SAN FRANCISCO (CBS/AP) – Web game maker Zynga is trying to turn its digital playground into an even more entertaining place, working to prove wrong investors who doubt that it can build a long-lasting business.
Zynga unveiled features Tuesday that include a network designed to provide the more than 290 million players of its games with the same tools, whether they are competing on Facebook’s online social network, a mobile device or the company’s own website.
The network is called “Zynga With Friends.” That’s a reference to one of Zynga’s most popular games, the Scrabble-inspired “Words With Friends.”
KCBS Technology Analyst Larry Magid:
Zynga Inc. also previewed several new games, including a food-themed title called “ChefVille” and a virtual house-building experience called “The Ville.” Those are the latest riffs on a franchise that began with “FarmVille” three years ago.
“These games have become something like hobbies for millions of people,” Zynga CEO Mark Pincus boasted to reporters who came to the company’s San Francisco headquarters for Tuesday’s presentation.
The addictive allure of Zynga’s free games helped establish the company as one of past decade’s brightest Internet stars. Just five years after Pincus founded the company and named it after his dog, Zynga has more than 290 million users worldwide and is expected to generate $1.4 billion in revenue this year.
But investors are worried Zynga is running out of new ideas as it girds for fiercer competition. The strategy laid out Tuesday evidently didn’t provide much reassurance.
After edging up earlier in the session on hopes for bigger news, Zynga shares fell 30 cents, or nearly 5 percent, to close Tuesday at $5.77. That’s well below the company’s initial public offering price of $10 six months ago. The IPO raised $1 billion, enabling Zynga to buy its San Francisco headquarters for $234 million earlier this year to accommodate the growth envisioned by Pincus.
The concerns dogging Zynga include its ability to keep churning out popular games, increasing competition from more experienced entertainment companies such as Walt Disney Co. and Electronic Arts. Inc., and a shift toward playing games on smartphones that is expected to fragment that industry.
Zynga, which already attracts about 22 million daily users on mobile devices, has been trying to establish itself as a gaming hub and lessen its dependence on Facebook for traffic and revenue.
Toward that end, Zynga began in March hosting some of its games on its own website. The Zynga With Friends network is meant to ensure some of the features on Zynga.com also are available to players when they are on Facebook or mobile devices.
The network is also being opened to other game makers in an attempt to encourage players to come to Zynga.com more frequently. That could create more opportunities for Zynga to sell advertising to supplement the sales of virtual goods that make its games more engaging. Those items bring in most of Zynga’s revenue. Just 3.5 million, or about 1 percent, of Zynga’s users buy virtual goods, underscoring the challenges facing the company as it tries to convert more of its audience into paying customers.
Advertising accounts for just 9 percent of Zynga’s revenue. As part of its efforts to boost that figure, Zynga last week began to publish ads from Facebook on its own website.
Zynga probably wouldn’t have thrived if not for Facebook’s social network, where posts about players’ progress on various games have become a common sight – much to the consternation of many Facebook fans.
Facebook accounts for 85 percent of Zynga’s traffic and 92 percent of its revenue.
Even Pincus’ personal fortune is intertwined with Facebook’s.
As one of Facebook’s early investors, Pincus still owns 4.3 million shares in the social network that is currently worth about $140 million.
Pincus, 46, owns a much larger Zynga stake that is currently worth about $545 million. He whittled his Zynga holdings by selling 16.5 million shares for nearly $200 million in April when the company’s stock was worth twice as much as it is now.
You can hear Larry Magid’s Tech Report Monday through Friday at 3:50pm on KCBS All News 740AM and 106.9FM.
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