BU SINESS CASE STUDY REBECCA WEINBERGER PAUL GLAZIK

BU SINESS CASE STUDY REBECCA WEINBERGER PAUL GLAZIK CHRIS PHILLIPS NANCY LEYVA

ZYNGA INTERNAL ENVIRONMENT REBECCA WEINBERGER Analysis

BACKGROUND • Created in 2007 as Presidio Inc. by Mark Pincus • Based out of San Francisco, CA • 2010 - Incorporated out of Connecticut and renamed Zynga • 2011 - Initial Public Offering on NASDAQ • 2014 - Added a new Director to the Board, Dr. Regina Dugan, former V. P. at Google • Owners of several top social media games for mobile/tablets systems such as: Farmville, Zynga Poker, Mafia Wars, Words with Friends 3

PRIMARY ACTIVITIES • Develop, market and operate social games as live services played over the Internet, social networking sites and mobile platforms • Generally, all games are free to play and revenue is generated through the in -game sale of virtual goods, mobile game download fees, and advertising services • Pioneer and innovator of social games and a leader in making “play” a core activity on the Internet • Free to play business model • Social games leverage the global connectivity through Internet platforms • Virtual Goods and Paid Downloads • Virtual currency can also be earned for free through game play or accepting promotional offers from advertising partners • Generate revenue when players purchase mobile game downloads

SUPPORT ACTIVITIES • Firm infrastructure is heavily based on technology • Constantly investing in hardware and software to maintain their datacenter infrastructure • Technology infrastructure that can efficiently and reliably handle increased player usage, fast load times, and new feature/product development • Invested extensively in developing proprietary technology stack • Handles sudden bursts of activity for millions of players • Datacenter and cloud computing management • Shared code base • Cross-promotional features

CULTURE OF MANAGEMENT • Mark Pincus- Founder • Don Mattrick- CEO • Company growth is heavily dependent on efforts to employee talent • High demand of game designers, product managers, engineers and executives • Devote resources to indentifying, recruiting, hiring, training, successfully integrating and retaining employees • Maintains team spirit in employees and applies effective human resource strategies to encourage and motivate employees to perform their best • There is a spirit of competition within Zynga’s structure. Each unit operates separately to produce new games/products/ideas

RBV: RESOURCE BASED VIEW (INTERNAL) Intangible Resources: Tangible Resources: • Financially – Head is still above water and assets can be quickly liquidated • Physical – They have several geographical locations: many are proprietary to the games they create • Technological – One of the leading game developers; own their own gaming rights and in many cases the coding to those games • Organizational – Although they have an organization, we believe the jury is still out on it’s effectiveness and ability to produce newer, more popular games • Human – The market for good programming and coding talent is small: new game development is key to Zynga’s long term success • Innovation/Creativity – Zynga is well prepared for on-line gaming growth. The move to their own website platform is an example. But this can only be achieved with new and interesting gaming products • Reputation – From a market based view, Zynga is a bit of an ugly duckling, but from a consumer view, they’re a leading game developer Organizational Capabilities: • Excellent at capturing consumers with game qualities (consumers want to keep playing) • Capable of competing on a global level • Zynga’s games are leading brands within the mobile gaming industry 7

ZYNGA FINANCIALS CHRIS PHILLIPS Analysis

INVESTING INFORMATION • • • NASDAQ (ZYNG) American Stock Transfer & Trust Co. LLC No Dividends paid or declared Initial offering in 2011 was at $10 p/s; raised approx. $96 M SIC 0001439404 • 7434 Services – Computer Processing & Data Preparation • • Feb 2014 completed purchase of Natural. Motion $527 million Hiring of Dr. Regina Dugan helps legitimize Zynga R&D and board compliance

FINANCIAL POINTS • • • On-line Game Revenue is down by 34% Although income is up by 59%, it’s still operating with a loss Facebook accounts for 41% of Zynga’s A/R in 2013; 58% in 2012 Advertising for 2013 was $60. 6 M; 102. 2 M in 2012 3 rd Qtr 2012 included a $95. 5 million impairment to Goodwill, and $10. 2 M in 2013 for discontinued games (OMGPOP) • • • Debt has been reduced Only CEO has Class C stock Accumulated deficit increased over 30% 10

COMPARISONS 11

ZYNGA EXTERNAL ENVIRONMENT PAUL GLAZIK Analysis

MOBILE GAMING INDUSTRY • In 2013, 92 percent of i. Tunes revenue was from games • Mobile gaming will be a $10 billion industry in 2014 • Predicted to reach $60 billion by 2017 • Mobile gaming revenues are expected to grow at a rate of 19% through 2016 • Many small companies in industry. New entrants every quarter. • Larger companies forming through M&A’s. • In Q 1 2014, mobile gaming related acquisitions topped $5 billion, almost as much as all of 2013. 13

OPPORTUNITIES & THREATS Opportunities: • New Game development – (license new characters) • Newer markets - Globally • Newer players – younger generations • New platforms to play – PCs are not dead • New experiences – 3 D, even more live interaction • New Relationships – Google, Nintendo Threats: • Competition • Relationship with Facebook • Underperforming - Failed games/acquisitions • Unable to retain new talent • Lack of creativity, uniqueness, originality • Underperforming financial market • Copyright, patent infringements – counterfeit gaming 14

MAJOR COMPETITORS DENA CO. , LTD (Japan) Gree Games (Japan) • Best known game: Ant. Smasher • • Japanese technology firm established in 1999 • Company profile states they “develop and operate a broad range of mobile and online services including games” GREE is a global mobile social company with businesses that include social gaming, social media, advertising, licensing and merchandising, and venture capital (direct from GREE business overview) • Offers a small catalog of online games • Also offers social media services (Japan only) • Competes with Zynga through its Mobage game service Electronic Arts (EA) (U. S. ) • Founded in 1982 • Large software company that produces console, computer, online, and social media games Gameloft (Europe) • Founded in 1999 by Ubisoft co-founder Michael Guillemot • By 2003, Gameloft offered games to over 100 mobile phone models • Owns several successful titles, including Plants vs. Zombies, Zuma, and Bejeweled • First company to offer games on the i. Phone app store after it launched in 2008 • Posted $3. 8 billion revenue in 2013 • • In 2013, attempted to sue Zynga, claiming The Ville (Zynga) was a copy of Sims Social (EA). Suit was settled. In 2013, Gameloft’s “Despicable Me: Minion Rush” game was their first title to reach 100 million downloads 15

PROFIT SUMMARY • Gameloft posted $273 million profit in 2013 • Electronic Arts earned $264 million in 2013 • Zynga’s net income for 2013 was ($36 million) • Zynga again operates at a loss while competition profits 16

ZYNGA STRATEGY AND MARKET STRATEGIES NANCY LEYVA Analysis

ZYNGA STRATEGY • Founded on passion for games and for family and friends playing together • Mission: “connect the world through games” • Encourage entrepreneurship and intelligent risktaking to produce breakthrough innovations • Zynga’s goal is to create top hits that engage mainstream global audiences 18

CURRENT STRATEGIES • Differentiation among game lines: Zynga’s content perspective allows them to expand their offerings across several game categories: (Farm, Casinos, Words, Live simulation) • Paying a premium for new talent and new acquisitions: Because the margin for finding new games/talent or good companies is very small (Natural. Motion) 19

SUSTAINABLE STRATEGIES Promoting new on-line mobile/tablet/PC website platform www. zynga. com • Facebook’s platform will inevitably threaten Zynga’s long term revenue, while its still the largest platform for Zynga users. Using Facebook as a platform costs Zynga an average of 30% oftalent sales. and geographical presence Invest in • The acquisition of Natural. Motion gives Zynga a European presence and access to a new market of game development talent and consumer base Cost Leadership • Continue to find cost cutting measures like closing unprofitable game lines • Keep long term debt low • Continue to re-value the assets of all acquired units 20

MARKET STRATEGY CHARACTERISTICS (BUSINESS MACRO LEVEL) • Mainly competing for leisure time, attention and discretionary spending of their players • Gaining the trust of the player to enjoy the experience/interaction (targeting members/users of Facebook, Google, I-Tunes) • Promoting next level activity/game advancement for cash/credits • Selling additional life spans/game resources for cash/credits • Capturing consumer/customer information for data analytics • Analyzing captured gamer data for marketing/sales/advertising • Selling captured gamer data to 3 rd party users (Facebook, Google, etc. ) • Selling advertising space to 3 rd parties 21

ZYNGA RECOMMENDATIONS • Zynga needs to examine its cost structures and business model compared to competition and find out why. • Find game platform(s) that are going to be long term and sustainable • Zynga has to differentiate itself somehow from it’s competitors (license new/old characters) • Zynga should investigate a possible sale or merger • Zynga currently invests in both mobile and social media gaming. Competition is large and fierce, Zynga needs to re-focus on what makes them the real market leader while also turning profits. • Increase advertising/marketing expense; Tell the public, not just social media users, who Zynga is. 22

RESOURCES: • Yahoo Finance (ZYNG, KING, GLUU) • Google images • SEC. GOV/edgar • Fundamentals of Corporate Finance; Ross Westerfield, Jordan, 10 th Ed. , 2013 • Strategic Management; Dess, Lumpkin, Eisner, Mc. Namara, 7 th Ed. , 2014 23