Zynga Inc (NASDAQ:ZNGA) has a problem, well actually the social gaming company has several problems big and small, but one may be more worrisome than the other. Former Zynga employees who have left the company for various reasons in the last few years have brought their talents, and Zynga-bought experience, to new startups that are muscling in on Zynga Inc (NASDAQ:ZNGA).
According to a report that appeared on Businessweek today, former Zynga Inc (NASDAQ:ZNGA) staff have founded at least six gaming studios since the company went public back in 2011. The developers, having been trained by Zynga, know the core of social game design, and they may have advantages over the larger firms.
The major problem for Zynga Inc (NASDAQ:ZNGA), and other companies in the social gaming industry, is that a hit social game might not take all that much money to develop, and distribution costs are next to zero. That means that though Zynga Inc (NASDAQ:ZNGA) can afford to spend a great deal more money than startups, it’s probability of success may not be proportionately higher.
Because of the larger size of its business, Zynga Inc (NASDAQ:ZNGA) isn’t as flexible as the smaller studios. That means that the company can be slow to react to market trends, and it can be a turnoff for developers. According to Mike Verdu, formerly the chief creative officer at Zynga Inc (NASDAQ:ZNGA), the difference is like being “reminded what it’s like to create something as fast as you can and work with a small team of people you adore and trust—there’s nothing like that.”
Zynga Inc (NASDAQ:ZNGA) certainly can’t compete on the emotional value of working at a start up, but can the company compete on gaming? There are costs like advertising that Zynga has a huge advantage in, but when it comes to the costs of developing a game, smaller firms are able to compete with Zynga.
There is a worrisome outflow of talent at Zynga Inc (NASDAQ:ZNGA) and as the company is conducted more like a public business, because it loses money, it attracts, and allows less creativity. Zynga Inc. (NASDAQ:ZNGA) may be a star fading quickly in the social media landscape, but the firm always has gambling as an option.
So far in 2013, shares in Zynga Inc (NASDAQ:ZNGA) have risen by close to 45 percent. The firm has posted some better than expected results, and the drive toward gambling is helping its value.