Why Did Zynga Purchase Omgpop?

Last week, one of the leaders in the social gaming industry, Zynga Inc., made a move which they hope will help solidify their position as the forerunner of social gaming. Zynga purchased Omgpop, a company who just over a month ago was struggling to survive, for a staggering $180 million. Before their release of the smash hit Draw Something, Omgpop was at best a mediocre social gaming startup with approximately 20 million registered users over its six years of existence. Just five weeks after the release of Draw Something, the app already had over 35 million downloads and has dominated the App Store charts consistently for the past weeks.

Omgpop's Draw Something

Since its recent initial public offering, Zynga has been looking for ways to distinguish itself from other social gaming companies as well as become independent of the social media giant, Facebook. Facebook currently takes 30% of the revenue that Zynga games make through Facebook users. With over 90% of its revenue coming from Facebook, Zynga has undertaken several projects in an attempt to make itself independent from Facebook.

There are always two sides of any purchase as we have seen through the Marvel and Snapple cases. In this case, there is one key question for each of the companies: For Omgpop, why sell now? More importantly, for Zynga, why Omgpop?

From Omgpop's point of view, selling seemed like a very debatable choice. Looking at their history, Omgpop had resembled an extraordinary company. After failing miserably as an online match making site (iminlikewithyou), they made the radical switch to online gaming. With this stroke of luck, why would they not sell? It is very likely for Draw Something to just be a one hit wonder and Omgpop should definitely just take their spoils and go home. Additionally, Zynga has the resources and manpower to further develop Omgpop's games and platform in order to make it even better.

On the other hand, Omgpop was on top of the world. Not only were they making heaps of money for the first time ever, but their game was blowing the competition out of the water. The game topped the chart within two weeks of its released and has been number one ever since. Was it really the right choice for them to sell at this point? In class we argued about whether Marvel should or should not have been sold to Disney just as it was finally retaking the limelight. This is a similar case in a different industry. Sure, the heap of $180 million in cash is surely something that is enticing, but was sacrificing control of the company had worth it?

The more intriguing side to examine is that of Zynga. From the surface of this acquisition, it seems that Zynga can not stand not having one of their games top the App Store charts. After mobile hits such as Words with Friends, Scramble with Friends, and Cityville, having another company's game topping the charts would be troublesome. Buying up Omgpop and other smaller social gaming companies could get expensive very quickly for Zynga especially if they target companies who are on top of the industry. If the purchase was made of these reasons, then it would have been a terrible investment as history has shown, Omgpop is not a very successful company. Most likely in a few weeks Draw Something will fall off the charts just as Zynga's other games have since their release.

However, when looking at Zynga's strategy and long term goals, the acquisition of Omgpop may just be what Zynga needs to take the company to its next level. In an effort to make themselves independent from Facebook, Zynga may be able to find an answer in Omgpop's system as Omgpop has supported social gaming for their approximately 20 million users on their own platform for years. Incorporating their platform with Zynga games and the mobile gaming industry, Zynga could be able to finally connect users without the burden of going through Facebook.

Although the hefty $180 million price tag seems like it may be a hit or miss investment for Zynga, it is a chance that they are willing to take. This could allow them to build their own platform and achieve their goals of escaping from the grips of the Facebook social media monopoly but also has the possibility of being a waste of money and the only thing that Zynga get from this is a few months of income from Draw Something and forty new staff members to pay. We will have to see what the future holds for Zynga.

Sources: NYTimes Article, Forbes