Saturday, July 28, 2012

Zynga (ZNGA) and Facebook (FB) Dive Together

One of the earlier posts in this blog asked readers to consider the possible effects on social gaming companies of the success or failure of Facebook as a public company. My postulation that gaming companies closely linked to the world's most popular social network would find much of their success out of their control seems to have proven correct over the past week, at least in a small way.

I stumbled across an article on that made me start thinking about the future of Zynga -- the phenomenal company that created an entirely new segment of the video game consumer market. The article, linked below, reveals that Zynga plans to enter the world of online gambling next year, starting with a real-money poker game to be launched in legal and regulated markets. It wasn't too long ago that people couldn't get enough of Zynga's stable of games, staring at gradually-growing landmarks for hours while dishing out hundreds of dollars, 50 cents at a time. Why, then, should the company consider serving an entirely new target market?

While considering this interesting turn of events, I saw Jim Cramer on CNBC's Mad Money highlight the fact that both Facebook (FB) and Zynga (ZNGA) stock took a major dive in trading on Thursday (Facebook plummeted even further on Friday). Then I remembered my earlier post, Upcoming Facebook IPO Could Change the Game for Social Games, and everything started to click.

It turns out that the influence over success or failure for gaming companies linked to Facebook runs both ways. I submit that the independent success of both Facebook and Zynga indirectly rallied each other in recent years, and that we're now seeing the opposite effect. As Zynga recently cut its revenue outlook for the coming quarter and Facebook reported it's number of new users leveling off, the detrimental effects of each piece of bad news seem to be shared between the two, in addition to the expected independent effects. What's good for Facebook is good for the gaming companies that rely on it, and the opposite holds true, as well.

My advice to social gaming companies is to do exactly what the social network that went public with a single productive asset did not do -- diversify your outlets. If Zynga games were as tightly entrenched in The Android Market, iPhone App Store, XBOX Live Arcade and other popular outlets, I wonder if Facebook's slowing pace of growth would affect it as much.

Read More:

Zynga to launch real-money online poker in early 2013

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