Please review the Zynga Case Study from your textbook. Make an essay using the following questions as a guide. Please be prepared to discuss the same in Class. 1. What internal resources and assets does Zynga have that may give it a competitive advantage? 2. What issues did Zynga face in formulating its initial strategy? 3. What challenges did Zynga face as it implemented its strategy, and what choices does leadership have to make now in order to attain and sustain a competitive advantage?
CASE 4 ZYNGA: IS THE GAME OVER?' 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 create 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."' While battling some rough tides, the company had gar- nered 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 Elec- tronic 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 substan- tially 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 Cribeau'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 0f$15 million for the year (see Exhibits 1 and 2). In 2018, their top three online game revenue-generating games were Zynga Poker, C SR Racing 2, and Hit It Rich! Slots. In another attempt at innovation. Zynga launched Wonka's World ofCandy in 2018. After years of struggling to introduce new hit games and failing to combat the decline of formerly blockbuster properties like FarmVille, the com- pany has been focusing on getting the most out of evergreen franchises like Zynga Poker, Words 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 multiyear agree- ment with Disney to develop a new Free-ToPlay mobile Star WarsTM game brings an existing fandom as their audience. ' This case was developed by graduate students Eric S. Engelsull. Professor Alan B Eisner. Pace University and Professor Nugu Lakshmi Damantju. Sonurna State University Material has been drawn from published sources to be used for class discussion. Copyright '1: 2019 Alan B. Eisner. C14 CASE 4 :: ZYNGA: IS THE GAME OVER? Strategic Management: Text and Zynga's Background At the time it incorporated in October 2007, Zynga had be- come 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 opera- tions of Zynga's virtual merchandise sales.J Zynga's collection of games continued to expand, with more and more success stories emerging. A relative new- comer 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 part- ners. were displeased with the company's actions and began to show it in the form of litigation. Agincourt. a plaintiffin a lawsuit brought against Zynga, stated, \"Zynga's remark- able 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 iflawsuits and ethical is- sues 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 di- rectors of the online gaming company. The Products With an abundance of software developers. the ability to create and distribute online games increases by the day. and the demand to play them is equally high. However. while many people nd 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. 1n 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. How- ever, 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? Cases EXHIBIT 1 Zynga Consolidated Income Statements (3 thousands. except per-share data) Revenue: Online game Advertising and other Total revenue Costs and expenses: Cost of revenue Research and development Sales and marketing General and administrative Impairment of intangible assets Total costs and expenses Year Ended December 31 2018 2017 2016 670.877 665.593 547,291 236.331 195.797 194.129 907.208 361.390 741.420 304.653 258.971 233.546 270.323 256.012 320.300 225.524 212.030 183.637 93.941 108.653 92.509 20.677 900.446 335.666 855.669 w
