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Zynga stops the plans to develop apps for US gamblers

Published on October 25, 2014, 4:32 pm

by Jeff Grant Twitter account Jeff Grant LinkedIn account

Zynga headquarters (San Francisco, CA)
Zynga headquarters (San Francisco, CA)

Zynga, the social gaming company which gave birth to popular Facebook apps like FarmVille and Words With Friends, has had a change of heart regarding real-money online gaming. The high-profile company which once espoused plans to obtain real-money gambling licenses in the US, has axed those plans, according to news sources.

On July 25th, Zynga's then-COO, David Ko, said the company was opting to focus exclusively on social gaming in the U.S., at least for the time being. Since that announcement, sources report that Ko has stepped down from his position as part of a major company restructuring.

Promotion of New CEO Don Mattrick Leads to Executive Exodus

Numerous layoffs and the closure of several company facilities have caused turbulence in the recent life of Zynga. As part of the company's massive restructuring, former Zynga founder and CEO Mark Pincus stepped down from his position in July so a new leader could step up: Don Mattrick. While Pincus now acts as the company's chief product officer, Mattrick sits firmly in the driver's seat of the social gaming company.

Three major executive changes have already occurred under the leadership of Mattrick, including the resignation of Ko and two others: Colleen McCreary, chief people officer, and Cadir Lee, technology officer. In spite of this mess, Mattrick has resolved to pick up the pieces and sally forth, declaring his task now is to get “under the hood” to evaluate “every aspect of business” in order to restore Zynga to the thriving entity it once was.

Zynga: No Stranger to Restructuring

This isn't the first time Zynga has attempted to restructure itself for the sake of ailing business. Less than a year ago, in November 2012, three executives were promoted to higher ranks in hopes of resuscitating the company. The roster included Ko, who at that time had advanced from chief mobile officer to COO. Ko's triumph was short-lived, however. Sources speculate that his recent resignation has to do with sour grapes over the fact that he was not promoted to Mattrick's position.

Ko: Zynga's Reasons for Abandoning Real-Money Gambling in the U.S.

While still in office, Ko noted that his company was experiencing declining revenue due to stiff competition. He also alluded to widespread online credit card fraud which marred the company's profits. Ko stated that Zynga's objective in the U.S. now is sharpening its focus on existing social games rather than obtaining licenses for online gambling.

The company's policy in the U.K., however, is quite different. In the U.K., Zynga will continue to offer real-money gaming, as it has since April of 2013., an online gaming provider in London, currently makes ZyngaPlusPoker and ZyngaPlusCasino games available to U.K. citizens.

Zynga's Company Value Drops in the U.S.

Zynga's quarterly revenue dropped 31 percent in July 2013 from where it was a year before. Daily active users decreased from 72 million to 39 million over the course of that same time period. Looking ahead, a net loss between $14 - $43 million is projected to occur in the coming quarter. Shareholders hope the promotion of Mattrick will ameliorate the situation and improve Zynga's business model, which the company itself has acknowledged to be structurally weak.

Zynga's revenue (2nd quarter 2013)
Zynga's revenue (2nd quarter 2013)

Wynn Doing Well Without Zynga

Wynn Resorts executives were in talks with Zynga about a possible online gambling partnership last spring, but that plan has since fallen through. In spite of that severed relationship, Wynn Casinos performed well in their most recent quarter, with net profits in Las Vegas rising ten percent. Although much of Wynn's overall success comes from its thriving Macau site, Wynn Las Vegas has performed quite well even without the fruition of Zynga as its online gambling partner. Wynn executives have concluded that they're doing just fine without Zynga in particular and online gambling in general.

Adam Krejcik Asks if Zynga Will Go B2B

A managing director at Eilers Research, Adam Krejcik, has posed a rhetorical question regarding Zynga's recent changes. Krejcik wonders if Zynga is eventually going to adopt a “B2B strategy” in which the company licenses its products, including real-money gaming products, to a third party operator. In Krejcik's mind, the B2B strategy would make "much more sense” even though Zynga would get less cash out of the deal. In this scenario, Zynga would actually still be involved with online gambling in the U.S., albeit through a third party.

Because Zynga continues to offer real-money gambling options in the U.K., some critics wonder if the company is just treading water until online gambling becomes a more viable option in the states. Perhaps, they speculate, Zynga isn't really giving up its real-money gaming dream. Perhaps instead of “axing” real-money gaming in America, the company is simply “tabling” the idea until a future date.

Zynga's Competitors

Zynga no longer reigns supreme in the online gaming market; competition is fierce these days. Some of Zynga's major competitors are the following:

  • Kixeye: This company creates and sells competitive combat games which, unlike Zynga's products, do not appeal to a mass audience. The games are more of a niche market and also more expensive than Zynga products.
  • CrowdStar: Like Zynga, this business initially focused on social gaming on the web. In 2012, the company made a shift toward mobile gaming.
  • DeNA: This Japanese company has focused on mobile gaming from the get-go and attributes its success to this foresight.
  • King: Inventor of Candy Crush Saga, King offers more than 150 games in 14 languages and is a major competitor for Zynga.
  • Gameloft: This French-based company has developed a long list of video games for mobile phone and console use since its inception almost 15 years ago.

For now, Zynga has closed its doors to the possibility of real-money online gambling in the states. The company will, however, continue to focus on its social games, including free-to-play Zynga Poker. The company's decision to abandon online gambling licenses is sure to disappoint some users, but there are still plenty of options for Americans who wish to gamble online.


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