[Gaming] The rise and fall of Mobile Gaming

[lioneatszebra]

The rise and fall of Mobile Gaming
From CNA Finance

In the technologically advanced world we live in today, people have access to limitless amounts of information. The barriers to entry into an industry are decreasing before our eyes. Youtube stars are popping up around the globe, unheard of companies are receiving million dollar valuations, and individuals are starting their own ventures instead of adding value to existing enterprises. These are all great benefits of the internet age for entrepreneurs; however, one negative aspect of this culture is being seen in the mobile gaming sphere. With access to all this information, consumers' attention spans are getting shorter, meaning that these mobile games have a shorter life span, and the companies in this industry need to create more value for consumers while also maximizing the profits over a shorter period of time. However, I don't see this currently happening; companies like Zynga, Glu Mobile, and King.com are still following the same model as companies like EA or Blizzard, which is why there has been such volatility within this industry.

Zynga is a perfect example for this case. When they set their IPO price at $10 a share, it seemed like a good value due to their success with games like Farmville and Mafia Wars on Facebook. What Zynga management and investors did not account for was the short lifespan of these games. Zynga had been valued based on the success of these games, yet, when the novelty wore off, consumers stopped playing these games as quickly as they started and moved on to something else. As a company with over $2 Billion, one would expect them to learn from these early faults. However, they continued down this path, following the wants of consumers, but always one step behind. In an attempt to keep up with the attention spans of consumers, Zynga made a number of large purchases of companies with newest popular games, such as OMGPop's Draw Something or Bonfire Studios' Words With Friends. However, by the time these purchases went through, the growth in popularity of these games was already waning. Zynga would never see a return on their investment from these purchases. Zynga isn't the only company who is making these same mistakes.

Glu Mobile has had some successful games since they started in 2001, but has seen volatility since their IPO similar to Zynga. However, they have never gained the attraction or popularity that Zynga once had, until they released Kim Kardashian: Hollywood in October 2014. With the popularity of the reality star, this game quickly hit the top of the app store charts and sent Glu's stock to a 52 week high of nearly $7.60 per share. Users loved this new genre of game and it eventually lead to Glu Mobile's most profitable year to date. However, less than a year later, the popularity of this game is decreasing and not holding the spotlight any longer and Glu's stock priced fell dramatically to lows in the $3.40 range. Yet, Glu has not learned from this lesson and recently signed a 5 year agreement with Katy Perry to recreate the game with this year's star. While I agree that Glu can still capitalize on the genre they have created, I will be interested to see if this is truly a new, innovative game or if it is Kim Kardashian Hollywood with a Katy Perry spin. The big question comes to: will users have the same level of interest in a similar game or has the novelty worn off? In my opinion, the novelty has worn off. There will be Katy Perry fans who will play the game, but I don't think it will attract the spotlight that the Kim Kardashian version held. This is not to mention the 5 year agreement between Glu and Katy Perry, for a game that will only peak for a few months, even if it does follow the success of Kim Kardashian: Hollywood.

King.com is one of the latest mobile gaming companies to complete their IPO. Due to the popularity of their Kandy Krush and similar games with different "skins", their IPO was priced significantly higher than Zynga's or Glu Mobile's. Despite the IPO price differences, these stocks followed the exact same pattern following their IPO. Down on the first day, followed by a bullish surge, and then a huge sell off causing the stock price to drop nearly 50%. I believe that this is all caused by the same problem, these companies are being valued based on their current success, yet people seem to forget that the focus should be more on the pipeline of games coming through, not the current popular game. By the time the market reacts to these games' success, users are already starting to lose interest in the game. While Kandy Krush has provided King.com with some early success, they have yet to prove they can provide other successful games outside of this model.

Part of the issue is that these companies are being compared to long-standing successful companies like EA and Blizzard, who tend to focus more on the hardcore gamer demographic. These console and PC games tend to focus more on skill-based interaction and users are rewarded for their long-term loyalty to a game or franchise. Games like World of Warcraft have been largely successful due to the release of compatible expansions that allow users to carry over their skills, stats, and characters between games and utilize their skills in an ever-expanding world. Mobile games, in their current state, should not follow this same business model because they tend to focus more on point and click, micro transactions, and less skill-based interaction. Users are not rewarded for long-term use like they are in online console or PC games, so they have little motivation to keep playing the game on a long-term basis. Mobile game companies need to act on this gaming culture to stay ahead of the curve and continue to see long-term success, otherwise we will be seeing an industry of one hit wonders.