Tuesday, April 13, 2010

It's the network, stupid

Zynga is on a roll. It's like magic: every new social game they launch on Facebook gets millions of users almost overnight.

At first, it's hard to understand how they do it. Their games are good, but not so much better than the competition. There is nothing exceptionally ingenious about their monetization strategy - they sell virtual goods like everyone else. Even the names are the same - PetThis, AcquariumThat, DinnerThis, IslandThat.

So what's the trick?

It's the network. Zynga's secret was to build a large user base, as fast as fast gets. From then on, it just gets easier. The so called network effect is well know in business and management (I mentioned it before in this post). What is interesting is that, due to the nature of social games, it's influence here can be absurdly strong, and probably explains why, comparing the number of users, Zynga is two times as big as the next competitor (which is Facebook itself).

And this advantage will only get stronger. The only thing that could change this would be some disruptive development, such as a complete new game format that gets everyone by surprise, or regulatory changes.

But I think this train has left the station. Zynga will remain the number one, and competitors will have to learn how to live with it.

[update] Just as expected, the threat to Zynga's dominance came from a regulatory change - not from regulators, by from Facebook itself. By severely limiting the use of viral channels, Facebook diluted the power of the network effects a bit. Evidence: Farmville lost about 20 million users in the last 3 months or so. [June 7th, 2010]

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