Review the scenario and then answer the following questions:
Farmville. Cityville. Words with Friends. Mafia Wars 2. These are some of the more popular online games created by Zynga and available for free on Facebook, Myspace, Yahoo!, and as apps on iPads and iPhones.1 Founded by CEO Mark Pincus in 2007, Zynga (named after his late dog, Zinga) is one of the world's leading social game developers and one of the tech industry's hottest companies. The company's goal is to enable users to build social connections through online games. But how do you build a viable business getting people "to buy a bunch of things that don't exist?"
While sifting through data that Zynga collects when people play its online games, product managers for a game called FishVille discovered something quite interesting. Players were buying "a translucent anglerfish at six times the rate of other sea creatures, using an imaginary currency people get by playing the game." So they quickly had company artists create "a set of similar imaginary sea creatures with translucent fins and other distinctive features." One difference-this time they charged real money for the virtual fish. Players snapped them up at $3 to $4 each. Although 95 percent of Zynga's game players never spend any real money on its games, its audience of unique monthly users (around 150 million) is so large that the small percentage that actually buys imaginary chickens and imaginary skyscrapers and imaginary fish generate big bucks. In fact, some players-Zynga calls them "whales," the same name used for casino high rollers-spend hundreds or even thousands of dollars a month. Zynga's revenues were nearly $600 million in 2010, with profits of $91 million. With the continuing economic uncertainties, the first half of 2011 was more challenging as sales activity fell for the first time in company history.
Despite these challenges, Zynga continues to transform the game industry with its strategies. While other traditional video game companies create games they think players will want and then sell those games, Zynga's strategy has been to offer free games through social networks, such as Facebook, and then study data on how its audience plays them. Using these findings, it figures out ways to get people to play longer, to tell friends about the games, and to buy more virtual goods. Zynga's unique ability is analyzing reams of data on how players are reacting to games. The company's vice president in charge of the data analysis team says, "We're an analytics company masquerading as a games company." Data analysis has been and continues to be a key part of Zynga's strategy.
This chapter-opening case illustrates many of the complexities and challenges that today's managers face in strategic management, that is, in managing strategically. Zynga's strategic initiatives will affect what its managers and employees do. Even managers at other entertainment and game design companies have to decide whether and how to respond to Zynga's strategic moves. Such strategic decisions are common in today's competitive environment for all types and sizes of organizations. Understanding the how and why of strategic management is what this book is about. By studying strategic management, you can begin to understand how employees manage various strategic issues. Then, whether you're an art director in Austin, Texas, an engineering manager in Bangalore, India, or a data analyst in San Francisco, you'll be able to recognize and understand strategic decisions. What kinds of changes might be needed? How might these changes affect my work or my team?
In this introductory chapter, you'll get a taste of what strategic management is about. It's divided into three major sections: why is strategic management important, what is strategic management, and who's involved with it. The one thing not included is the how aspect. Don't worry! That's what the rest of the text covers-how you actually do strategic management. First, though, we want to look at why strategic management is important.
1. What is Zynga's goal? How will that goal affect the way strategies are pursued? Try to be as specific as possible.
2. How do you build a viable business getting people "to buy a bunch of things that don't exist?"
3. What do you think it will take to be successful in the game industry? What challenges does this industry face?
4. How might Pincus and his top management team use the strategic management process to continue making real profits in virtual worlds?