Why Zynga might have just been the best thing to ever happen to the gaming industry

Yeah, that’s right, you read that correctly. Zynga might just have been the best thing to have ever happened to the gaming industry as whole. Now, before everyone start getting up in arms about that statement, allow me to lay down some background.

According to a TechCrunch article by Kim-Mai Cutler, M&A activity in the gaming sector has slowed down significantly. And it is not for a lack of candidates to buy out. On the contrary, there are many viable targets out there as we speak. What is the problem here is that there is a price expectation gap between buyers and sellers. According to the article, some of the big players like EA would often express an interest in a company, only to find its price tag to be MUCH higher than expected.

As it turns out, people are now more conservative when it comes to gaming company acquisition, and investment has required more smart money to move forward.

So why is this good? Simple, because in doing so, we may have just avoided a potential market crash. Now, to be fair, we were never in danger of hitting a major crash the way we did in the 1980s. (In large part thanks to how games have been installed into the mainstream culture) However, when Zynga announced that it was buying OMGPOP (of Draw Something fame) to the tune of $180 million, some of us shuddered at winds. After all, recklessly spending money into an industry without the return to justify it time and time again is a good sign that we’re looking at a bubble market.

However, something miraculous happened. The deal went through, Zynga went IPO, and then saw a MASSIVE drop in their stock performance, along with a series of layoffs, restructurings, and so on. It is as if Zynga decided to make itself the sacrificial lion for the industry by being a textbook case of how NOT to manage a gaming company. In doing so, Zynga has managed to tie its failure to perform with its series of poorly planned out acquisitions, and in doing so, inoculate the industry from following suit in reckless purchases.

Suddenly, expectations were recalibrated, companies are reassessing on what they’re doing, and companies that are doing well are focusing on the core competencies: building cash flow through producing hits instead of just focusing on monetization engagement mechanisms. (To be clear, it still forms an important aspect of the product, but does not define it as a whole… something Zynga began to lose touch with towards the end of Pincus’ tenure)

And Zynga itself? It can still turn things around too. After all, it made some mistakes, but it actually managed to avoid a complete shutdown. To be clear, had Zynga shuttered its doors, it might have tilted the investor emotional pendulum from caution to downright pessimism, which WOULD have been damaging for the gaming industry.

So everyone, please take a moment to thank Zynga for its heroic sacrifice to bring an important message to the industry, however unintentional it may have been.