Zynga Defends OMGPOP Acquisition

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By Ian Sherr

Zynga Inc. has faced plenty of questions after buying the maker of “Draw Something,” a mobile game that was released only six weeks earlier and has since lost popularity. Now the social games company is trying to provide some answers.

The San Francisco-based company on Thursday plans to announce an agreement with animation studio DreamWorks Animation SKG Inc. to place additional advertising in the game. Zynga believes it’s the start of new revenue-generating possibilities that will justify the controversial acquisition.

Zynga, known for developing some of the most popular games played by Facebook Inc. users, has seen its stock fall by nearly half in the past two months. One factor is the company’s dependence on Facebook, whose own growth and valuation has come into question since its initial public offering Friday. But the decline began around the time of its March 21 purchase of “Draw Something” creator OMGPOP Inc.

The $183 million deal, though not expensive by many measures, was Zynga’s largest to date and came when the game may have hit at least a temporary peak.

“Draw Something,” which is a bit like Pictionary, asks players to make sketches that illustrate words and have others guess what they drew. It had been downloaded 50 million times in its first 50 days, making it one of the fastest growing games to date.

Players posted images of their drawings on Facebook and Twitter, where the game quickly garnered a following. At peak times, players were creating 3,000 drawings per second, helping to push it to the top of Apple Inc.’s mobile application store’s rankings as the most downloaded game, as well as its highest grossing.

But the excitement around the game appears to have quickly worn off. As of Tuesday, “Draw Something” had slipped to the 18th top paid app on Apple’s App Store, and the 23rd highest grossing. And although Zynga hasn’t said how many people play the game, the number of people who log into it using Facebook has fallen by nearly half from a high of about 14.5 million per day when the company was purchased to roughly 7.6 million on Tuesday, according to market researcher AppData.

The trajectory underscores the hits-driven nature of social games, and the concerns of many investors that Zynga paid too much for the game.

Zynga has defended the purchase, pointing to the game’s extraordinary growth and arguing that the millions of customers who still play the game makes it a strong franchise upon which the company can build.

“We think of it as a game that’s an evergreen franchise,” said John Schappert, Zynga’s chief operating officer. “It’s a game that will live on for years.”

 

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(Published May 24, 2012, in The Wall Street Journal.)