Zynga Regroups In Quest For Profit

After a bad third quarter, the loss of three-quarters of its stock price and the departure of its CFO, Zynga has regrouped, eliminated 11 underperforming game titles, and freed up infrastructure on its Zynga Cloud for launches in 2013, it confirmed Dec. 31.

At the same time, it left some customers in the lurch. One of the casualties is PetVille, which judging by the comments posted on PetVille forums, generated some venerated, if virtual, family pets. Death by cloud, a phrase that once described a process in the cinder-block-and-mortar dog pound, has taken on new meaning.

One of PetVille's 1 million players had played the game with her autistic son for two years. "It was something we could do together, and made us very happy. I wish you 'people' could have seen the streams of tears running down both our faces as we played our last session ... Is the almighty dollar THAT important over the happiness of some very loyal fans?" reported the San Francisco Chronicle Jan. 1.

There may be more eliminations. On Oct. 23, CEO Mark Pincus in a message to employees said 13 "older games" would be discontinued and 5% of its staff would be laid off.

This regrouping means Zynga has sought to free up space on its own Zynga Cloud infrastructure so that it may rely less on Amazon Web Services, a cost center it can do without under money-losing circumstances. In that sense, Zynga's decision to rely on its own, Amazon-like infrastructure, with AWS's EC2 serving as easily tapped supplement, may prove a survival tactic that many Web startups may seek to emulate. In 2011, Zynga relied on AWS for 80% of its compute capacity, with 20% from its own data centers. By mid-2012, it had reversed the ratio to 80% reliance on its own Zynga Cloud and 20% on Amazon.

[ Learn more about Zynga's hybrid cloud. See Zynga CTO: How To Win Hybrid Cloud Game. ]

The Zynga Cloud relies on multiple data centers, closely linked to Facebook's and those of communications' specialist Equinix, to makes its games as responsive as possible to users. It built the Zynga Cloud out with Dell servers in configurations that in many ways mimic those on Amazon, but are grouped in sets of servers for optimum game operations.

The company has previously listed the games being either eliminated or frozen at their present membership levels. The eliminated games are: PetVille, Mafia Wars 2, Treasure Isle, FishVille, Indiana Jones Adventure, Montopia, ForestVille, Mojitomo, Word Scramble Challenge and Mafia Wars Shakedown. World Mafia Wars 2 was frozen at its present player level.

Zynga officials declined to comment on where exactly its cost-control measures were taking effect. But game eliminations will free up server infrastructure for potentially more successful launches in 2013.

Part of its third-quarter shakedown was to close its Boston office and cut its "Ville" and Bingo staff in Austin, Texas, by 100 game developers. But the product line is far from dead. In fact the eliminated games make space for a "Ville" newcomer, CoasterVille, launched Dec. 5, in which players use a cast of varied, quirky players to build a theme park and run it.

In addition, it's launching more mobile games that draw from the large base of iOS and Android users instead of collecting users off Facebook. Clay Jam, launched Nov. 29, runs on the iPhone, iPad, iPod Touch and Android smartphones and tablets.

It's uncertain whether that strategy will produce success. The company reported a $53 million loss for the third quarter on Oct. 24. Former CFO Dave Wehner moved to a senior finance position at Facebook Nov. 13 after two years at Zynga. Wehner had been with the company from its founding through its IPO in December 2011. Zynga's $10 initial share price dropped to a little over $2 throughout 2012, a decline of 78% in value. It rose to $2.36 Monday, after the game eliminations were announced, and closed at $2.39 Wednesday.

Zynga has also written off half the purchase price of OMGPop, as participation in its Draw Something game failed to meet expectations in 2012. Forbes estimated the acquisition cost Zynga $200 million.

"These changes come at an important time," said Pincus' October blog to employees. "We are positioning ourselves for long-term growth, and I'm confident that we have the breadth and depth of management talent to deliver on our mission of connecting the world through games."

Whether its cloud infrastructure and management team have unlocked the path to success remains in doubt. But the former gives it a platform on which it can mount new initiatives, while the latter has learned some important lessons from the school of hard knocks.