In Acquisition/Investment, News

Zynga Closes OMGPOP

Draw SomethingJUNE 5, 2013 • This week Zynga announced it was cutting 18% of its workforce in the amount of 520 staffers. Part of that restructuring is the complete shuttering of OMGPOP, the mobile studio behind the Draw Something smartphone app that Zynga acquired for $180 million in March of 2012. Draw Something was launched in February of 2012, and in seven weeks had amassed 35 million downloads. Zynga bought OMGPOP soon after. But users numbers quickly fell off and by October 2012, Zynga had written off between $85 million and $95 million on OMGPOP. Forcing the latest round of lay-offs at Zynga is the recent updated second quarter financial outlook upping a projected net loss of between $28.5 million to $39 million. The previous estimate for the quarter was between $26.5 million to $36.5 million.

Impact: Zynga has problems with its primary Facebook business model. Consumers are simply not sticking with franchise Ville sequels as long as they did the originals. In the report The Market for Browser and Social Network Games, DFC Intelligence forecasted a flattening of revenue on Facebook games.  This combined with much more competition on Facebook. Zynga rose in prominence when Facebook games were new but is now the leading indicator of its decline. The softness in its main business has made Zynga somewhat desperate to expand onto other platforms such as mobile, as well as into online money gambling, to bolster the bottom line and appease jittery investors. That is why the company leapt at the chance to acquire OMGPOP despite no data that Draw Something had staying power, or that OMGPOP had another hit in them to produce. The hard truth was that users soon began tiring of Draw Something – tiring of the constant drawing mechanic that made the game popular in the first place. In the month after Zynga’s acquisition, daily active users had dropped from 15 million to 10 million, according to AppData. Neither did Draw Something 2 have long legs when it was released in April of this year. After a strong debut, the sequel began seeing a steep fall off in iOS downloads within a few weeks. In hindsight, Zynga rushed in too soon to pay too much for OMGPOP based on the flash success of Draw Something. There is little surprise then that the studio was shuttered as part of the latest lay-offs.

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