Zynga set to leave the Mothership. Can it survive on its own?

I had constantly gotten invitations on Facebook for those online social games such as Farmville, Cityville, and Mafia Wars. I’m not really into the social gaming scene so I eventually had to block those applications. So I never really paid much attention to them and had never really learned about Zynga and the influence of its games until about a year ago when I read an article in the Canadian Business magazine. Zynga, the power source behind the massively popular games, is all set to create a firm footing of its own rather than depending on social media giant, Facebook, for its 200 million unique monthly players, as is reported in a news article by BBC News.

  Well, for those of you who aren’t in the know as I wasn’t, let me explain: Facebook users have access to a large number of addictive online games accessible through their Facebook profiles. What makes many of these games different from those you play on Addicting Games is that they have a huge number of users playing with/against each other, kind of like World of Warcraft, I suppose. So I’ve stated a lot of facts and used a lot of words… but what does all this mean for Zynga, its users, and most importantly, stakeholders? The way I see it, there are two final outcomes contingent mainly on one variable – the variable being the Zynga user’s behaviour:


1. The migration is a success: Assuming that Zynga’s games command a strong enough following, enough users will frequent the new, independent Zynga platform in order to play the games they love so much. This is great for Zynga as it attracts a large number of players to its website, where it does not have to pay a fee to Facebook for using the social network’s platform, thus, widening its profit margin – shareholders of ZNGA grin in satisfaction.QUESTION: what happens when you get a bunch of people with similar interests interacting and responding to each other? Social network, anyone? CNN already reports that Zynga.com is “an independent game-focused social network that will allow users to play games like CityVille, CastleVille, and Hidden Chronicles outside of Facebook.” And voila! Zynga is a social network in its own right! Now, lets assume that out of 200 million, Zynga gets, say, up to 100 million users to “migrate” to Zynga.com to consume their share of its games. What does that mean? That means that Facebook has 100 million individuals spending less time on its website! That means that Facebook’s advertisements are less effective as there is a smaller audience – which means that Facebook’s revenue drops – which means that Facebook will have to find another way to keep their stakeholders happy (more so if they issue their IPO by then) – which means that they will likely raise their fees for users who still play Zynga games on Facebook. So, Zynga’s profit margin’s shrinking down again. If Facebook doesn’t increase Zynga’s fees, it may continue to host Zynga, but instead choose to promote other games to discourage Zynga use. Zynga may then have to resort to a major promotion strategy, but even if they don’t the lack of people playing Zynga games will probably flatline their usage and, thus, their stock.

Ultimately, it’s very possible that the increase in revenue for Zynga may be very momentary and that its earnings may likely normalize or erode in the longer run.


2. The migration is NOT a success: This is the more simplistic scenario of the two. A key point to remember is that Zynga has 200 million unique monthly users. Where did they get these 200 million users from? You guessed it – Facebook. Now that we have understood that, the next question to ask is “why?” – Why did Zynga gather a following of 200 million? The answer I can see standing plainly in front of me smiling is: Because it was simply convenient for the Facebook user to play Zynga games while continuing their regular socializing. If this is true (and I can’t guarantee it is), then that means that the common Zynga users will either find other ways to entertain themselves or simply avoid playing games while on Facebook. It is a widely accepted fact that Facebook is the website on which the average internet user spends most of their online time. Should that rule still hold, we might have a much larger number of people simply spending time doing something else. There likely are those hardcore gamers out there, I’m sure. So let’s take about 25 million of them globally and say that they will be the archetypal users that Zynga is looking for. Based on stats found online, about 30% of Zynga’s users live in North America, about 17% live in South Asia, and the rest are scattered globally in small pockets. Therefore, I could realistically expect about 7-9 million users (30-35% of the expected 25 million) being online simultaneously. Furthermore, the users will get a game-centric social networking experience. Does that create enough of an incentive to spend as much time on Zynga.com? I’m not so optimistic about that.

This may, in fact, turn out to be a huge disaster for Zynga tanking its stock and uprooting it from top position for social games.

Frankly, I feel that scenario #1 is likely, but feel that it is too optimistic. I think that a result between scenario #1  and #2, but leaning towards #1 is most likely. I feel that Zynga’s independence is not only premature, it is perhaps not strategically the right decision for the nature of the game maker. Maybe a better decision for them would be to invest in something that involves migrating not their users, but their games to other gaming platforms such as the Nintendo Wii, Nintendo DS, and the Sony PSP which are already home to similar games and are linked to online leaderboards through their networks. Zynga’s brand power, along with some possible help from a mammoth like Facebook, could help propel Zynga up into more than what it is now on those platforms. I wish Zynga all the very best, but if I owned ZNGA stock, I wouldn’t be too optimistic.

Until the next blog.

Paving the Way to Brand Extention

Here in Toronto, we have a number of coffee houses. The most well known of them, however, are Tim Hortons, Starbucks, Second Cup, McDonald’s, and Timothy’s. I use the term “well known” because I want to recognize the role that each of their respective brands play in their consumers’ memories. 7-Eleven’s and their counterparts’ coffee is fairly consumed too, I’m sure. But from discussions I have had with a number of fellow consumers, they have never entered conversation, let alone dominated it. Each of the four coffee chains I mentioned have a pretty distinct understanding of who their respective target market is. But this blog is particularly about Starbucks, so I will save you the trouble of reading through excruciating detail.

About a year ago, I wrote a final exam of a Marketing class and in that exam, my case-study analysis was based on Starbucks. The following is almost exactly the image we were shown:

Starbucks 1992 vs. Starbucks 2011

The case-study required us to analyze the significance of this change, and provide our thoughts on it. Of course, the exam was for a Marketing Management class and I since taking that class I had been interested in pursuing a career in Brand Management, so this exercise posed quite an interest for me. It got my juices flowing and I, thus, decided to write about it.

Frankly, I think this is a very subtle, yet superbly defining change in the course of Starbucks’ history. I believe that this simple rebranding of the age-old symbol of the Starbucks’ Siren sans the word “Coffee” along with “Starbucks” on the logo liberate the company from their strict association with the beverage that brought them the immense riches that it did. The Siren is also an immensely popular symbol of the company and is expectantly recognizable by virtually everyone in their target market(s), but also by the masses that constitute their secondary or tertiary market(s).

Now, Starbucks is free to leverage their brand equity to pave the way to line extentions, among other things. Starbucks cafes may not only be spots where the young and/or the affluent go for coffee, but may also transform into a hub of social activity with their own brand of wine, beer, or fresh fruit juice. This idea, of course, is now old. This article in USA Today dated July 1, 2011 mentions the fact that Starbucks has indeed begun vending wine and beer at Seattle locations. Surprise, surprise! The renunciation of the word “Coffee” from their logo was a clean, low-key way of saying: “Hey, let’s use what equity we have to push us into the unknown.” This risk-taking behaviour is how most successes are achieved and I think it has been quite well done.

One expectation of being able to offer alcohol is to possibly see people drunk. Well, I don’t suppose that will happen too often with a glass of wine costing $9 and a bottle of suds $5. That’s pretty steep seeing as one can get a bottle for about $3 at a pub/bar and for just a little over a buck a bottle at the Beer Store. Strategically priced, this encourages a fairly conservative consumption as compared to a pub where one can get a pitcher of brew for about $13-15. (I’ve also heard of a place in downtown Toronto that has 8-dollar-pitchers of awful tasting, but highly effective beer which I have yet to try) This pricing, I feel, has also been well thought of to align perfectly with the drinking habits of their coffee-drinkers. PLUS, I expect that alcoholic drinks will provide a fairly high margin as well – especially beer since each serving is packed individually, unlike wine.

Looking at the logo, past and present, it is clear that Starbucks uses their trademarked green, HEX code 006542 I believe, quite tastefully. Going forward with the minimalist trends of corporate graphic design nowadays, the revised logo not only renounces “Coffee”, but also renounces the black colour that it contained. Now entirely in the trademarked green, the logo looks simpler and prouder than before – the smile of the Siren even more evident now that there is more room for her. Additionally, Starbucks’ Siren has earned, over the years, the unassisted brand recognition and reputation that it needs to be a standalone representation of the company’s value proposition. No longer does the Siren entice the consumer with the promise of premium coffee; she now entices the consumer with the promise of the premium quality of whatever product she resides on.

Starbucks have opened themselves up to a whole new world, not by giving up what made them famous, but by downplaying it for strategic reasons because the expectation is that what made them famous will no longer have to be the only reason for their continued popularity in the future. The possibilities are endless.

Until the next blog.

Protect IP, Kill Creativity

It’s interesting to see how the Internet has changed the consumption of media today. I must watch hours of movie trailers, bloopers, television commercials, music videos, and more than everything else combined, my favourite TV shows. Every week, I consume several hours of television material online. Assuming you have already watched the video above, you can start to realize the consequences this may have on my consumption. If Protect IP’s wheels are set in motion, I will no longer be able to stream all those gigabytes of video conveniently to my computer while lying lazily on my bed. My opinion: THAT SUCKS!

What we have here is the creation of a form of media so powerful that it has (literally) billions of people hooked to it like a crack pipe; a medium so powerful that creative use can result in tremendous results. Think back when television advertisements were at their peak in, say, the United States in the 50’s through 70’s (widely considered the Golden Age of Advertising). We had millions of viewers who would sit in front of the tube and just stare blankly consuming all moving pictures on the screen facing them. If you think about it, that’s exactly what we have now; except it’s not. We probably have a similar extent of consumption of internet media, but it’s not the same as absorbing any and all information being fed to the consumer. With the internet, the one luxury we as consumers now enjoy is that of choice – we get to CHOOSE what, when, where, and how we consume.

Taking that concept into consideration, I believe that Protect IP is probably the wrong way for media corporations to go about protecting their interests. Instead, they should use the tremendous resources they have and leverage the dangerously heavy dependence that we have on this form of media. I’m not asking evil corporations to act worse; I’m just saying that it is important for them to recognize the importance of this media that is now inevitably here to stay. They must find creative solutions to the problem of copyright infringement, not jump back to the dark ages by limiting the audience’s ability to share content on a network that now thrives solely on that very concept of “sharing content”.

Dear media powerhouses of the world: Limiting online content is NOT the way to go. Invest your money to find new ways to create or expand your presence online rather than disincentivizing them from moving on to a bigger and better platform of communication. If you do, YOU WILL KILL CREATIVITY by limiting the tools people can use to express themselves. Evolve with your audience; don’t pull them back to the stone ages.

Until the next blog.

How Outsourcing Could Change the World

Two summers ago, I watched arguably the biggest movie of the year – Transformers. *Spoiler warning for those of you who haven’t watched it yet!* In the middle of a Qatari desert, what is left of a US Armed Forces base is ambushed by that ugly, but cool, scorpion thing. After reaching a nomadic village that is conveniently equipped with a cell phone, one of the soldiers is finally able to heroically ward off the scorpion monster and attempt to place a call to the Pentagon requesting an airstrike. But wait… just as bullets whiz by and shrapnel flies overhead, and thoughts of the imminent deaths of his fellow soldiers and, perhaps, his own cross his mind, his long-distance connection to the Pentagon is interrupted by an obnoxiously voiced, annoyingly indifferent, “Indian” operator who asks the soldier, with that American concoction of the Indian accent, if he would like to purchase options. Mind you, I’m very open to jokes on stereotypes, but that “Appu”-esque accent just bugs the hell out of me.

A few years ago, The 40 Year Old Virgin came out. I loved it instantly and have watched it countless times ever since. Steve Carell’s never been better! (Except maybe in The Office) An otherwise perfect movie, a similar sequence is played out when poor old Andy is having an impossible hard-on and calls the pill manufacturer’s customer service call centre. Not surprisingly, he is attended to by a man of South Asian decent. But wait… let alone that American-style Indian accent, this guy had an accent that seemed to be Arabian! Being an Indian who has lived in the Middle East for a decade, I can tell the difference.

Slumdog Millionaire is, and I know I will be hated by many for saying this, on my list of totally overrated movies. I shall discuss my problems with it in detail in another blog, but the theme it has in common with the above two films is – yup, you guessed it – a call centre! *You win Ten Million Rupees!* Anyway, what’s totally wrong is that a guy from the slums who hasn’t studied beyond the second grade, manages to speak perfect English, and what’s more, he sports a (somewhat) Scottish accent for when he is on the phone! Interesting… but sadly, neither Dev Patel’s Indian accent nor his Scottish accent were believable.

Why am I picking on movies with call-centre themes embedded in them? Well, one reason why is because I love movies; the other reason why is because there is some fact beneath all that fiction. I will have to be out of my mind to say that the extremely large portion of multinational corporations who outsource their call-centre operations to India are not good for the country. Outsourcing basically occurs when there IS an opportunity for improvement. In this case, the opportunity that India capitalized on is the millions of English-educated IT professionals who possess some sort of advantage over their in-house counterparts – either they have expertise at par, if not better, than available in the outsourced company, its home town or home country (in the case of offshore outsourcing), and/or they provide the services with a cost benefit to the company over an internal department.

Now that we have determined that, yes, outsourcing is good, what next? Does it continue like this? How good is it for both parties? What happens to the macroeconomy?

The good only lasts as long as both sides have something to look forward to. As soon as the costs to outsource a function surpass the costs of insourcing, that’s the company’s cue to end the contract and run back home. I don’t just mean accounting costs… I mean costs in all forms. From the view of the outsource provider, well, that’s a little complicated I think. Looking at it from an economic perspective, I believe that as soon as the provision of outsourcing begins, there will be a surge of enterprises looking to capitalize on the benefits right away, perhaps over the course of a few years; this leads to a high demand for the services. The high demand will naturally cause the service providers to increase their charges, thereby, returning the economy to square-one, in terms of  the competitive advantage they offer companies over insourcing. Realistically, there would be a geometric increase in the demanders of these “inexpensive” services and that will warrant an increasingly large diversion of resources to satisfy the demand. The purchase of economically successful outsourcing services by one company sparks the interest of ten other companies; six of those may decide to follow suit, thus, sparking off sixty other in the process. This becoming a vicious circle assumes a geometric pattern.

One of the drawbacks is that since this demand causes a higher per-capita income, it not only raises the standard-of-living, but ultimately also raises the cost-of-living! This, in a country like India, nurtures the blue-collar IT peeps, but it also widens that gaping chasm between them and the lower class. For those of you who don’t know, developing nations like India can have quite a lower class; watching Slumdog Millionaire should more or less be able to give you an idea.

I have a conflict in my head about the ultimate outcomes of this setting: firstly, the world could end up with outsourcing leaders and that means places like China, India, Brazil, and Indonesia could simply have to live on their outsourcing industry; however, this does not stay consistent with my “cost and benefit” analysis above – a change in income would lead to an increase in demand for products (i.e. higher affordability) which leads in turn to a higher price level. And in this way, the services would ultimately cost the same internationally as they would domestically. So, I think the outsourcing-leaders structure is unsustainable and will eventually lead to the second outcome.

The second outcome is a long-term state of eventual equilibrium where all countries will have equal costs and returns. Of course, these costs and returns may not necessarily be the same as in another location, but overall, they cancel each other out to yield zero overall benefit. It may be possible, that some country may suddenly tap some new resource that allows it to create yet another imbalance, giving rise to yet another competitive advantage. But ceteris paribus, this should only lengthen the time it would take to get to that state of equilibrium.

You never know… India’s fast growth may be a result of a cheap, yet, intelligent labour force which, if not diverted to the right task at a strategic point in time, the country, and every other country with a similar economy, may fall prey to economic and social upheaval… But, hey! Don’t let me get your spirits low. The smart minds who will help avoid that situation are probably reading this blog right now!

Until the next blog.

Karma

FINALLY I BEGIN BLOGGING! Now that the stressful semester is over, and before summer school, quietly lurking around the corner, catches up to me, I decided it’s high time I embark on my mission to become a blogger. And what better way to begin than writing my inaugural blog about my heritage from my point of view.

I’m sure most people have heard the term “Dharma” from the best show on television right now – Lost (don’t quote me on that… that’s a very subjective claim). The word invokes this very eerie, almost apocalyptic feeling in me when combined with the word “Initiative”. But I think that in reality, the word has a rather simplistic meaning – duty. It’s pronounced DAAR-ma on the show, but its actual pronunciation is DHAR-ma. Anyway, no harm no foul. The fact that Indic words have made their way into mainstream Western media without losing their foundational meaning is, in itself, a matter of pride for me. Anyone who has the power of insight into an industry and whose insight is relied upon by the leaders of that industry are commonly known as “gurus”, the ancient Indian Brahmins, the imparters of worldly knowledge; Bill Gates, Warren Buffet, and Donald Trump are often referred to in the media as “moguls”, a reference to the mighty Mughal rulers of India. Perhaps all that is left to liken the global business system to the Hindu caste system is to name the white-collars and blue-collars some variation of “merchant” and “worker” respectively. This may be a case of “seeing what I want to see” and I won’t argue against that. I, for one, am not interested in challenging thought; instead, I would add mine to the collective cloud of idea.

While an increasing number of Westerners begin to recognize, understand, and respect my culture, I find that an increasing number of South Asians are being drawn away from it. I have begun to believe from self-reflection that it is not necessary for one to agree with all traditions stemming from one’s culture. On the contrary, one must try to understand the environment in which those traditions were conceived; this may lead to the revelation of the underlying meaning of that tradition. Personally, I do not completely agree with everything I have been taught, but I am training myself to see beyond that. I am training myself to absorb several thoughts, amalgamate them, and allow a renewed understanding of the world to arise – and that is precisely how I would like to see things.

“Karma” is a very important word to me. “Karma”, pronounced KAR-ma and not KAA-ma (the Hindu God of Love) like the guy in the Matrix Revolutions, means “deeds”. While Dharma is the duty one has while on this Earth for the duration of one’s life, Karma is the deeds one does that is not necessarily part of one’s Things To Do list. It was interesting for me to learn the traditional concept of Karma in a religions class I took last year: Karma is like a bank account – your good deeds increase your bank balance while your bad deeds are treated as cash withdrawals. At the end of your life, your bank balance reflects the kind of person you were in this life and what the nature of your next reincarnation will be. You may be reincarnated as a human if you were a great person; on the contrary, if you were evil, chances are you could end up as a lowly cockroach.

My idea of Karma, and I tend to stick to this philosophy, revolves around the saying: “What goes around, comes around”. I don’t believe that one will have to wait until the end of their life to have their bank balance judged. I believe that the universe is in a constant state of balance and if that balance is disturbed, there will be an equal and opposite reaction to that disturbance. I don’t really need to elaborate on how our planet seems to be reacting to the devastating exploits of the human race and how people seem to react to the prejudice and discrimination of other people. Nonetheless, I feel that balance is restored more or less instantly relative to the universe (I’m sure many scientists will agree that a few hours, days, months or even years is relatively nothing in the cosmic timeline).

This article was rather unfocussed and unstructured. The reason for that is because it was a random outpour of thought – a large portion of which I did not think about before laying my fingers on my keyboard. If you’ve gotten this far, I thank you for completing to read my inaugural blog. I will try my best to add a versatile selection of thought in order to interest a larger number of you.

Until the next blog.