Zynga's Wake: Does The Venture Model Make Sense For Gaming Anymore?

Just about eight weeks ago or so, I was on a call with Zynga’s COO David Ko following the company’s first quarter earnings report. Zynga was trying to manage expectations for the coming two quarters by saying it had paused its game slate to re-evaluate every upcoming title on the table. I can’t remember the exact question I asked, but it was something like, “Finland’s Supercell made $104 million in profit on a headcount of 100 last quarter while you made $4 million in net income with roughly 3,000 people. Does your headcount and structure make sense?” Ko, who has a reputation as a savvy operator and is very media-trained, dodged the question saying, “We’re the biggest believers in social gaming across all platforms. This year, we will measure our progress by our ability to bring existing franchises to mobile while maintaining profitability.” However, even if some Zynga employees were caught off guard by this month’s layoffs, the writing was very clearly on the wall. A company that had grown up built for one platform (Facebook), wasn’t well-adapted for the realities and economics of building titles on Android and iOS. They aren’t the only publicly-traded Western gaming company grappling with major platform shifts affecting the entire industry. In the first half of this year, both Zynga and EA have shed roughly 1,500 jobs. While their situations are unique, both rounds of layoffs have to do with the stagnation of gaming platforms like consoles and Facebook against the rise of iOS and Android. While there are plenty of emerging mobile gaming companies like Supercell and King, the situation raises a question I’ve been thinking about for the last several months. Is the venture model of funding gaming companies, which prizes a large exit through a sale or IPO and rapid growth, well-suited for a new world where companies can rise and fall as quickly as their hits climb and tumble off the charts? Are we in a period where new incumbents will rise up and eventually hold on to their dominance, or are we in a new era which is just inherently more chaotic and unpredictable? Zynga, which took around $850 million in venture funding, put huge pressure on itself to grow quickly. In Zynga’s fastest-growing days, the company was adding several people a day. That has ultimately made it difficult to maintain a cohesive company culture and adapt to rapid

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