An Attack Plan for Zynga

 | Jul 11, 2013 | 9:30 AM EDT  | Comments
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With Don Mattrick taking over as CEO of Zynga (ZNGA) this week, all the focus is on how he's going to turn the company around.

Obviously, one of the reasons why founder Mark Pincus stepped down was that he and the rest of the company had been caught flat-footed by the rapid shift to mobile games from personal-computers games -- where Zynga had dominated.

Will Mattrick know how to succeed where Pincus didn't? We will soon see. But, regardless, there are some lessons that he can draw from Japan.

Last year at this time, a little-known stock called Gung Ho -- which still trades on the Osaka Stock Exchange -- had a market cap of only a couple of hundred million dollars. The stock had traded in that range, moreover, for years. Gung Ho was a gaming company led by the younger brother of Masayoshi Son, the powerful CEO of SoftBank (the new owner of Sprint (S)).

A year later, Gung Ho is worth 100x more in market cap. It is the darling of the mobile-gaming world with its hit franchise, "Puzzles and Dragons." Obviously, a hit game is kind of like a hit movie or a hit song: It's hard to quantify why it has taken off.

However, there are a few lessons to draw from Puzzles and Dragons that Mattrick and others can follow:

1. In the world of mobile games, it's critical to get on the top of the app charts early and stay there.

2. Once you get on the top of the charts, you must have an effective monetization strategy. This means you must have in-app purchases that are an effective part of the game and used often by players. "Angry Birds" by Rovio was an incredibly popular game, but it was monetized very poorly. The company actually ended up trying to monetize its success by licensing its characters -- to toys, for example -- rather than via in-app purchases.

3. The trend in mobile games is toward free downloads, with an effort to get the most downloads possible and then making money off in-app purchases. Some games have tried to go counter to this trend by charging a high price per download (e.g., $4.99), and then occasionally dropping the price to encourage mass downloads, but this is clearly the exception.

4. Another interesting wrinkle from the "Puzzles and Dragons" story is that Gung Ho initially only released this game on the Apple (AAPL) iPhone. The game was a blockbuster right away, and got to 1 million downloads within five months of release. However, once the company released an Android version of the game, its success went into the stratosphere. Since then, gamers have almost always released their games on Apple's iOS and Android simultaneously. While the iOS used to always be better for monetization, Android is now the place to be -- at least for big games. It has incredible reach, and is just starting to show its power in gaming for the first time ever.

Mattrick will have to deal with the pipeline he's inherited from the rest of the Zynga team for a while. But look for him to immediately introduce some changes to Zynga that aim to attempt capturing lightening in the bottle, much as "Puzzles and Dragons" managed to do. 

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