Zynga games sustainable or not?

Tobolds is one of the few gaming blogs by a non-industry professional that I follow. It provides a pretty good perspective on how non-cliched and different every hardcore gamer is.

Yesterday, he discussed whether Zynga games and MMOs like WoW fail to deliver a payoff at the end, a thesis proposed by Professor Castronova, a self-proclaimed “leading scholar in the field of online game studies and an expert on the societies of virtual worlds”. In short, the Professor says that Zynga’s stock decline comes from a game design that is based solely on grind with little or no payoff at the end. In his view, this makes Zynga games unsustainable in the long-term.

Although I agree with some of the points about the gameplay, I don’t agree with the conclusions. Tobold doesn’t agree either but he claims Zynga games offers small payoffs along the way and that gamers who have played MMOs have become used to “the road is the reward” mentality.

I think they both miss something that isn’t immediately obvious because it’s not a general rule, it’s what I’d arrogantly call “the rule of huge populations”.

If you’ve read Daniel Kahneman’s book Thinking, Fast and Slow, you’d remember the “rule of small sample sizes”. It goes like this. Do you know that a small rural community in NC has the highest rate of testicular cancer? How do you explain that? Most people will start telling a story how the remoteness of the community prevents them from getting regular examinations, or how the area is poluted, or there’s a cancerogenic agent in their water supply, etc. Then he will reverse the example, because in another rural community nearby the cancer rate is almost zero, 100 times lower than the national average. Why is that? You might have guessed that this is the rule of small sample sizes. Even a few incidents lead to a very skewed distribution, especially when compared to a “national” average.

So back to Zynga and the rule of huge populations. The rule of huge populations states that in every population there are fringe “communities” who display attitudes and behaviors that very different from the rest of the population. In a normal-sized population, it is economically difficult to “exploit” these fringe segments effectively because they are so small – 2 or 3% of the population, sometimes even less.

However, in a population of 300 million Zynga users (and 700+ million FB users), you can definitely make a fortune focusing on a small but profitable minority. Dilbert strips usually refer to it as the 5% of the people who are rich and stupid:

Zynga calls them “whales” – the 1-2% that actually spend tens or hundreds of dollars on virtual items. The other 98% play for free (both Professor Castronova and Tobold focus on the 98% and who could blame them?).

So who are these whales that support Zynga? The term whale itself is borrowed from gambling which should give you one hint. The other is dropped casually by Eric Schiermeyer (co-founder of Zynga) who admits:

[he] has helped addict millions of people to dopamine, a neurochemical that has been shown to be released by pleasurable activities, including video game playing, but also is understood to play a major role in the cycle of addiction.

In short, Zynga targets people whose compulsive personalities are especially vulnerable to the kinds of “rewards” Zynga gameplay offers. The Professor, Tobold, you, me – we are just noise on Zynga’s radar. We are no different than a grandma with a pocket full of $50 in coins that enters a Las Vegas casino.

So the question is not whether Zynga loses 100 million users in the next 12 months. They can well afford to lose the 250 million that don’t spend a buck on Zynga’s virtual items. The short-term question is whether the compulsive 2% can be retained effectively. I believe Zynga will do an OK job in the short term with new flashy games that offer the same gameplay in a different setting.

The question determining Zynga’s long-term sustainability is whether they can still make the “rule of huge populations” work if the population naturally contracts because of general fatigue with the gameplay they offer. Their costs have been rising dramatically, and it’s not unforeseeable that they’ll need at least 200 million hooked on The Ville, so they attract enough of the 2% whales to make a profit.

If we take a look at Las Vegas, America’s playground, and draw a comparison to Zynga, the world’s virtual playground, Zynga still has a long way to go before it achieves the Las Vegas metrics, mainly the average gambling budget per visitor:

Annual visitors to Las Vegas, in millions – 36.7
Percentage of visitors who say they come to Vegas mainly to gamble – 5
Percent of visitors who end up gambling during their stay – 87
Hours per day average visitor spends gambling – 3.9
Average gambling budget per trip, in dollars – 559

However, with their plans for virtual casinos launching in 2013, they are definitely counting on new offering new attractions to the “dopamine junkies”.

  1. August 5th, 2012
  2. August 13th, 2012
  3. September 5th, 2012

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