A paper describing why Zynga should focus its resources towards building a better real money Online Gambling Services than trying to regain its image as a Online Gaming Platform

1. Running head: Why Zynga should focus on providing Online Gambling Services
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Why Zynga should focus on providing Online Gambling Services
Kashyap Uppuluri
NYU Polytechnic School of Engineering

2. Why Zynga should focus on providing Online Gambling Services
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ABSTRACT
Zynga Inc was a market leader in development of social games, known popularly for
titles like FarmVille, Words with Friends and Zynga Poker; the past years Zynga had to
face a myriad of problems that now threaten its very existance. Despite having a major
share of the market, Zynga has operated at loss for past three years. This can mainly be
attributed to lack of sustainable revenue streams and a bunch of failed costly acquisitions.
Recently, Zynga has decided to abandon its plans on real money online gambling in
United States in order to focus on social games (Takahashi, 2013). This comes as a
shocking revelation, considering that its operations in United Kingdom are performing
well. Given the estimates (Agnello, 2012), the rise in online gambling industry provides
Zynga a perfect opportunity to succeed, considering it already has the necessary
infrastructure and expertise needed.

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BACKGROUND
With a mission to connect the world through games, Mark Pincus founded Zynga
Inc. in April 2007. With a success streak hard to replicate, Zynga churned hit after hit
games under its banner, it had millions of players hooked onto the desktop and mouse. It
became a billion dollar company within just 4 years of its inception and market leader for
this industry for almost half a decade. In doing so, it glanced over a few details, which
would later prove to be costly oversights. Firstly, the revenues that came pouring in were
mostly from the sale of virtual goods of new releases that tasted success. Advertising and
Lead generation contributed only a small portion of their revenue. This meant that if this
streak ended, so would the inflow of money into the organization.
Figure 1: Revenue. Reprinted from Zynga Q4’ 13 Earnings Slides (12)

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The two charts above help us figure out, how we lost most of the revenues
through failing titles. This also helps us recognize the one product offering which has
stood steadfast all this while. Zynga Poker, previously known as Texas Hold’em Poker
despite lower daily active users (DAU) and monthly active users (MAU) compared to its
other offerings, built a loyal customer base in which each customer had a high average
revenue per user (ARPU) and has sustained its run where others have failed
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INDUSTRY STRUCTURE
Both social gaming and online gambling industries are oligopolies with a low cost
of entry. However there are some marked differences between the both. While the social
Figure 2: Revenue. Reprinted from Zynga Q3’ 14 Earnings Slides (13)

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gaming industry is flooded with inflow of new entrants, online gambling has relatively
lesser competitors and entrants. A product launched by the social gaming industry will
instantly have global presence; the products by online gambling are more regional, as
they have to be in line with the regulations of each target market.
Zynga has advantages and disadvantages in both the industries. Zynga markets
share has been crumbling away in the social gaming industry with the runaway success
story of King with its immensely popular Candy Crush Saga among other competitors.
The lapse of adapting to the mobile industry resulted in huge losses and only recentl have
they migrated to this platform fully. FarmVille 2 triggered a last kindle of fire into their
otherwise lamenting social gaming division.
Zynga Poker is one of the most popular free sites in online gambling industry.
Zynga also has other casino game offerings that have fared moderately. Up until now
they haven’t taken their online gambling division as a priority. But in the recent light of
events, with launch of Zynga Plus Poker and Zynga Plus Casino, they can make a
breakthrough in this industry. The competitors who were not concerned much about a
free poker offering have much more to worry about, so they are providing a stiff
opposition to Zynga’s entry into the real money online gambling market.

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Situation in United Kingdom:
Figure 3: Zynga Plus Casino Website http://www.zyngapluscasino.co.uk/
Zynga has launched the Zynga Plus Casino platform in the United Kingdom
where people can gamble online using real currency on different kinds of slots, roulette,
and blackjack. The same account can also be used with the Zynga Plus Poker, simplifying
by providing overall integration of different services.
Situation in United States of America:
Some of the states of the United States like Delaware, New Jersey and Nevada
have laws legalizing the use of real money online gambling websites. The decision of
many other states is yet to be determined. Additionally Zynga also faces competition
from other players in the market like Caesars Entertainment Corp. and MGM Resorts
International which have both physical as well as virtual casinos.

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MARKETING PLAN AND ANALYSIS
In order to shift our focus from a social gaming to online gambling, one of the
most important tasks involve identification of the target market. We need to identify the
demographics interested in online gambling. Based on spending habits, it can be safely
assumed that majority of the players involved are young to middle-aged males. We can
also profile each category to determine what interests people the most about online
gambling and try targeting them that way (Mavros, 2011).
A SWOT Analysis can help understand the situation and help formulate strategies
and contemplate the available options.
If Zynga keeps heading down the same track, it is sure to exhaust its resources
and at some point declare bankruptcy. Though a certain degree of risk exists in changing
the primary focus of a company to a new one. I believed Zynga is equipped to handle it,

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with years of experience dealing with Poker customers and the new knowledge gained
from its venture in UK. It has the infrastructure, expertise, and knowledge of the industry,
which should help it excel and give a 1 - 2 year head start before a chance of new
entrants.
The company will have to stay abreast with the regulations affecting its business
as they tend to be announced with little or no prior information. Depending on
regulations passed, Zynga’s ability to utilize and leverage its existing infrastructure,
collaborations and the customers will play huge factors in determining the stock price.
Just as when the real money online gambling program in UK succeeded and led to a
increase in the stock price, I believe the similar will happen once its program is fully
function but on a much larger scale as the revenue reaped here will be much higher than
compared to UK because USA is its biggest geographic contributor in revenue.

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CONCLUSION
Figure 4: Gambling Capital Estimates. Reprinted from
http://www.onlinecasinoselite.com/post/global-rise-of-land-based-casinos-to-fight-online-
competition
Based on the estimates provided above, we can estimate quite a growth in this
industry. Lately, there have been indications that could shed some light on what the
company wants to do, like the extension on contract with Contagious Gaming Inc., a real-
time money operator (2014). The top leaders must sense the urgency of the situation and
deploy all measures to set their plans in motion before they any new situations arise.

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REFERENCES
Takahashi, D. (2013, July 25). Zynga exec explains why it's abandoning online gambling
in the U.S. Retrieved December 2, 2014, from http://venturebeat.com/2013/07/25/zynga-
exec-explains-why-the-company-is-abandoning-u-s-online-gambling/
Agnello, A. (2012, September 12). Social Casino Games will Generate $ 2.4 Billion in
Revenue by 2015. Will Gambling save Zynga? Retrieved December 2, 2014, from
http://www.digitaltrends.com/gaming/social-casino-games-will-generate-2-4-billion-in-
revenue-by-2015-will-gambling-save-zynga/
Mavros, M. (2011, December 27). How to Market to Online Gamblers. Retrieved
December 7, 2014, from http://www.casinoaffiliateprograms.com/blog/online-gambling-
player-profiles/
Contagious Gaming and Zynga extend contract (2014, November 12). Retrieved
December 7, 2014 from http://www.reviewed-casinos.com/news/contagious-gaming-
zynga-extend-contract.html
Quarterly earnings of Zynga (2014). Retrieved December 7, 2014 from
http://investor.zynga.com/results.cfm