Zynga’s decision to pay $210 million for Draw Something, and the game’s subsequent rise and fall, appear to expose a fundamental flaw in the social gaming company that should frighten investors, and be setting off alarm bells in the company’s headquarters.
As you can see in the chart on the right, Zynga’s daily user count spiked to almost 70 million users, up from ~58 million users, after acquiring Draw Something developer OMGPOP.
However, the buzz for Draw Something has worn off, and now Zynga’s total daily Facebook-connected users are back to around 58 million.

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Japanese gaming giant GREE just acquired mid-core, mobile game developer Funzio for $210 million in an all-cash deal that should boost its ability to build games for Western audiences.

Funzio is behind Crime City, Modern War and Kingdom Age, which are graphical RPGs that have had more than 20 million downloads on Apple’s iOS, Android or Facebook platforms.
I had heard a few weeks back that Funzio was in a fundraising process at a $350 million post-money valuation and had also been loosely talking to various buyers in an auction-style process. Apparently, the fundraising efforts helped tip Funzio into a sale, but maybe not at the valuation I had originally heard about. Still, $210 million is not bad at all, considering that the company had raised about $20 million to date from IDG Ventures and Playdom co-founder Rick Thompson. For comparison, Draw Something-maker OMGPOP went to Zynga for $180 million in cash plus an undisclosed earnout.
Why did GREE buy Funzio? GREE is a multi-billion dollar mobile gaming company from Japan that is trying to break into Western markets. Its profit margins put Zynga to shame, but the company is running out of room to grow as its home country becomes saturated. GREE bought a gaming network OpenFeint for $104 million last year as part of that effort.
But the thing about GREE is that it is a dual platform provider and game developer, so OpenFeint only really addressed one side of its needs. OpenFeint was the platform and GREE needs in-house development capabilities, for which it has been hiring very aggressively in the Bay Area. Funzio should help with this after GREE scouted many targets over the past few months. Early-stage talks with at least two other game developers and platforms didn’t work out for various reasons. They had also looked at OMGPOP, but didn’t move fast enough because Zynga’s chief

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While it’s going to be a long while before anyone gets within striking distance of Zynga’s dominance when it comes to social games on Facebook, the fight for the number two position on that site is a fierce one, when it comes to daily active users.

Three companies are battling for the silver medal — Wooga, Electronic Arts and King.com. EA’s held the lead for a while, but earlier this month King.com broke away from the pack, largely on the strength of its Bubble Witch Saga game.

As it looks to extend that lead, the company is also focusing on what’s next. And for now, the field is fairly wide open. The Saga series is likely to continue growing — and there are other games the company can move over from its Web-based game series. Acquisitions aren’t out of the question. And there’s even some chatter about a possible IPO.

That ‘going public’ talk started around the top of the month, when the company’s CEO and co-founder Riccardo Zacconi told Reuters he was “preparing the company” for a possible offering, even though it would be at least next year before it made that step.

Alex Dale, King.com’s chief marketing officer, seemed to take a step back from that in a recent conversation with Gamasutra, however.

“We have done some internal reorganization to take that [IPO] option if we want to or need to, but there are no specific plans and that is not a focus for the company.”

Right now, the focus for King.com is on growth, both in terms of daily and monthly average users, as well as financially. King.com bought its first external studio a little over a month ago — Fabrication Games in Stockholm. And as consolidation becomes more common in the mobile and social space, prices are sure to rise.

EA’s $750 million buyout of PopCap Games nine months ago (with incentives that could drive the price to $1.3 billion) and Zynga’s recent $180 million purchase of OMGPOP have inflate the market — and if it wants to keep its lead, King.com has to be able to compete with those sorts of bids.

Dale didn’t discuss the size of the company’s war chest, but said King.com is happy with its growth.

“The profitability is good,” he says. “The business models are good. We are growing revenues fast — and by that, I mean high double digits — and we’re investing in developing new games.”

Profitable since 2005, King.com has diverse lines of income — social games on Facebook and mobile (both of which draw from player microtransactions) and web-based skill tournaments, where player can make small wagers of 10-15 cents (which supplements the advertising income).

“We’re coming from business model ‘A’ and we’re adding both ‘B’ and ‘C’,” says Dale. “If you play Bubble Witch Saga on Facebook, that’s a very relaxing experience. It’s competitive, but in a gentle way.”

But he adds, “The same game mechanic on the tournament side is different. If you play Bubble Witch on King.com and you’re playing for a cash stake, it adds a competitive edge.”

While King.com has been around the games world for nine years, it was the move to Facebook a little over a year ago that has caused it to see a major surge in popularity. Bubble Witch Saga’s DAUs now top Zynga’s Farmville by 1.4 million — but that popularity hasn’t come without criticism.

Some players have noted Bubble Witch Saga seems very reminiscent of Puzzle Bobble and taken the company to task for that. Dale dismisses those comparisons, however.

“We are 100 percent using our own IP,” he says. “We’ve been taking the IP we like that has performed well [on the website] and launched that on Facebook.”

While the company is regularly looking for new ways to expand its reach, don’t expect it to broaden its focus to include resource management games like FarmVille. While they’ve been successful for other social gaming companies, King.com thinks they’re too difficult for lapsed players to return to. Instead, casual titles (like it focuses on) always leave a door open for players to walk away — and don’t penalize them for leaving.

“It’s a lot easier to reactivate in a causal game, whereas if you go to a resource management game after you haven’t played for a couple months, your castle has been destroyed,” says Dale.

See on www.gamasutra.com

Zynga takes the first step in promoting games published through its partner programs today by adding Row Sham Bow’s Woodland Heroes to the Facebook cross-promotion bar that appears above Zynga games.

Adding a game to the zBar, as Zynga called the tool, seems like a small thing compared to what Zynga wants to accomplish in publishing third party games on Zynga.com. Cross-promotion bars have been thoroughly explored by 6waves, Applifier and Tapjoy (which acquired AppStrip) on both social and mobile — and 6waves has a sizable head start on Facebook games publishing. But Zynga has two features that other cross-promotion networks lack: brand recognition and size (65 million daily active users and 292 million monthly active users on both social and mobile as of Q1 2012). Both of those are key factors driving interest from smaller developers in the Zynga publishing platform.

As detailed on Zynga’s blog today, publishing partner head Rob Dyer says that Zynga intends to drive traffic and test promotions during this early beta phase to see what impact it has on Zynga’s network as a whole — and what impact Zynga’s network will have on an individual game.

See on www.insidesocialgames.com