Zynga, more than any other company, is synonymous with the kind of social, browser based gaming that flourished in the early part of this decade. Their data-driven, time-sucking Facebook hits FarmVille and CityVille drove the company to huge success, but as gaming went mobile Zynga has been unable to find a smash hit follow up. Last year, they finally replaced founder and CEO Mark Pincus with former Microsoft executive Don Mattrick.
Today, Mattrick made the first major splash of his tenure by acquiring the mobile gaming and animation tech studio Natural Motion for half a billion dollars, a purchase that may signal the beginning of the end for Zynga's floundering browser-based business. The announcement came as part of the company's fourth quarter earnings report, which also included the disclosure that it would lay off 314 employees, or approximately 15% of its current workforce.
To start, it's an admission about the state of the casual game industry in 2014, in which the money is all in mobile — whether it's connected to Facebook or not. (In its earnings call this week, Facebook pointed to mobile app install ads as a massive area of growth. That's app install ads for often non-Facebook-related apps.) Companies like King.com, the maker of Candy Crush Saga, have generated enormous revenue based on their ubiquity on mobile devices. NaturalMotion is not a browser-based gaming company; that fact alone is enough to signal Zynga's intention to double down on device-based gaming. The games are social — and even collect money via in-app purchases — but are somewhat insulated from Facebook's unpredictable app ecosystem.
And Mattrick's background as a game executive at a technology company suggests he knows the value of the graphics and animation technologies that drive console gaming. That's for two reasons: The first is in making attractive games that people are likely to buy. The second is that owning this tech may provide potentially lucrative licensing opportunities down the road.
And that could ultimately be the future for Zynga, even if they can never develop another hit on the level of FarmVille: farming out their tech to big game companies across the spectrum from mobile to console. It may not bring them the headlines of building their own zeitgeisty games, but it could prove a far steadier source of income. Call it a $500 million backup plan.