whether or not it's worth] spending $300 to get these customers when people are spending $150
Good god. My concern would be whether they will still be able to milk people for $150 after there are 12 step programs and "just say no to Zynga" PSAs.
How about the free users that are simply playing the games but aren't making them any money. I personally play Words with Friends, it's kind of fun and addicting, but I use the free version of their app, I don't ever click their ads nor do I care to (and when I am on my home network those ad servers are blocked =)). I use resources in that they have to spend server time to keep track of my moves to send them to my opponents. Where is the win in that?
Businesses cannot predict the future, so they must use probabilistic models, especially for budgeting. If you could build a magic crystal ball telling you if the following gamer who signs up is going to end up: a) spending $1000 in virtual currency over the next 3 years OR b) tell to his network of 20+ friends about the game OR c) use tons of resources, no payments and no promotion..., THEN lots of companies would be in your debt.
The behavior that you described has been put into a basket by Zynga and mixed with the statistical behavior of average gamers in order to create their business model, where they assume that X millions of advertising and Y millions in R&D and SysOps bring Z millions in revenue, preferably with Z > X + Y.
90% of gamers are non-paying and probably do little in terms of word of mouth promotion, so they just pull these averages downwards. But, as long as, on average, Z > X + Y, everything is ok for Zynga. Because it's the only way in which they can operate without a crystal ball.
The amount of money that you cost them for server time is negligible - when using WWF, you're sending a small handful of web requests for every move you make, at a very slow rate, and over the course of a day an average user of Hacker News probably puts more stress on these servers than a person does on Zynga's by using WWF.
I'd guess that the expected monetary value of the increased engagement of your friends due to your presence more than makes up for the cost to provide the game to you, probably by a factor of 100 or more.
Ad networks generally pay mobile developers for impressions, not for clickthroughs, so you are making them money.
I have to say that I'm very disappointed that you block ads. Certainly it wouldn't hurt to simply ignore the ads, given that you're using their service.
I block ads because I hate being bombarded by random crap I am never going to consider buying. You can hate me for it (hell, I monetize some of my own sites with ads) but I really don't care.
For a lot of services whose ads I block it is mainly because I am already paying a fee to get access and yet I still have to be bombarded with ads. Hulu is the worst offender in that department.
agreed but for how long? further, playing poker for cash is slightly different than feeding your cows and selling sunflowers. I am sure not everyone will switch.
Do they really make $150 per acquired user, or just acquired user that opens their wallet at all? I'm curious if those numbers on acquisition cover free users at all.
This is an obvius mistake, as not all of the 3 Million from Dec 2010 continued to be a customer in Sept 2011. I roughly assume they lost 800.000 customers in that span (i think its more), then the newly aquired customers triple to 1.2 Million. Thus Zynga makes 50$ profit per customer.