In 2019, Zynga was optimistic. In an interview, CEO Frank Gibeau, said, "We're set up for a really strong 2019. We have a good lineup of games to make the base for us, and then we have more than nine games being built right now that will come out over the next couple of years, with a bunch coming in soft launch."1

While battling some rough tides, the company had garnered its reputation as one with inconsistent leadership. In 2013, founder Mark Pincus stepped down and handed the charge to Don Mattrick, a 15-year employee of Electronic Arts expecting to turn the company around. In April 2015, Don Mattrick left the position, and Pincus returned as CEO for the second time. Just a year later in March 2016, Zynga announced the replacement of Pincus by the new CEO Frank Gibeau, another 20-year employee of Electronic Arts, again expecting to turn around the company. Zynga's lack of consistent leadership had been critical to not formulating an effective turnaround strategy that might have led to progress. Throughout the revolving door of CEO replacements, Zynga had not developed a substantially successful new game. Consequently, its revenues have been falling over the past years accompanied by consistent net losses.

The company eventually made a comeback under Gibeau's leadership with strong acquisitions. In less than two years, Zynga acquired Peak Games' casual card game studio, Gram Games and 80 percent of Small Giant Games, maker of Empires and Puzzles, for $560 million. Though Zynga's revenue rose by 5 percent to $670 million by the end of 2018, it still posted a net loss of $15 million for the year (see Exhibits 1 and 2). In 2018, their top three online game revenue-generating games were Zynga Poker, CSR Racing 2, and Hit It Rich! Slots.

In another attempt at innovation, Zynga launched Wonka's World of Candy in 2018. After years of struggling to introduce new hit games and failing to combat the decline of formerly blockbuster properties like FarmVille, the company has been focusing on getting the most out of evergreen franchises like Zynga Poker, with Friends, and CSR Racing 2 by keeping them alive with updates.2 The fight to build new games that catch the audiences' attention might be hard, but Zynga's announcement of a multi-year agreement with Disney to develop a new Free-To-Play mobile Star Wars game brings an existing fandom as their audience.

Zynga's Background:

At the time it incorporated in October 2007, Zynga had become a dominant player in the online gaming field, almost entirely through the use of social media platforms. Located in San Francisco, the company was named by CEO Mark Pincus to pay tribute to his deceased beloved pet bulldog Zynga. Although this might have seemed whimsical, Zynga was actually a quite powerful company. Exemplifying Zynga's prominence, Facebook was reported to have earned roughly 12 percent of its revenue from the operations of Zynga's virtual merchandise sales.3 Zynga's collection of games continued to expand, with more and more success stories emerging. A relative newcomer to the market, its quick success was astonishing. However, Zynga's impressive financials were possibly at risk because of what some considered questionable decision making. Many of Zynga's competitors, and even some partners, were displeased with the company's actions and began to show it in the form of litigation. Agincourt, a plaintiff in a lawsuit brought against Zynga, stated, "Zynga's remarkable growth has not been driven by its own ingenuity. Rather it has been widely reported that Zynga's business model is to copy creative ideas and game designs from other game developers and then use its market power to bulldoze the games' originators."4 If lawsuits and ethical issues continued to arise for Zynga, its powerful bulldog could start looking more like a poodle. In January 2019, Zynga received $12 million related to the settlement of the derivative litigation case for insider trading against the directors of the online gaming company.

The Products:

With an abundance of software developers, the ability to make and distribute online games increases by the day, and the demand to play them is equally high. However, while many people find these online games fun and, better yet, therapeutic, others cannot understand the hype. The best way to understand the sudden infatuation is to view online gaming as simply a means of relaxation. In the movies, at least, large executive offices are often shown with putting greens, dartboards, or even a bar full of alcoholic beverages. These amenities are all meant to serve the same purpose: to relieve stress during a hard day's work. We have all been there and looked for a way to cope. However, few of us have the opportunity to use such things as putting greens to unwind at the workplace. And even if we did, how long could we afford to engage in such an activity before being pulled back to our desks?

EXHIBIT 1 Zynga Consolidated Income Statements ($ thousands, except per-share data) Year Ended December 31 2018 2017 2016 Revenue: Online game 670,877 665,593 547,291 Advertising and other 236,331 195,797 194,129 Total revenue 907,208 861,390 741,420 Costs and expenses: Cost of revenue 304,658 258,971 238,546 Research and development 270,323 256,012 320,300 Sales and marketing 226,524 212,030 183,637 General and administrative 98,941 108,653 92,509 Impairment of intangible assets 20,677 Total costs and expenses 900,446 835,666 855,669 Income (loss) from operations 6,762 25,724 114,249 Interest income 6,549 5,309 3,057 Other income (expense), net 13,152 6,550 6,461 Income (loss) before income taxes 26,463 37,583 104,731 Provision for (benefit from) income taxes 11,006 10,944 3,442 Net income (loss) 15,457 26,639 108,173 Net income (loss) per share attributable to common stockholders Basic 0.02 0.03 0.12 Diluted 0.02 0.03 0.12 Weighted average common shares used to compute net income (loss) per share attributable to common stockholders: Basic 862,460 869,067 878,827 Diluted 889,584 897,165 878,827

Stress reduction at work is one of the many purposes that virtual games fulfillno need to leave our desks; no need to make others around us aware of our relaxation periods; and, better yet, no need to separate the task of relaxation from sitting at our computers while we work. The ability to play these games on office computers and relax now and then during the day makes online gaming enticing. This, of course, is just one of many uses for the games. Some people play them after work or at the end of a long day. With the onset of smartphones, people of all ages play these games on the go throughout the day sitting on the bus, in the waiting room of a doctor's office, or at the Department of Motor Vehicles. Diverting game play is readily available with the click of a button.

Market Size:

Compared to other game developers with games present on the Facebook platform, Zynga had once been a dominant force, but by 2019, it ranked third after Miniclip's 8 Ball pool and King's Candy Crush Saga (see Exhibits 3 and 4). Miniclip, with its wildly popular 8 Ball Pool game, appeared to rule, making a reported $400 million with just in-app puchases.5 Zynga's virtual games provided the opportunity for constant buildup and improvements, offering users virtual goods and services to increase their gaming experience. These items could be purchased using a credit card and were often needed to accomplish fast progressions in the games. These goods were advertised throughout the

Assets Current assets: Cash and cash equivalents 544,990 372,870 Marketable securities 36,232 308,506 Accounts receivable 91,630 103,677 Income tax receivable 35,006 12,807 Restricted cash 26,914 24,253 Other current assets 12,505 8,837 Total current assets 747,277 830,950 Goodwill 934,187 730,464 Other intangible assets, net 118,600 64,258 Property and equipment, net 266,557 266,589 Restricted cash 20,000 Prepaid expenses 30,774 23,821 Other long-term assets 49,308 43,251 Total assets 2,146,703 1,979,333 Liabilities and stockholders' equity Current liabilities: Accounts payable 26,811 18,938 Income tax payable 4,895 6,677 Other current liabilities 156,829 123,089 Debt 100,000 Deferred revenue 191,299 134,007 Total current liabilities 479,834 282,711 Deferred revenue 1,586 568 Deferred tax liabilities 16,087 5,902 Other non-current liabilities 52,586 48,912 Total liabilities 550,093 338,093 Stockholders' equity: Common stock, $0.00000625 par value, and additional paid in capital - authorized shares: 2,020,517; shares outstanding: 886,850 shares (Class A, 770,269, Class B, 96,064, Class C, 20,517) as of December 31, 2016 and 903,617 (Class A, 769,533, Class B, 113,567, Class C, 20,517) as of December 31, 2015 3,504,713 3,426,505 Accumulated other comprehensive income (loss) (118,439) (93,4977) Accumulated deficit (1,789,664) (1,691,768) Total stockholders' equity 1,596,610 1,641,240 Total liabilities and stockholders' equity 2,146,703 1,979,333 E

EXHIBIT 3

Most Popular Facebook Games as of April 2019, Based on Number of Daily Active Users (in millions) Source: GameHunters.Club. (n.d.). Most popular Facebook games as of April 2019, based on number of daily active users (in millions). Statista. https://www. statista.com/statistics/267003/most-popular-social-games-on-facebook-based-on-daily-active-users/. Facebook Games Number of Daily Active Users 8 Ball Pool 10 Candy Crush Saga 10 Texas HoldEm Poker 1 Farm Heroes Saga 1 Subway Surfers 1 Clash of Clans 1 Dragon City 1 Hay Day 1 Trivia Crack 1 Word with F

EXHIBIT 4:

Top 5 Virtual-Gaming Developers of 2018 Rank Company 2018 Revenue ($ millions) Key Games 1 Epic Games Estimated $1,000 Fortnite 2 Tencent (mobile gaming division) Estimated $11,960 Arena of Valor, QQ Speed Mobile, Clash Royale 3 NetEase $1,793 Knives Out, Identity V, Onmyoji, Rules of Survival, Fantasy Westward Journey 4 King $1,000 Candy Crush Saga, Candy Crush Soda Saga, Bubble Witch 3 Saga, Royal Charm Slots, Legend of Solgard 5 Netmarble $1,780 Lineage 2: Revolution, Marvel Contest of Champions, Marvel Future Fight

games and the user was enticed by price cuts for larger purchases. Zynga's virtual games could be played both remotely and through social media platforms, most commonly Facebook. Five of Zynga's gamesFarmVille, CityVille, Empire and Allies, CastleVille, and Texas HoldEm Pokerwere among the most popular games on Facebook.6 Of course, Zynga was not the only virtual-gaming company striving for this degree of success. In the past 10 years, many other gaming companies have grabbed the spotlight. The capability to create online games is widespread. Creativity and innovation are accepted to be the grounds on which competing companies challenge each other. With all competitors after the same audience, the industry is prone to a significant amount of head-butting rivalry

Background of Competitors:

Activision Blizzard is an interactive entertainment company that is based in Santa Monica, California. After acquiring King Digital for $5.9 Billion in 2016, Activision Blizzard had five business units including Activision Publishing, Blizzard Entertainment, Major League Gaming, Activision Blizzard Studios, and King. It is credited for some of the top games in history including Candy Crush Saga, World of Warcraft, and Call of Duty. In 2018, the company made a revenue of $7.5 billion, ranking fourth in video games after Sony, Microsoft, and Nintendo. In June 2017, alongside Electronic Arts and Atari, Activision Blizzard earned a spot on the Fortune 500 list.7

Activision has invested in careful strategic partnerships to enhance global growth. In 2019, Blizzard Entertainment and NetEase extended their China partnership until 2023. This partnership will enable Activision franchises to be available to Chinese users for the coming years. While Chinese revenues constitute only 5.2 percent of ATVI's top line, the market growth potential in China is astounding with Niko Partners projecting one billion Chinese gamers by 2019.8 NetEase, headquartered in Guangzhou, China, was founded in 2001 by Ding Lei. Some of NetEase's games include Knives Out, Identity V, Onmyoji, Rules of Survival, and Fantasy Westward Journey. In 2014, the company expanded into the west launching their U.S. headquarters.

NetEase's revenue was $9.768 billion in 2018.9 NetEase invested $100 million in the American video game developer Bungie for a minority stake in the company and a seat on the company's board of directors, Exploiting the demand for shooting games such as PUBG and Fortnite, NetEase announced the launch of its new shooter game Disorder. The company maintained its game Knives Out's position as China's top grossing mobile game in overseas markets for five consecutive months since August 2018.10 Although NetEase is performing well with games, firm management is looking beyond video games for NetEase's future successes.

CEO William Ding said it will focus on the promising e-commerce, music, and online education segments; the company intends to make substantial investments in those areas as part of its broader business strategy for 2019.11 Epic Games is the creator of Fortnite, Unreal, Gears of War, Shadow Complex, and the Infinity Blade series of games. Epic's Unreal Engine technology brings high-fidelity, interactive experiences to PC, console, mobile, AR, VR, and the Web. According to the Bloomberg Billionaires Index, Fortnight alone is on track to generate $2 billion this year, making Epic Games worth $5 billion to $8 billion.12 Epic Games announced that it will launch its own digital storefront with "hand-curated" set of games, with the first wave rolling out on Mac and Windows before broadening to Android and other platforms later in 2019.13 With an estimated revenue of $1 billion in the previous year, Epic acquired 3Lateral in January 2019.14 Known for its "digital human" creations, 3Lateral uses a combination of digital technology, motion capture, and other tools to create photo-realistic human subjects in real time.

Background of the Founder:

Mark Jonathan Pincus was the entrepreneur behind Zynga. He was also the founder of Freeloader, Inc., Tribe Networks, and Support.com.15 In prior years, Mark was named CEO of the Year in the Crunchies awards.16 Prior to his entrepreneurial endeavors, Pincus worked in venture capital and financial services for several years. After graduating from Wharton, he went on to obtain his master's degree from Harvard Business School. Soon after graduating, Pincus launched his first start-up, Freeloader, Inc., a webbased push technology service. Individual, Inc., acquired the company only seven months later for $38 million.17 Pincus later founded his third start-up, Tribe.net, one of the first social networks. Tribe.net focused on partnerships with major, yet local, newspapers and was supported by The Washington Post, Knight Ridder Digital, and Mayfield Fund.18 Unfortunately for him, Pincus's resume did not impress his competitors, irritated by what they viewed as his questionable business tactics, nor did it dissuade them from making their feelings known via a lengthening laundry list of threats and lawsuits.

Intellectual Property and Ethical Issues Nissan has claimed that its trademarks were used without consent in Zynga's game Street Racing. Zynga consequently changed the thumbnail images and renamed all the cars that were branded Nissan and Infiniti to "Sindats" and "Fujis."19 Zynga was criticized on Hacker News as well as other social media sites for filing a patent application involving the ability to obtain virtual currency for cash on gambling and other gaming websites. Many said that the concept was not new and that, in fact, significant prior art for the concept already existed. The unveiling of the game Mafia Wars generated a lawsuit from the creators of Mob Wars. An attorney of the parent company of Mob Wars said that by making Mafia Wars, Zynga "copied virtually every important aspect of the game."20 The lawsuit was later settled out of court for an amount between $7 million and $9 million.21 California-based web developer SocialApps brought Zynga to court seeking damages for alleged "copyright infringement, violation of trade secrets, breach of written contract, breach of implied-in-fact contract, and breach of confidence." SocialApps claimed to have entered into an agreement with Zynga, allowing Zynga access to the source code for SocialApps' Facebook game MyFarm in exchange for an undisclosed compensation.

According to the suit, Zynga was given the code, but failed to pay SocialApps. SocialApps claimed that MyFarm's source code was the foundation of Farmville, as well as many of Zynga' s similar games.22 Following Zynga' s release of the game Hidden Chronicles, Forbes' Paul Tassi wrote that Zynga "refuses to innovate in any way, and is merely a follower when it comes to ideas and game design."23 Ethical issues, though less tangible and definable than intellectual property, were equally troubling in assessments of Zynga' s operations. A former employee of the company revealed firsthand quotes from past CEO Mark Pincus, such as: "You're not smarter than your competitor. Just copy what they and do it until you get their numbers." One contractor said he was presented with freelance work from Zynga related to imitating a competitor's application and was given precise instructions to "copy that game."24 Other past employees, even those at the senior level, spoke out about the corrupt ways that Pincus had apparently decided to operate the business.

A former high-level Zynga employee provided an insight into the company's culture, as regarding any emphasis on creativity and originality. According to the employee, a group of designers brought a new and innovative idea to the table, only to have it turned down by Pincus because of his wariness toward a new idea that didn't fit the "tried-andtrue" mold of other successes.25 Zynga was accused of taking advantage of its end customers, pertaining to a lack of security and safekeeping of consumer information. The Norwegian Consumer Council filed a complaint against Zynga to the Data Inspectorate concerning breaches of the Data Protection Act. According to the Consumer Council, Zynga's terms of use "do not offer a clear description of what is being collected in terms of information or what this information is being used for. Nor do they state how long the information is stored for or how it is protected against unauthorized access."

Zynga Going Forward Although Zynga game users tend to be pleased with Zynga's games, many note there seem to be recurring obstacles that limit that pleasure. Many Zynga users complain of lag time while playing the games. Even more complain that when problems arise, Zynga support staff are nowhere to be found. The company has no customer service initiative and forces users to resort to sending their claims through e-mail, which many believed is ignored or never read. Further, many believe that the company makes it too difficult for users to make real strides in the games without spending ridiculous sums of money. Based on their experiences, many users believe that Zynga is all about revenue generation and that everything else comes second. As Zynga looks to its optimistic future, where might its next big hit come from? With all the criticism aimed at Zynga' s past behavior, will the company continue on the path it has become notorious for and will the "more than nine games" that Zynga has lined up for the next few years get into trouble? With all eyes on the company as it recovers, it certainly will not be easy for Zynga to get away from its earlier reputation.

ENDNOTES 1. Takahashi, Dean. 2019. Zynga's turnaround: How one-beleaguered game company plans for 2019 growth. February 9, VentureBeat. https://venturebeat.com/2019/02/09/how-zynga-completed-itsturnaround-and-plans-for-39-growth-in-2019/.

2. Jordan, Jon. 2016. Top 50 mobile game developers of 2016. PocketGamer, May

3. https://www.pocketgamer.biz/list/62773/ pocketgamerbiz-top-50-developer-of-2016/. 3. Zynga Inc, 2014. Earnings call transcripts.

4. Grigoriadis, Vanessa. 2011. Mark Pincus Farmville. June, 2011. https:// www.vanityfair.com/news/2011/06/mark-pincus-farmville-201106.

5. King, Peter. 2018. Tech review: These apps feature some less common sports. Newsday. October 21. https://www.newsday.com/business/ technology/tech-review-apps-to-access-less-popular-sports-1.22053288.

6. AppData. 2011. CityVille Application Metrics. March 16. http://www. appdata.com/apps/facebook/291549705119-cityville.

7. Lev-Ram, Michal. 2017. Activision Blizzard aims for the big leagues. Fortune. June 7. http://fortune.com/2017/06/07/fortune-500-activisionblizzard/.

8. Seeking Alpha. 2019. Activision Blizzard poised for success following 2019 transition. April 3. https://seekingalpha.com/article/4252595- activision-blizzard-poised-success-following-2019-transition-dcf-analysis.

9. NetEase. Fourth Quarter Results 2018.

10. Caplinger, Dan. 2019. NetEase fights rising competition. Feb 21. https://www.fool.com/investing/2019/02/21/netease-fights-risingcompetition.aspx.

11. Epic Games. About. https://www.epicgames.com/site/en-US/about.

12. Pendleton, Devon; Pameri, Christopher. 2018. Fortnite mania fuels Epic growth to $8.5 billion. Bloomberg. July 24. https://www. bloomberg.com/news/features/2018-07-24/fortnite-phenomenon-turnsepic-game-developer-into-billionaire.

13. Frank, Allegra. 2018. Epic Games is launching its own store, and taking a smaller cut than Steam. Polygon. December 4. https://www. polygon.com/2018/12/4/18125498/epic-games-store-details-revenuesplit-launch-date.

14. Takahasi, Dean. 2019. Epic Games acquires digital human 3Lateral, cuts ad deal with Appodeal. Venturebeat. January 23. https:// venturebeat.com/2019/01/23/epic-games-acquires-digital-humans-toolmaker-3lateral-cuts-ad-deal-with-appodeal/.

15. Ha, Anthony. 2010. Congratulations to Facebook, Bing, and the other Crunchies winners. January 11. http://venturebeat.com/2010/01/11/ crunchies-winners-facebook-bing/.

16. Rao, Leena. 2010. Congratulations Crunchies winners! Twitter takes best startup of 2010. http://techcrunch.com/2011/01/21/ congratulations-crunchies-winners-twitter-takes-best-startup-of-2010/.

17. Merino, Faith. 2011. Zynga's IPO: made possible by the Zynga Dream Team. July 1. https://vator.tv/news/2011-07-01-zyngas-ipo-madepossible-by-the-zynga-dream-team.

18. Stone, Brad. 2007. Social networking's next phase. March 3. www. nytimes.com/2007/03/03/technology/03social.html?pagewanted51&_ r51&ei55088&en5f718f182170673a4&ex51330578000.

19. Mafia Wars Wifi. Game Information. http://mafiawars.wikia.com/ wiki/Zynga.

20. Hoge, Patrick. 2009. Game makers fight over proliferating lookalikes. July 12. BizJournal. https://www.bizjournals.com/sanfrancisco/ stories/2009/07/13/story7.html.

21. Arrington, Michael. 2009. Zynga settles Mob Wars litigation as it settles in to Playdom war. http://techcrunch.com/2009/09/13/zyngasettles-mob-wars-litigation-as-it-settles-in-to-playdom-war/. 22. Joystiq. 2011. Lawsuit filed against Zynga over Farmville source code. www.joystiq.com/2011/07/18/lawsuit-filed-against-zynga-over-farmvillesource-code/.

23. Tassi Paul. 2012. Zynga stocks falls as second post-IPO game fails to impress. Jan 6. Forbes. www.forbes.com/sites/insertcoin/2012/01/06/ zynga-stock-falls-as-second-post-ipo-game-fails-to-impress/.

24. Blog.Games. 2010. Zynga CEO to employees: I don't f-ing want innovation. September 8. http://blog.games.com/2010/09/08/zyngaceo-to-employees-i-dont-f-ing-want-innovation/.

25. Jamison, Peter. 2010. FarmVillains. September 8. SF Weekly. https:// archives.sfweekly.com/sanfrancisco/farmvillains/Content?oid52178582.

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