Conflagration: Zynga’s OMGPOP acquisition torched nearly $500,000 a day

http://thenextweb.com/insider/2012/10/05/conflagration-zyngas-omgpop-acquisition-torched-nearly-500000-a-day/?utm_source=HackerNews&utm_medium=share%2Bbutton&utm_content=Conflagration%3A%20Zynga%E2%80%99s%20OMGPOP%20acquisition%20torched%20nearly%20%24500%2C000%20a%20day&utm_campaign=social%2Bmedia

by tylerlh • 14 years ago

71 65 14 years ago

thenextweb.com

samstave4• 14 years ago

Heh, call it Karma.

Kixeye, whilst having its own PR issues, has proven that FB gaming can be quite profitable and lucrative.

Luckily they don't have quite the bad reputation Zynga has for its practices - even though the CEO is a douchebag.

All of this Zynga drama is, to me, is even more an indication on how criminally wrong the FB ipo was; Zynga did the smart thing in IPOing first had the information about FBs worth would have been true - but they suffer tremendously based on how bad the ipo was...

The OMGPOP buy was a toss of 200MM on the speculation that FB was going to out goog the goog....

I am still surprised there really havent been any claims of criminality/litigation.

moocow012• 14 years ago

Kixeye may not have as bad a public reputation as Zynga but that "Racism at a gaming company" post ( http://news.ycombinator.com/item?id=4603611 ) sure did put them at the bottom of the barrel in my opinion.

samstave4• 14 years ago

One of my best friends works there - I'm trying to get the scoop on this from him.

Mvandenbergh2• 14 years ago

They fired four people over that, which certainly does make it seem that they take it very seriously.

trotsky3• 14 years ago

very hard to believe you can go from buy to writing down half the value in two quarters. either there was fraud involved or zinga is just looking for a convenient scapegoat + one time charge for their general malaise (which is what I'd guess)

andrewljohnson4• 14 years ago

Why do you find it hard to believe that a trendy game might fizzle in 90 days? I'm not surprised at all.

I could imagine Zynga turned some dials when they acquired the company that destroyed the user base.

I could imagine the game just got boring, to everyone (it did for me).

I could imagine there were some fairly impressive, but perhaps inflated, PowerPoint presentations given to Zynga, and things didn't go exactly as planned.

And I could imagine a culture clash that destroyed progress on the game, and in such a fast moving progress, standing still is as good as dying.

But mostly, I could imagine all of the above. Easy come, easy go.

trotsky3• 14 years ago

because franchise, staff, pipeline, cross-promotion, licensing ?

Mvandenbergh2• 14 years ago

Well, valuing companies with ephemeral products is always sort of hard.

samstave4• 14 years ago

You can see my earlier posts on HN about this - but I deleted Draw Something the day OMGPOP was bought by Zynga.

I have never had an FB account, never will and will never play a Zynga game.

I deleted my Quora account when they mucked with the privacy settings.

I take my account providing pretty seriously and will not sign up for companies services if I do not like their business practices.

I have dropped many a cell carrier for these reasons as well.

lurker143• 14 years ago

OMGPOP being down 50% in 6 months makes it better performing than the rest of Zynga! They are dragging up the overall market cap!

ipince• 14 years ago

Pardon my ignorance, but what does this mean? That Zynga will pay OMGPOP less than what we had heard? How can they do that?

(Sorry I'm not from around here and don't understand the "write down" language. I presume it's different than "underwrite").

Edit: from trotsky's comment I'm assuming it means they now value it for $x less than what they valued it before (what they paid for).

So how does this influence/affect the guys that came with the acquisition?

andrewljohnson4• 14 years ago

The author speculates that the OMGPOP team did not hit their $30M "earn-out."

When one companies purchases another, part of the deal is often variable based on future earnings, and if the acquired company doesn't hit the projected numbers, they get less money.

sillysaurus• 14 years ago

So how much money does the author speculate OMGPOP got?

smacktoward3• 14 years ago

what does this mean? That Zynga will pay OMGPOP less than what we had heard? How can they do that?

A writedown (see http://en.wikipedia.org/wiki/Write-off#Writedown) means that they are revising the previously announced value of an asset they own downwards. It means the actual value of the asset has turned out to be less than they thought. It's important to investors because the value of company stock is based in part on the value of the company's assets, so if one of those assets turns out to be a lemon, the value of the company overall is less than it was, which can drive the stock down.

how does this influence/affect the guys that came with the acquisition?

The article says that the last $30 million of the acquisition price was structured as an "earn-out," meaning that to get it the OMGPOP unit would have to have met certain mutually agreed-upon performance benchmarks. If the value of OMGPOP today is that much less than it was six months ago, it's unlikely they've hit those marks, so that payment probably won't happen.

For rank-and-file employees who didn't have an ownership stake in OMGPOP, there's less impact except insofar as it shows OMGPOP not performing, which increases the chance of Zynga dumping the unit, shaking up staff, bringing in new managers, etc.

rhizome• 14 years ago

Keep in mind this is Zynga, so this could just be the normal fuzzy-accounting we've seen in record and movie industry recoupables for decades. Even if they're not playing games with O's numbers to short them on the earnout, at the end of the day I still see it being possible that Z is just stuffing outside debt into OMGPOP because it makes better PR sense.

htmltablesrules• 14 years ago

ZNGA hasn't even been public for a year, yet their equity is now at an 80% discount from it's initial price. Not looking good at all.

alanh• 14 years ago

I haven’t played their annoying game in quite a few months (despite being addicted, despite myself, initially). I got a Draw Something email yesterday (contents: “Please? We know you love us! Here’s your username! You forgot, right? Haha! LOVE US!”) and cheerfully unsubscribed.

Edit to clarify: I paraphrased, obviously.

ojbyrne• 14 years ago

The whole "we love you" thing is vastly overdone. My car dealer sends me emails with that as a subject. My initial impression? Prove it.

sharkweek• 14 years ago

I remember the dealership I bought my car from kept calling once every six months to see how things were going. After a few years, my transmission blew and I contacted them to take care of it -- very quickly I realized how little they actually cared about me and my problems

rogerbinns• 14 years ago

My dealer sent me something in the (snail) mail declaring love to. I need to take my car in for a service that will cost $600 or so. They have been absolutely determined to make that as difficult as possible - eg online forms that don't work, emails that aren't answered, a general 'contact us' form on their website that turned out to go to their sales department who started spamming me and the list goes on.

bdr• 14 years ago

I forget which venture capitalist first said it, but a very wise thought is this: if it has become easier for any single app to garner millions of users rapidly...

This may be referring to cdixon's "Increasing velocity" post: http://cdixon.org/2012/04/11/increasing-velocity/

It's a hugely important idea that doesn't get enough attention.

tomasien• 14 years ago

Dixon also said "10mm is the new 1mm users" right? I've heard that cited quite often recently by VC's.

alexwilhelm13• 14 years ago

Alex here from TNW - yeah, that sounds right. Will take a look when I get a second and try to add it in.

timrpeterson• 14 years ago

i wish i could wish Zynga the best, but everything I read makes the CEO, Mark Pincus, and the company philosphy seem truly awful.

infinii• 14 years ago

I agree. Their questionable ethics when it came to copying successful games really stifles innovation.

fpgeek• 14 years ago

Was OMGPOP acquired with cash, stock or a mixture of the two?

To the extent that there was a significant stock component to the acquisition, this is somewhat less bad than it looks, since Zynga's stock is down so much (though, of course, Zynga won't want to make that argument).

moocow012• 14 years ago

I feel sympathy for any employees who exercised their options at IPO - that stock in after hours is at a rock bottom 2.28. Hope strike price was low.

adgar22• 14 years ago

> I feel sympathy for any employees who exercised their options at IPO

Why? People choose their alliances. OMGPOP and Zynga are both trying to cash in on fads without bringing much real value to the marketplace. Why should rank-and-file employees get more sympathy than the big fish running the show? They chose to do the jobs they did.

wpietri2• 14 years ago

You can still have sympathy for people learning hard lessons.

If you tell a kid "tie your shoes, honey," and he just takes off running, he could well face plant. If he does, you can still feel sympathy for him, and you can still be comforting. But you should also say, "Well, this is why keeping your shoes tied is a good idea."

Nobody's born knowing that delivering user value is the key to business sustainability, and there's a lot in American culture that teaches other lessons. If I judge by the people getting on the Zynga short bus, a lot of their employees are pretty young. Hopefully this is where they learn something about picking employers.

gfodor2• 14 years ago

It's harsh, but whenever I see Zynga's stock dip even lower its reassuring due to the signal it sends to smart people: what you work on matters.

tedunangst• 14 years ago

Companies doing "important" work have never gone out of business?

tensor• 14 years ago

Of course not. Society is driven by the frivolous more than the things that will advance us as a culture or species. Modern society is pathetic and has forgotten how to chase dreams.

Or rather, their dreams are no longer grand and hard things, but weak things like becoming rich so that one can simply party it up.

edit: and obviously there are a still some who dream big, I'm talking about my impression of the average attitude out there. I hope I'm wrong.

kooshball• 14 years ago

> It's harsh, but whenever I see Zynga's stock dip even lower its reassuring due to the signal it sends to smart people: what you work on matters.

I don't follow your logic here.

You're implying that the work done at Zynga is non-important, or is some how bad.

But plenty of smart people work at "important" world changing places and never hit huge success.

Plenty of smart people work at "non-important" places and end up hitting it big (like most year-old startup being acqhired these days).

smacktoward3• 14 years ago

I don't know if the distinction is so much between "important" and "unimportant" as it is between "building games that amuse people" and "building games that function as electronic Skinner boxes."

Ygg2• 14 years ago

I don't think it's so much "important" vs "non-important" as "regular business" and "evil". Zynga is known for spamming you with friends request, cheap gambling simulators such as *Ville, Mafia Wars (iirc), stealing from anyone they couldn't buy, etc. And lately their "offers" have been getting more and more gray, or so I heard.

gfodor2• 14 years ago

My logic is that if you went to go work for Zynga and consciously ignored what you were working on (and the ethics therein) because of hopes for the big IPO exit, you are now left with no money and the last several years of your life spent on something you regret. I'm not making any statements about my opinion on Zynga, but based upon the press and popular opinion here, you can be sure there were engineers who turned a blind eye to what they were working on in hopes of striking it rich.

My point is that regardless of the monetary prospects, how you choose to spend your time matters, because the only certain thing is what you are working on now, not the payout in the future.

buyx• 14 years ago

I've posted about this before- I live in South Africa. My domestic worker started playing Angry Birds last year with my then two-year old. It was a hook that got her into computers, something that intimidated her until then. She got a computer for her family back home. A door was opened that was until then shut.

Deciding what "matters" is a trickier than we think.

JonnieCache• 14 years ago

Angry birds falls under none of the criticisms people make of zynga's output. It's a honest-to-goodness, (relatively) original and fun game. People play it because they like it, not simply because they need the dopamine hit.

Aloha• 14 years ago

I'm not surprised.

Everytime I see a webapp like this, I always wonder to myself "where's the click".

I dont see a future for SaaS that is not targeted at people directly forking money over for it.

nostrademons• 14 years ago

Including Google and Facebook?

fletchowns• 14 years ago

Nah, there will always be plenty of ad space and privacy to sell.

ChuckMcM• 14 years ago

Presumably this isn't entirely unexpected, and the 'torching' comment is over the top. Microsoft wrote off $6.2B of their AQuantive purchase in July, assuming 2000 days (5 years plus a few months) that is $3.1M per day, roughly 6x the 'torch' rate in this article.

The stock price was already valuing them a lot lower than their pre-OMGPOP buy so this seems more like a recognition of that in order to make their balance sheets look a bit more credible. I had stock positions invested for a while in Activision (90's) and Vivendi (early 2000's) and generally they seemed pretty random. A hit and the price would rocket up, a flop and it plummets down. That suggested to me that a 'fashion' stock (where the product was as much fad/fashion driven as it is quality/non-quality driven) is really only good for trading, not for longer term growth. Got out of both positions at a small profit but a lousy return.

Contrast that with a company like Milton Bradley though, which milked the Monopoly game concept for millions if not a few billion dollars. It seems like games are more like 'books' or 'music' or 'movies' than something more durable like a 'word processor.'

The treatment Zynga getting re-assures me that we aren't in a bubble, in spite of what some would say (although not so much now, which is nice).

ahelwer• 14 years ago

Back around the Instagram acquisition when HN went are-we-in-a-bubble-centric for a while, an opinion I read a few times is that you shouldn't be worrying about the bubble popping when everyone's talking about it, but rather when everyone stops.

Kind of a baseless argument, really. Still, has much changed? Isn't VC money still sloshing around the valley? Aren't startups starting up in ridiculous numbers? Isn't everyone and their dog an angel investor? That was my impression of where things were heading before stories about it dropped off in regularity. Even up here at the University of Calgary this year I've seen ads asking for talent to join startups, which is a first as far as I've noticed.

Tsagadai• 14 years ago

I wonder how much of that write down is due to Zynga's management of OMGPOP. Their games went from fairly fun to complete spamballs (popups and constant, invasive advertising) in a matter of weeks after the acquisition. That caused almost everyone I knew who played it to stop. Draw Something has unplayable responsiveness on older Android phones after the "updates".

buro9• 14 years ago

^ This.

Everyone I know who was playing Draw Something stopped playing in the 2 weeks following the acquisition.

None of them cared that Zynga took over, but they cared that they were being spammed, that the same words were coming up constantly (best way to kill the game experience), and that the service degraded visibly (lost games, inconsistencies in games, server not available).

As the games involved 2 people, as soon as some of my friends found it to be a poor enough experience and stopped using it... the whole thing unravelled really fast and the whole group of friends just stopped using it.

I couldn't make sense of it: What did Zynga do to OMGPOP? Or did OMGPOP do this to themselves in trying to justify their worth to Zynga? Did they cut servers to reduce costs, whilst 'monetising' every possible angle in the app to bring in revenue?

Whatever they did, it worked. Just not in the way they wanted.

chris_wot• 14 years ago

Can someone explain in simple English what a "writedown" means?

antr• 14 years ago

All a "writedown" means is a reduction in the recognised value of an acquired asset or company.

In this case Zynga states:

"...$85 million and $95 million (excluding any income tax impact) related to the intangible assets previously acquired in connection with the company's purchase of OMGPOP."

So Zynga is saying that they overpaid, or that the asset is not performing as they wished, i.e. so they are writting-off the intangible value (the difference in price between OMGPop's real assets when acquired and its acquired price). In this case they are writing-down $85m-$95m of a reported $200m dollar acquisition - a 43% to 47% reduction in value.

rdmirza• 14 years ago

Did anybody else see this oddball response by the author to a compliment he got in the comments?

alexwillhelm: "The fuck are you banging on about?

I linked because that bit is one of WolframAlpha's more useful features. It's a great way to get time scale when you need it. Have fun counting by hand, you Luddite. You are right that "a lot" of journalists would not have done that. Thank god I am not one of those. Also, next time you waste my 30 seconds, have a point. Yes you fuckwit, it is in fact "MAJOR." A"

Insane.

89a• 14 years ago

Best bit of the article:

http://i.imgur.com/1sLPB.png

what the fuck Alex Wilhelm?

nicholassmith• 14 years ago

If Zynga had been smart with OMGPOP they'd have probably made a fortune from it, but instead they did what they did to Words With Friends and killed it. Amazingly when you start dropping the quality of the game, making it increasingly spammy and introduce seriously reliability issues people aren't going to return, and there's your profit centre gone.

fredsanford• 14 years ago

Too bad we can't talk Larry Ellison into buying Zynga so 2 steaming piles get flushed at one time.

Conflagration: Zynga’s OMGPOP acquisition torched nearly $500,000 a day

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