OMGPOP goes the games bubble for Zynga as it lays off staff

Ali Nicolas, VP of outreach at OMGPOP is on holiday in Europe and not thinking about her work. She checked in on Facebook to upload images of her trip – and heard that she had been laid off from Zynga:

“I learned via Facebook I was laid off today and @OMGPOP office is closed. Thanks @zynga for again reminding me how not to operate a business”

Beleaguered Zynga has restructured its business and has reduced its workforce by 520 employees, 18 per cent of its staff according to its statement.

Zynga said that it wants to refocus on mobile games and its layoffs will save the company between $70 – $80 million per year.

Its workforce reductions will occur across all functions and will be complete by August.

Zynga went to IPO in December 2011 at $11 per share. This valued the company at over $9 billion at IPO. However it slumped 10 per cent below its IPO price on its first day of trading.

Its stock is currently trading at just over $3 a share after dropping to a low of $2.95 after the news of the layoffs broke. Trading on Zynga shares were halted twice on Monday on the Nasdaq stock exchange.

Zynga updated its outlook and it expects to experience net losses between $28.5 million and $39 million for the second quarter of 2013 – a slightly larger loss than its earlier estimates of between $26.5 million and $39 million.

The entire office in New York was shut down as were its offices in Dallas and Los Angeles.

The New York office is where OMGPOP staff were headquartered. OMGPOP was sold to Zynga for $200 million in April 2012 after its popular game Draw Something achieved status as the ‘fastest growing original mobile game of all time’.

Later in 2012 Zynga wrote off between $85 to $95 million on OMGPOP which is about half what it originally paid for the company only six months previously.

Users playing Zynga games are down by eight per cent. Zynga reported that there were 52 million daily active users playing its games in the first quarter of 2013. Monthly active users decreased 18 per cent year on year according to its SEC filing.

Zynga has started its restructure by reducing the number of less successful game titles it offered to users and it has shelved other projects. It needs to make a strong move towards mobile games in order to get back on track. In a memo to staff at Zynga CEO Mark Pincus said:

‘The scale that served us so well in building and delivering the leading social gaming service on the Web is now making it hard to successfully lead across mobile and multiplatform, which is where social games are going to be played’.

Facebook must be watching the restructuring at Zynga with interest.Facebook has relied on Zynga for a chunk of its revenue since IPO.

Zynga matters to Facebook so much so that Facebook filed an addendum to its SEC submission before its IPO last year setting out the terms of its relationship with Zynga.

Last year Facebook reported that it expected that up to 15 per cent of its revenue would be derived from payments processing fees from Zynga.

Any loss at Zynga therefore results in a reduction on revenue for Facebook. Facebook moved its focus to mobile last year. Zynga has trailed behind in its mobile strategy play.

Zynga was keen to go it alone and succeed in games outside of its tie in with Facebook.

But playing Farmville worked well when you could share the game with your Facebook friends. It worked because of the strong tie in to Facebook. Playing games with strangers is less satisfying than playingwith your existing connections.

Dropping OMGPOP from the Zynga stables probably made sense.

OMGPOP burned very brightly at the top of the iTunes downloads charts for weeks.Zynga rushed to acquire it before it was purchased by another company.But users quickly tired of paying extra for items in Draw Something such as extra colours and more words to draw.

Staying at the top of the iTunes and Google play charts over time is something that Zynga needs to focus on if it wants to capture mobile mindshare.

Users move from one transient game to the next. They play the game because their friends are playing. They move to the next game when their friends move.

And in the fickle casual world of online mobile game, Zynga needs to make sure it is the place where gamers actually want to go.