As the enormous hype around social gaming giant Zynga has been steadily declining, it's becoming more and more obvious that the former king of the gaming hill might be headed for the bottom of the heap. The makers of FarmVille, YoVille, and Mafia Wars burst on to the scene with impressive user acquisition rates and even more impressive financials. It looked for a while like social gaming might be the next big thing - a brave new world where gamers spent the day harrassing friends to water the crops rather than harrassing strangers to stop being n00bs. But now that Zynga's growth has begun to slow, analysts are taking a closer look at Zynga's business model, and the results haven't been pretty.
According to Bezinga and Sterne Agee's Arvind Bhatia, Zynga is spending about $300 per new customer - and only getting about $150 on average over the 12-15 month lifespan of that customer. That means that they're losing about $150 per new customer, after the new profits from those customers have already been considered. I don't have an MBA, but I'm pretty sure that's not a sound business model.
This doesn't mean Zynga is dead in the water just yet. Part of their issue has been drawing in new gamers, partly because they have hewn so closely to their previous game models when developing new titles. FrontierVille, CityVille, FarmVille, CastleVille - they're all pretty similar. And while that similarity might make it easy for new players to pick up the next Zynga title, it's also driving them away faster, as each new Zynga game has been reaching peak subscribers faster and faster. If Zynga wants to survive, they need to accept that what worked once won't necessarily work the next time, because if they keep sticking to that same tired formula, they won't be able to do so for much longer.
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[Zynga Loses $150 on Every New Paying Customer ]
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