Zynga Confirms It Is Seeking Partners for Online Gambling Initiatives
Zynga is getting ready to try its hand at online gambling. — The company has confirmed to All Things D that it is actively investigating several opportunities, and is in talks with several partners about gambling on the Internet.
Context & Ripple Effects
Zynga enters 2012 under pressure: the December 2011 IPO priced at $10 but shares have slipped to roughly $8.90, and the company has confirmed that both bookings and user growth have stalled. Two days before this report, it bought four small mobile game studios to broaden its smartphone and tablet lineup.
The gambling confirmation is the first strategic answer to that slowdown that goes beyond games themselves. The company says only that it is actively investigating opportunities; reports of talks with several partners remain unconfirmed by Zynga. It is also a familiar posture — back in 2010 Zynga was preparing its own platform play against Facebook with Zynga Live, so diversifying beyond Facebook-distributed social games has been on the agenda for years.
First-order effects
- Zynga gains a potential second revenue line alongside virtual goods at exactly the moment its core bookings and user metrics have flattened, giving management a growth story to pitch to investors still sitting below the $10 IPO price.
- Any real-money gambling product would require regulatory approval and licensed partners, meaning Zynga's near-term options are constrained to jurisdictions and partnerships it does not yet control.
Second-order effects
- Rival social and casual game publishers face pressure to stake out their own gambling positions or risk ceding the highest-monetizing segment of social gaming to Zynga if regulators open doors.
- Facebook's economics are exposed: Zynga has long been its largest games partner, and a gambling pivot built partly outside the Facebook canvas would test how dependent each side remains on the other.
Third-order effects
- If Zynga's move proves out, social gaming splits into two tiers — free-to-play entertainment and regulated real-money wagering — with regulatory licenses becoming the scarce asset that determines which publishers can compete for the biggest spenders.
- A public company whose stock fell post-IPO pivoting toward gambling also invites scrutiny of how such plans were communicated during the offering process, a risk profile investors in newly public consumer internet firms will watch closely.
The trend: Social game companies are moving from ad-and-virtual-goods monetization toward regulated real-money gambling as the next frontier of user monetization, with licensing and partnerships setting the pace.