Will Zynga Emerge As A Gaming Company Or Gambling Company?

There is more than a bit of schadenfreude among longtime insiders in the gaming industry at Zynga’s performance over the last year. The company has fallen from a private, pre-IPO valuation of around $14 billion to just $2 billion over the past year as it failed to maintain growth on the Facebook platform and didn’t transition quickly enough to compensate on Android and iOS.�At a $2 billion market cap, Zynga isn’t worth that much more than the $1.6 billion in cash and marketable securities it had at the end of the last quarter. But now that shares are up more than 10 percent since Zynga acknowledged that it is taking steps toward real-money gaming in the U.S., the company faces an interesting question about its identity in the long-term. Will it be a gaming company, or a gambling company? Zynga has a number of growth opportunities — on mobile platforms, its own destination site and in real-money gaming. But Zynga’s efforts at building its own platform have had mixed results over several years and mobile platforms haven’t lent themselves to a winner-take-all environment so far (and this applies to everyone). So Zynga’s shares are acutely sensitive to any real-money gaming possibilities. They rose 7 percent the day after Zynga said it was making steps toward applying for a gambling license in Nevada, and they fell by 5 percent back in June when Zynga’s�vice president and Zynga Casino general manager�Jesse Janosov didn’t mention tangible progress on the gambling front at a big press event. Like every newly public company, Zynga faces the question about how much it is willing to succumb to the short-term profit pressures of the public markets.�And it will probably give in. Zynga has always been more of a mercenary company than a missionary company. Many of its earliest employees didn’t have histories in the gaming world, and in many ways, that allowed them move quickly and not be too attached to any of the industry’s long-term notions of what a game should or ought to be. Even though we’re sometimes critical of the company, Zynga has done a lot to influence the direction of the industry in popularizing the freemium business model that has long been accepted in Japan, China and South Korea. It pioneered an aggressive metrics-driven approach to gaming. It pushed many older companies to move quickly from treating games as a consumer product you

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