Despite having already written a post about why I don’t think Zynga will be a major player in the post-US legalization world, I still get asked by people what I think about the company.
Mind you, I work for someone who is a tangential competitor to Zynga but I don’t feel that I’m bashing here because my original post was in October of 2010 and my views are very similar to as what they once were.
The only difference is that since Zynga has plans on going public they’ve had to open the kimono a bit and show their numbers. After taking a peek at the financials my belief that Zynga is not poised to take on real money gaming in any significant way is further reinforced.
While everyone seems to make a big deal about the sheer volume of players on Zynga’s network of gaming sites some numbers have come out that should give Zynga zealots some pause.
According to this Business Week article, Zynga gets about 232 million monthly active users across its network of games. From that, they’ve been about to generate $597 million in gross revenue.
Hey, I’ll give ya that both of those numbers are impressive. It’s easy to see why people would think that Zynga is poised to become the world’s biggest poker room without breaking a sweat.
However, those numbers don’t tell the whole story. $597 million annual gross income is just under $50 million a month. Yet, Zynga has 232 million monthly active users so if you divide their monthly income by the number of users you end up with an average gross income per player of just 21 cents. That’s not very impressive. Even if they simply sent a letter to each of their active monthly users ever month they would be losing money.
The reason why they gross so little per player is because only a very, very small number of people ever pay to play on Zynga. The before mentioned Business Week article speculates that less than 10% of Zynga’s players ever open their wallet. I’ve seen other analysts peg that number closer to 5%.
So 95% of Zynga’s customer base refuses to part with their hard earned cash to play online poker. Five percent of 232 million active monthly users is 11.6 million. In order for those 11.6 million users to generate $50 million in gross revenue they need to spend, on average, $4.31.
Again, not a very impressive number. Five bucks a month? But wait, there’s more.
Also according to the Business Week article (as well as several other I have read), Zynga has whales!
Just like in Vegas, a whale is someone who spends a lot of money. In Zynga’s case, the top 1% of their players generate anywhere from 25% – 50% of that $50 million per month. That means that the other 4% (making up the magic 5% who spend money online) aren’t even close to spending $4.31 per month.
In other words, rather than 11.6 million players contributing roughly $4.31 each, the truth is that 2.32 million spend about $10.78 each while the other 9.28 million spend only $2.69.
It should be fairly obvious from this little exercise that Zynga does not have an attractive pool of players when compared to real money gaming sites. Or to put it into perspective, prior to the UIGEA passage in 2006, PartyGaming reported revenues of close to $1 billion with roughly 60% – 70% of that revenue coming from poker.
Even though Zynga is far larger than PokerStars and PokerStars is far larger than Party was at its peak it’s safe to assume that real money gaming sites yield far, far, far more per player than Zynga does currently.
And all of this circles around to one of the main points I made last October when I wrote about Zynga, Zynga cannot possibly convert enough of their play money players to real money gaming to pose any sort of serious threat to the bigger real money poker rooms.
Because, don’t forget, the $597 million is across all of their products. This is for all of the virtual goods people purchase in Mafia Wars, Farmville, and all of their other games as well as the chips they buy in poker.
But the bigger issue here is that Zynga is not a poker company. They’re not even a gambling company. They’re a game maker. They’re a successful game maker and poker happens to be one of their products but the obvious question is whether or not they have the expertise to operate a poker room.
Play money gaming and real money gaming are more different than whether or not you can redeem your chips for cash. Real money gaming involves a lot of checks and balances. It’s one thing if a player claims that he had 5 million in chips in his account before the crash and now only has 1 million on a play money site and something completely different if it happens on a real money site.
Chip dumping, collusion, bots, etc are all daily concerns for real money poker rooms because they have real money consequences. What’s the cost to Zynga to just give you some chips if you’ve been wronged? Nothing. They have no tangible value.
Likewise, I often hear people propose that someone will want to license the Zynga software to use as their own real money gaming system. I find that hard to believe. In addition to the reasons already listed above concerning back office functions, fraud detection capabilities, and auditability, there’s the issue of being able to buy the same thing but actually built for real money gaming. Ongame is on the sales block, Full Tilt might be at some point, 888 is providing white-label solutions, and I’m sure iPoker would jump on the real money bandwagon in a heartbeat. So why would you want to buy, license, or even rent Zynga’s poker client if you have ready alternatives that do everything you need them to do?
Maybe some people think Zynga looks better than the other poker clients out there. Personally, I don’t but if there’s one thing I’ve learned in this business it’s that everybody has a different idea about what a good looking software client should be. How else can you explain how Full Tilt and PokerStars were the two most popular rooms and each having raving fans saying how much they love the software yet they are apples and oranges in terms of looks. In fact, it is not uncommon to hear (former) Full Tilt players say they hate the PokerStars software and to also hear PokerStars players say they hate the Full Tilt software.
Regardless, that’s just a UI issue. If Zynga was so far superior to other poker rooms it’s only about a 3 – 6-month project to redesign the client.
Lastly, as I’ve made reference to previously, Zynga isn’t a poker company. Other than their acquisition of the MarketZero team (makers of Poker Table Listings) you hardly hear any buzz about Zynga in the real money gaming world other than people pondering what would happen in Zynga got into real money gaming.
If Zynga was serious they would be hiring like crazy. Sure, they are hiring people but they’re not hiring people from the real money gaming world. I don’t recall seeing any press releases about this or that executive from a real money gaming company joining Zynga. Nobody I know has told me that they’ve gotten a call from Zynga. There’s nothing to indicate that any of the job listings at any of the major head-hunting firms is for Zynga (in fact, quite the contrary since the job listings usually indicate the country the job is in and it’s all in the same old Malta, Gib, IoM, etc locations).
Now, the real question is whether or not Zynga could become a real money gaming company. Sure they can. But first they would need to address everything I’ve mentioned above. It’s not impossible but it would require a bit of a paradigm shift at Zynga.
This isn’t as simple a task as just accepting money. Zynga has to make a lot of internal changes in order to become a respectable real money gaming operator. Until there are some signs that Zynga is making these changes I really can’t consider them prepared to enter the market.