It's been a rough stretch for social gaming company Zynga. Its stock price has plunged, revenue is down, employees have been laid off, and it's had to retire nearly a dozen of its games. Now Zynga hopes to turn things around in part by expanding its offerings beyond virtual games into real live games of chance. Zynga is experimenting with online gambling in Europe with the hope of opening similar operations in the U.S.
Gambling might seem like a tough PR sell for a video game company. Especially one known for virtual farm animals and wide-eyed cartoon characters. But gaming analyst Gabe Zichermann says the move makes a lot of sense when you look below Zynga's cuddly surface.
"Zynga's key intellectual assets are not really in spectacular content creation, they are in platforms and scalability, customer interaction," he says. "They seem more like an e-commerce or marketing company than a gaming company."
Like a casino, social gaming companies operate by hooking users, tracking their data, and monetizing their behaviors. Zichermann says Zynga's games have similar mechanics to those in a casino. Take "Farmville" or "Mafia Wars." They have random rewards and carefully timed payouts just like slot machines. Still, not everyone is convinced Zynga will hit the jackpot.
"Organizationally they aren't prepared for it."
Kevin Flood is a consultant and programmer. He says real-money gambling is a whole different league than social gaming. Zynga will have to deal with fraud, handle age restrictions, and prove each game is truly random. Regulators will be scouring the programming code of every version Zynga's releases.
"You can't just iterate, iterate and dump some code out there. It doesn't quite work. It has to be really gold label," he says.
Zynga is hoping to troubleshoot those issues in Europe, where online gambling is legal. The world's biggest potential market however is here in the U.S. And so far it's only legal in Nevada and Delaware. But Internet gambling expert Gerard Cunningham says more states are on their way.
"It's going to be a slow and steady progress," he says. But Cunningham says the playing field will not be uniform in every state, "we will see some states passing poker. Some doing slots, some not. It is going to be very very complicated."
And complicated is never a good bet. Getting all those states into one integrated market will be a regulatory nightmare. Zynga's lobbying Congress to legalize online gambling nationwide. Investors will be watching closely to see how Zynga's hand plays out.