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March 29, 2013 / Mike Su

Zynga and the Great IP Disconnect

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A lot has been written about Zynga, where they go from here, how they need to move more aggressively into mobile, into real world gambling. But in my opinion, Zynga’s biggest opportunity and the lowest hanging fruit for them is to create IP with their games. By adding a small element of IP into the games they already have in the pipeline, they can meaningfully impact their existing business. But IP creation has never been a part of the Silicon Valley DNA, and Zynga is unabashedly a creation of Silicon Valley.

Before we get into it, let’s first establish what I mean by IP. When I talk about IP, I mean characters and stories that people love. So, Duke Nuke’em == IP. Farmville != IP. Mario == IP. Mob Wars != IP. Angry Birds == IP. Mickey Mouse == IP. Make sense? Sweet!

Why Silicon Valley doesn’t get IP

GBSilicon Valley[1] likes content IP almost as much as Andy Reid likes to run the football (this is a joke for the five readers that cheer for the Philadelphia Eagles. The answer, to save you some googling, is “not at all”). Talk to any Silicon Valley VC, and as soon as you talk IP, they will get excited. But as soon as they find out that you’re talk about characters and story rather than algorithms and k-factor, their eyes glaze over (because, like, ohmygosh, who would want to talk about story).

When it comes to creating IP, investors don’t know how to evaluate good IP from bad IP. They’ll be the first ones to admit it, and that’s why they smartly steer clear of it.

They will say, “I don’t touch content, that’s a hits driven business” as if putting money into Facebook in some altruistic act that didn’t require a blockbuster outcome. In fact, when you get to the underlying argument, the concern is not whether or not you can create a hit (we’re all in the business of creating hits), but it’s whether or not you can create value beyond that hit.

Nevertheless, this idea of content feels way too warm and fuzzy for the tech investment community to get behind.

Along Came Zynga

pollyThen, along came Zynga . Zynga spoke Valleyese. They spoke of conversion funnels and A/B testing. K-factor and virality. Finally, something Silicon Valley could better understand. Predictability. Metrics driven. That got people excited. And boy did it work. This free-to-play model people long thought could only ever work in Asia now came stateside in a BIG way, and Zynga led the charge.

But Zynga games are primarily designed without characters. This is not some great oversight by the brain trust over at Zynga HQ, it is an explicit design choice. In order for you to picture that this happy farm is indeed your farm, it needs to be your farm, not Farmer Joe’s farm. If all your friends are also playing as Farmer Joe, well, it gets a little confusing.

The brilliance of Zynga was that it was a pioneer in taking the best web practices and applying them to game development. For the longest time, game development was the opposite of the lean startup – develop for years, launch big and splashy, pray for the best. Metrics? Conversion funnels? Foreign concepts in the land of game design.

So Zynga marched forward, dominating the competition and carving out a massive install footprint and was printing money faster than a Wall Street bailout. All along, it never needed to create IP.

Why IP matters?

So why does IP even matter? To me, there are two simple reasons why IP matters when it comes to games:

1) Monetization

While I would argue ARPU will generally always be higher in games where the player is the character, the revenue opportunity is confined to the game itself. On the other hand, you have someone like Rovio who has created IP that can generate revenue in licensing, in animation, in publishing, in plush toys. This has been Disney’s playbook since the invention of Disney. Create a character, and then send them through the company divisions: books, CDs, movies, theme park, toys, pens, lunchboxes and so on. Nobody is dying to buy a Farmville t-shirt. Nobody is dying to watch Farmville the Saturday morning cartoon. It’s a game, there’s no story or character. It’s not like you can just take something like Battleship and turn it into a mov…uh. Let’s move on.

 2) Shelf Life

As we’ve recently seen, games have a shelf life. When you build a game like Farmville, it’s more about game mechanics than it is about story or IP.

I am a mere pawn in this licensing game

I am a mere pawn in this licensing game

Game mechanics are easy to rip off. Game mechanics have a shelf life. The very best games in the world can only be played by their most rabid fans for a year? Two years? Eventually, people will tire of mechanics. If you don’t create IP, it’s hard to cross over into other platforms. On the other hand, look at Mario. He’s in Donkey Kong, he’s in Mario Kart, Mario World etc. People fall in love with characters and will follow them wherever they go. My kids will buy a pack of tofu simply because Kung Fu Panda is on it. THAT’S the power of IP.  There’s a 45 minute wait to get on the Little Mermaid ride at Disneyland for a 90 minute movie made 20 years ago. THAT’S the power of IP.

What Can Be Done?

In some ways, Zynga already understands the value of IP. They went and licensed Indiana Jones for Indiana Jones Adventure World, and the results are telling. In a Gamasutra article, they stated that people responded most strongly to any text that involved a character from the Indiana Jones world. We are relational beings by nature. We love characters, personality and story. If it’s coming from a character we love, we’ll pay attention!

So if Zynga’s games are designed to NOT have characters and story, how can they change that? Well, for starters, with Indiana Jones, they already have. They just don’t own the characters or IP. They could build a stronger cast of characters that surround your virtual world. Once they create characters with personality, they can shortcut a lot of things by simply using the characters and what they represent to communicate that. Moreover, these characters can cross over from game to game.

On the mobile side, the opportunity is even greater. Take, for example, their Zombie Smash game (made by Game Doctors before getting acquired by Zynga). They already created a main character, and have a host of zombies that have totally different behaviors. But if they simply gave the main character a name (like Halfbrick does with Barry Steakfries), and created more personality with each Zombie, it would be easier to take these characters into different games, and to have them crossover into other media.

So…

So yes, games are a hit driven business. So are tech companies (in fact, Fred Wilson might be onto something when he said apps are like TV shows). But if you can create IP, you can continue to create value far beyond the life of the game mechanic before you have to create another hit. To the people that questions whether Angry Birds needs to prove they can launch another franchise, I’d say that they can still go for quite some time before they have to worry about that. Just ask Disney about Mickey Mouse, or Warner Bros about Bugs Bunny or Stan Lee about Spiderman. IP can go a long long way.

Zynga is already making games. If they can add elements of IP and get beyond their Silicon Valley roots, they can create many more opportunities from their hits.

I’ll leave you with this thought – as great as the iPhone is, 10, 20 years from now it will be all but gone (when Blackberry makes an unexpected surprise comeback! Yeah!). Yet 20 years from now, kids will still be playing with Buzz and Woody and the characters that were created by Pixar. Steve Jobs’ most enduring legacy will be the stories and characters he made possible through Pixar. Even he admitted as much.

[1] = When I say Silicon Valley, I mean the overall culture. Of course there are people who get it, but I speak of the overall attitude

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