Zynga Analysis - Case Study Example

? ZYNGA CASE ANALYSIS By 12th, July, Table of Contents Table of Contents 2 Executive Summary 3 2.Introduction 4 3.Target Customers 4 4.SWOT Analysis 4 a)Strengths 5 b)Weaknesses 5 c)Opportunities 6 d)Threats 7 5.Competitive Business Environment 8 6.Business Model and Relationship with Facebook 9 7.Recommendations and Conclusion 10 Works Cited 12 1. Executive Summary This paper presents a case analysis of Zynga, basing on the March 11, 2013 Harvard Business School article by Chen and Pikorski, entitled “Zynga (A),” which provides important insights into the company. The authors in the case have examined the status of Zynga, and identified its challenges and opportunities. This paper is divided into different sections, which present analyze aspects of Zynga identified in the article. Zynga, founded in 2007, competes against Electronic Arts, a giant in the gaming industry. Zynga struggles to establish itself in the industry despite different challenges. Zynga is in a relationship with Facebook, yet the relationship is a major source of most of Zynga’s problems. To solve this, Zynga needs to break away from Facebook and use its website as its major platform. It is also important for Zynga to develop ways of maintaining its existing customers and attracting new users. This analysis provides insights into the status of Zynga, and ways through which it can improve, as this is a promising company, which contributes to the economy. 2. Introduction Zynga, based in San Francisco, USA, is currently among the leading providers of social games, which are browser-based. Zynga has approximately 270m monthly users, and in 2011, Zynga was valued at $7 billion. Since social networks are popular among people, game developers use them as platforms for their games. Social networks are capable of ensuring interactivity of gamers in different areas. Additionally, a larger part of the population engages in social networking each day. For this reason, Zynga, and its competitors seek to expand their businesses. However, to be successful, Zynga needs to improve its strategy and business model. 3. Target Customers The primary target customers of Zynga include the hardcore gamers, while the secondary target customers include individuals with less exposure to computer games. In addition, Zynga, unlike other gaming companies, targets women gamers. While other companies are reluctant to target females, citing their disinterest in gaming, Zynga has designed its games in a way that will attract female gamers. Research shows that females in the West have an equal access to the internet as men, and spend more time online, compared to males (MacMillan 2012). Nonetheless, Zynga has not managed to bring all its target customers into its customer base. 4. SWOT Analysis This case analysis employs a SWOT analysis on the case of Zynga. This way, the challenges and potential of Zynga will be identified, and these will help to develop possible strategies for improving operations of Zynga. In addition, it is important to analyze the environment in which the company operates, and identify the major problems of the company, and possible solutions. a) Strengths Zynga develops highly addictive games, and this has helped the company to attract many gamers. The gamers easily get obsessed with the games, and spend more time playing the games, thus paying up more and adding to the profitability of Zynga. Zynga develops games that promote interactivity. People in different geographical locations can interact through the games. Therefore, when more people pay to compete in a game at a time, Zynga obtains more revenue. Therefore, this is a major strength, as it brings many people together to play a game, thus more profits for the company. Furthermore, the strong relationship with Facebook is a major strength. Zynga uses Facebook as its main platform, where gamers can access its games. Since Facebook is the most popular social network with the largest number of users, maintaining a relationship with Facebook is important for Zynga to ensure maximum profits, as a larger number of people, who are Facebook users can access the games (Morris 2012). The multiple streams for revenue for Zynga are a major strength. Besides the sale of its virtual currencies, Zynga also gets a greater part of its revenue from affiliate marketing, offers and advertising on the pages of its games. With regard to mobile usage and monetization, Zynga has ensured to increase its presence on mobile, and this has led to an increase in its number of users. On the other hand, the monetization option for Zynga led to its earning of increased revenue. b) Weaknesses All games by Zynga are web-based. This means that whoever needs to access and play Zynga’s games must have access to the internet. Therefore, those people with no access to internet are locked out, and cannot access or play Zynga’s games. On the other hand, weakened ties with Facebook impacts quite negatively on Zynga. The gamers of Zynga can mainly access Zynga games through Facebook. On the other hand, Zynga is important to Facebook, as it is its top developer of social network games. For these reasons, a poor relationship between Facebook and Zynga will result in loss of revenue for both companies, but especially Zynga. The relationship with Facebook weakened in 2011, when Zynga started to consider being independent of Facebook, after Facebook developed an unfavorably policy that would reduce the revenues of Zynga (MacMillan 2012). Furthermore, Zynga games are not available on all smartphones. For instance, when iPad was launched with iOS, many developers, including Zynga, chose iOS over the android OS. Therefore, Zynga released more games for the iOS, compared to android. This way, most android users could not access all the games developed by Zynga. Nonetheless, most people with smartphones, including tablets could not access Zynga games. This way, the company loses potential gamers, thus revenue loss. Zynga does not have recurring purchases. The business model of the company involves making users to play games and purchase virtual goods and gaming products. Normally, the users will not consistently play the games or purchase gaming products online. Therefore, when the users record a drop in their level of purchase, the company might experience a significant drop in its revenues. c) Opportunities Zynga has the opportunity of increasing its revenue and success through the expansion of its advertising business. Zynga has utilized advertisings as a source of part of its revenues. Zynga shows advertisements of other companies on its website, thus earning more revenue (Dunay, Krueger & Elad 2010). Adding more games to the existing ones in future is one major chance for Zynga to make more profits. So far, Zynga owns some of the most played games on social media. Farmville was especially popular among many gamers. Therefore, introducing more games to the present ones, and increasing the number of franchises will help the company to make more revenue. In addition, expanding on other platforms will enable Zynga to gain more reception and increased access by users. Presently, Zynga mainly utilizes the platforms of Google +, Zynga.com, and Facebook. If the company increased the number of these platforms, it would gain more users, thus increasing its revenues. Zynga therefore, will be more successful in future, if it expanded to more mobile platforms, and stopped to fully depend on Facebook. d) Threats The existence of casual players is a major threat to Zynga. Unlike the hardcore players, whom Zynga depends on, the casual players are unpredictable and unreliable, as they might stop playing Zynga games. Most importantly, these do not play Zynga games on a regular basis, thus this impacts negatively on the revenues of Zynga. The gaming industry is highly competitive, thus Zynga has to withstand the competition. Although some of the competitors of Zynga in the gaming industry might be considered “small” as compared to Zynga, they have the capability of gaining a high level of acceptance by consumers, therefore, reducing the number of consumers of Zynga games. Zynga exhibits a high overreliance on Facebook, which is dangerous. The company generates a larger part of its revenue, and acquires players by using the platform of Facebook. This therefore, implies that Zynga must maintain ties with Facebook. Any deterioration in the relationship between Zynga and Facebook will ultimately have a negative impact on Zynga, especially its revenues. In addition, in the relationship between Zynga and Facebook, Facebook is the dominant party, thus is entitled to more benefits, as compared to Zynga. 5. Competitive Business Environment The gaming industry is faced with a high level of competition. Nonetheless, the major competitor of Zynga is Electronic Arts Inc. This company has various competitive advantages, which might make it more successful in the market, as compared to Zynga. Most importantly is that Electronic Arts Inc was founded in the year 1982. If we compare this with Zynga, which was only formed in the year 2007, it is more likely that Electronic Arts Inc is more established in the market. Therefore, the company is popular in the market, and has established customers, as compared to Zynga. As one of the top developers, Electronic Arts Inc has adopted various strategies that enable it to compete healthily, and to maintain its top position in the gaming industry. For instance, the different acquisitions by Electronic Arts Inc are a major way through which the company managed to establish itself in the industry. In the year 2010 and 2011, Electronic Arts acquired Playfish and PopCap respectively. In addition, Electronic Arts Inc used Facebook as a platform for its game, “The Sims.” This game attracted many gamers on Facebook, and beat Zynga’s Farmville. Therefore, Electronic Arts Inc remains a major competitor of Zynga today, as Zynga has to develop effective strategies to compete with the company. Zynga also competes with Wooga, which are also among the top social games developers on Facebook. Wooga also has adopted specific strategies to help it remain a top developer on Facebook. Apart from developing outstanding games such as Diamond Dash, Wooga also has developed its games in seven different languages. Therefore, this way, the company targets gamers from different countries and languages, especially the non-English speakers. Nonetheless, this strategy helps Wooga to obtain a significant number of gamers. Another competitive company in the industry is Playdom, which poses a challenge to Zynga. This company initially utilized other platforms apart from Facebook, but managed to win an attractive amount of gamers. Nonetheless, the nature of its games is its major strength, as it develops games that attract many gamers. Although Zynga too develops highly addictive games, it must therefore, continue improving on its games to avoid being beat by Playdom. 6. Business Model and Relationship with Facebook Zynga is a considerably young company, compared to its major competitor, Electronic Arts Inc. However, Zynga has managed to establish itself in the market, and compete healthily against most of the giant developers in the industry, while ensuring high revenues. Zynga does not exist and operate as an island. Instead, Zynga is highly connected, and it has adopted different partnerships with other companies and players in the industry. Digital companies today have embraced partnerships, therefore, companies can offer their services directly to their consumers and provide infrastructure for the systems of other companies (Golob n.d). Zynga has different partners, which are a cornerstone of its business model. However, Facebook is the major partner of Zynga, as the company uses it as the major platform for its games. Zynga has used this business model since its launch, and this has ensured its success today. However, the company needs to improve or adopt a more competitive business model in future. Zynga has a close relationship with Facebook; compared to other partners the company collaborates with. The relationship between Zynga and Facebook has been symbiotic in nature, as both companies benefit from it. However, in this relationship, Zynga depends on Facebook, and cannot function without it. This overdependence on Facebook by Zynga can be considered injurious to Zynga in future (Boone 2012). Therefore, Zynga has a responsibility of working on this relationship, in order to ensure that its future is not put to stake. Facebook helps Zynga to drive users to the platform of Zynga, thus is an important revenue channel for Zynga. However, Facebook has sometimes developed policies that are quite unfavorable to Zynga, and these mainly result in decreased revenue for Zynga. For instance, in 2011, Facebook introduced the Facebook credits, which it imposed on Zynga. This therefore, meant that the revenues of Zynga would reduce considerably. Although Zynga considered breaking from Facebook, it later struck a 5-year contract with Facebook. This therefore, means that Zynga is held captive to Facebook, until the contract is over. 7. Recommendations and Conclusion Since its launch, Zynga has performed well in the market, and can therefore, be considered a profitable company. However, going by this analysis of the company, it is possible for the company to achieve more in the industry if it improved on some of its strategies and adopted newer business strategies that are more effective. This might help the company to address its weaknesses, as well as its major problem that concerns its relationship with Facebook. Nonetheless, with regard to the relationship with Facebook, there are different ways through which Zynga could address the issue. First, Zynga should consider adopting other social networks as a platform for its games, apart from Facebook. The overreliance of Zynga on Facebook means that the fate of Zynga is in the hands of Facebook, therefore, if Facebook collapses, Zynga might also collapse. However, diversifying to other networks reduces the probability of this potential predicament. Additionally, Zynga might consider breaking away from Facebook completely, and becoming fully independent. This way, the company could base on its website, as a major platform for its games. This would help to address the current problem, which the company faces whenever Facebook introduces unfavorable policies. Being independent would enable Zynga to manage its own operations, therefore, increasing its stability. In order to increase its user base, Zynga should consider targeting gamers in different countries. The company could develop its games in different languages, and target countries, where Facebook does not operate or is less popular. This way, Zynga could partner with the popular social networks in such countries, and use them as a platform for its games. For instance, targeting China would be a suitable initiative, as Facebook does not operate in the country. Furthermore, Zynga should consider increasing the number of its games, so that its gamers can have a variety to choose from. Similarly, the company should introduce incentives for its users. This might be through the introduction of value added features. This will ensure that it retains most of its customers, and acquires new users. In conclusion, Zynga is a considerably profitable company, which continues to reposition itself in various facets, in order to deal with the different challenges that it faces. The reliance on Facebook is a major issue for Zynga, which influences its operations in different ways. Although presently, this relationship is important for the company, Zynga has to develop ways of ensuring its independence in future. Nonetheless, Zynga should adopt strategies that will enable it to focus on its customers and partners, as well as ensuring its independence in future. Additionally, Zynga must adopt the aspect of innovation in the design of its games. This will help Zynga to continue competing healthily in the industry. Works Cited Boone, L (2012) ‘Contemporary Marketing,’ Cengage Learning, New York. Dunay, P, Krueger, R, & Elad, J (2010) ‘Facebook Advertising For Dummies,’ John Wiley & Sons, London. Golob, B n.d, ‘Innovative Business Models in an Interconnected World,’ Viewed 12 July 2013 MacMillan, D (2012) ‘Facebook Changing Zynga Terms in Social Games Competition,’ Bloomberg, Viewed 12 July 2013 < http://www.bloomberg.com/news/2012-11-30/facebook-changing-zynga-terms-stokes-competition-in-social-games.html > Morris, C (2012) ‘The Most Important Friendship: Facebook and Zynga,’ CNBC, Viewed 12 July 2013 Read More