Is EA Going to Buy Zynga or Playfish in Social Gaming Bid?

ea_principal_250_rgbIn recent weeks we’ve been hearing rumors about gaming giant EA looking to acquire social gaming companies — specifically Zynga and Playfish. Both social gaming companies have denied the rumors, so assuming there are no deals that are about to be inked and announced, here’s what appears to be going on.

EA, as many in the gaming industry have expected, is starting to look around for acquisitions. If anything, we’re surprised we haven’t heard rumors about other gaming giants, like Activision/Blizzard and Ubisoft doing the same.

Zynga, as we wrote a couple weeks ago, has to our knowledge spurned funding earlier this year, and since grown revenue to possibly more than $200 million for this year. At some point recently, it was having “preliminary” talks with EA, according to multiple sources, with one person saying that the asking price was $1 billion. Zynga has flatly denied everything. We believe that Zynga could look to go public as soon as March, once its 2009 financials have been audited.

We have a few more details on what has supposedly been happening with Playfish. A reliable industry source says EA may have even acquired the company several weeks ago, with an announcement possibly happening in the next few weeks. We believe that Playfish could be on track to make as much as $75 million this year.

n102452128776_1831These companies have only gotten any serious traction in this past year. On Facebook, Zynga has grown from 60 million to nearly 150 million monthly active users in just the last three months, while Playfish has grown from 35 million to nearly 60 million in the same period, according to AppData. Those numbers do not include usage on other social networks nor on mobile devices. Zynga has a notably strong presence on MySpace. And, also, these numbers double-count users who have installed more than one game from the same company. So actual traffic is not totally clear. For what it’s worth, Zynga announced 129 million monthly unique users last month across all of its sites.

The third of the “big three” developers on Facebook is Playdom, which we recently heard is on track to make $50 million this year based on its 28 million monthly unique users on Facebook, MySpace and other platforms. It is in the process of raising more funding at a reported $100 million to $200 million valuation.

Fast Evolution

All in all, this growth has surprised the traditional gaming industry, which had not expected the primary revenue model — free-to-play games with virtual goods — to be nearly so popular.

cooking_playnow

The market dynamics at play are changing quickly. Besides cross-promoting new games with old ones, an effective means of growth has been advertising and especially on Facebook itself. Zynga is on track to spend $50 million on Facebook ads alone, we’ve heard from several industry sources. Ads have helped power the growth of farming simulation game FarmVille to more than 56 million and restaurant simulation game Café World to more than 10 million users in the week since it launched.

One reason for EA to move in and buy a social gaming company would be to use its financial power to spend money on advertising. If it were to buy Playfish, for example, it could start pumping money into advertising Restaurant City — Playfish’s months-old game that inspired Café World. Without as much advertising, Restaurant City has grown from 6.54 million monthly actives three months ago to 16.2 million today.

An EA acquisition of Playfish would also help validate many successful social gaming companies, as would a successful Zynga IPO. There have been no major liquidity events yet for social gaming companies, just purchases of small developer teams by larger shops.

There are other reasons why acquisitions may not happen quite yet. The holiday season is coming up, and social gaming companies are gearing up to introduce holiday-themed games and goods, especially virtual gifts. They may be hoping to execute especially well for the rest of the year, and push their user numbers, revenue — and valuations — up from what they’re at now.

Some risks have also not been allayed. Facebook itself is getting ready to roll out a new redesign to its homepage, which could slow down gaming app growth. The redesign the company introduced in March featured a raw stream of recent updates, including updates from apps. It may have helped fuel the explosive growth that some apps have been seeing. Now, Facebook is moving back to an algorithmically-tuned feed that may or may not de-emphasize apps. However, let’s say EA were to buy Playfish. This would mean potentially more ad revenue for Facebook, and a massive validation of its platform. For this reason, we would hope that Facebook will handle significant site design changes carefully so as not to damage the overall social gaming ecosystem.

Meanwhile, aspects of the virtual goods model are still not entirely proven. Advertising offers, which Zynga and Playdom have relied on for substantial parts of their revenue, may not sustain the relatively high rates that developers have enjoyed in the past year. Fraud, user exhaustion, and other factors may come into play too. For these reasons, we hear that Wall Street is most concerned about revenue sustainability for social games.

In sum, Zynga, Playfish, Playdom and the rest of the industry are frantically trying to grow and make money (sustainably) in order to prove themselves. Now still appears to be the time for execution, as the companies are hoping to increas their asking prices for any sort of purchase or public offering down the road. While EA or another big company could certainly swoop in now, we expect these companies to delay any liquidity event until next year, at least.

To dig deeper into the virtual goods market, check out our new report: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010.

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53 Responses to “Is EA Going to Buy Zynga or Playfish in Social Gaming Bid?”

  1. Chris Fannin says:

    Zynga has horrible support and uses the same engine for all of their games. The only way they make money are from those who just don’t know what to do with it. Any spending in the game does not really enhance the game experience. They had potential with Guild of Heroes, but that quickly was crushed since they just don’t have the development expertise for something more involved than click-a-button games. PlayFish has more potential, but they too are lacking in many areas. If a software giant was to buy either one of these companies, they’d need to do some major work to make them a viable component of their business. A purchase of Zynga would require massive culling, beefing up of support, stabilization of the platforms, and many other improvements to make it a long-term attraction to most sane people. I have already dumped all of their games except YoVille. The only reason I’m keeping it is because I have spent money on it, and it has potential.

  2. dave says:

    The only Zynga game I liked was MHA, but it seems that they pulled the plug on that last week with out notice. Hopefully it will make a comeback as it’s more than just a button pushing game.

  3. mark says:

    For years those of us in the games business have talked about the ever elusive “mass market”. Like it or not, it looks to me like the public has spoken here, and hundreds of millions of players feel different than you or I do. Go figure, personally I don’t like these games either, but I can’t really argue with the gazillions of people who play them daily most of whom would never be caught dead in front of a PlayStation or Xbox. Clearly this is the sort of stuff that people want.

  4. Shai says:

    The social networks are going to start charging a “toll” on the gaming companies that have been generating all this revenue on their platforms. I would suspect that IF an IPO does take place for Zynga that the investors would hold off until the “toll” starts to take place as this does change the margins for the gaming companies. In addition, IPOs typically don’t take place while there is litigation pending, so I highly doubt an IPO would place as soon as March. Thoughts?

  5. Eric Eldon says:

    Shai, that’s an interesting point but Facebook’s platform philosophy has always been anti-toll. I have seen no evidence to indicate a change of heart.

    My guess: Facebook will eventually start pushing its own virtual currency, Credits, by doing subtle things like finding ways to promote apps that use Credits over apps that don’t.

  6. Dale says:

    Jeeze Chris, have you turned into a social gaming guro at comnetix? what did L-1 pay for you guys in an acquisition? I believe it was $1.17 a share. Don’t run us over in your ferrari.

  7. Anthony J says:

    An Open Letter to Zynga CEO Mark Pincus and to Mark Skaggs, Eric Schiermeyer, Michael Luxton, Sim Sing, Scott Dale, Justin Waldron, Colleen McReary and Lisa Chang of Zynga News, Zynga Management and Customer Relations RE: Farmville Game

    Incident: 090930-002104

    Do you value your paying customers? Do you value your game testers?

    If so…please do the right thing and hear my plea.

    I have waited almost a week now to get my 300 plus Farmville bucks restored to my account because of some out of syncing problems after I tried the video professor offer.

    All I got was a response saying that I have already been credited.

    Thanks for your response but I don’ t think you got what I meant.

    I know I was credited for that Video Professor offer but what I am writing about is what happened within 5 minutes after I was credited for 300 farmville bucks.

    Can you check your records how many times the system went out of sync within that 5 minutes of me getting credit for the offer?

    My credits were lost in the system due to that numerous glitches from the synching process….

    I was writing to have my credits restored because I didn’t get the chance to use it.

    If you notice several purchased items in my account…that is because I actually bought it using my credit card….and not because of the free trial bucks that I was supposed to have received.

    If you cannot restore my 300 plus farmville bucks lost from your numerous out of sync messages on that problematic day on sept 24 when your system deleted my farmville bucks….

    I would have no other option but to ask for a refund of my $40 dollars….and stop playing farmville.

    It is just deceitful on Zynga’s part to offer these products only for you to actually erase it or lose it in the system by your “out of sync” messages.

    If your system messages have a choice of “yes” or “no” in terms of when the “out of sync” messages appear and you give the players a notice in advance that if you press “yes” we will lose our farmville bucks…then I would have not pressed the button after the out of sync messages.

    Please do the right thing and restore my missing farmville bucks because even though it was credited…I didn’t get the chance to use it because of the out of sync messages.

    Thank you and I am hoping for your kind consideration.

    Anthony J
    Level 33 Farmville
    Lveral 63 Mafia Wars
    Yoville player
    Vampire Wars player
    Fashion Wars player
    Pirates Player
    Cafe World player

  8. peHUB » peHUB First Read says:

    [...] * Is EA going to buy VC-backed gaming darlings Zynga or Playfish? [...]

  9. Finance Geek » Rumor: EA Acquires Playfish For $250 Million says:

    [...] Rumor has it Electronic Arts (ERTS) acquired Facebook games maker Playfish, Inside Social Games reports. [...]

  10. wtf says:

    facebook gets their tool from zynga in the form of marketing $$$ spent by zynga on facebook for player acquisition. i hear the number is running $50 million per year from zynga to facebook. which means zynga is chruning and losing players at stunning rate and so is spending massively to acquire new players. and also means facebook could crush zynga like a bug if it chose to — simply by raising zynga’s marketing costs

    separately, has no one but me heard the rumor that zynga is under investigation by a couple of state attorneys general for violating gambling laws?

  11. RUMOR: EA Acquires Facebook Games Company Playfish for $250 Million says:

    [...] 14th, 2009 | by Barb DybwadView commentsComments This is in the rumour stages right now: video game mega-corporation Electronic Arts may have already bought social gaming [...]

  12. Laurent Courtines says:

    To me the acquisition makes sense. Especially at that price. Merging the Pogo and the Playfish team or at least sharing knowledge could be a coup for EA.

    Pogo has been essentially doing what the social networks have learned to do for years. Increasing engagement by letting players show off.

    This is a perfect mix and I think that EA could be getting a deal!

    For more check out the Libe Goad’s coverage on blog.games.com!
    http://blog.games.com/2009/10/14/rumor-electronic-arts-snaps-up-playfish-for-250-million/
    (yes it’s a plug!)

  13. Did EA Just Drop $250M On Social Gaming Dev Playfish? | Kotaku Australia says:

    [...] Inside Social Games reports that EA may have secretly snapped up Playfish weeks ago, adding its popular social games Pet Society, Restaurant City and others to the mega-publisher’s portfolio. The site expects a formal announcement soon, but neither parties appear to be commenting. [...]

  14. EA kauft Playfish?: “Kein Kommentar” - GamesDienst says:

    [...] Milliarde US-$ verlangt habe. Zynga strebt nun angeblich den Börsengang im nächsten Jahr an. Inside Social Games, 4players, Gamasutra Thomas Gigold Tags: keine vorhanden 15.10.2009, 10:17 [...]

  15. Paid Content : paidContent Quick Hits: 10.14.09 says:

    [...] »  Will EA buy social gaming companies Zynga or Playdom? [Inside Social Games] [...]

  16. Playfish von EA gekauft? | Gamers Club says:

    [...] Inside Social Games soll EA Playfish für 250 Mio. USD gekauft [...]

  17. Electronic Arts Acquires Faceboo Game Developer Playfish for $25 million says:

    [...] has been rumored that EA is just about acquire or has already acquired Playfish. Playfish is a Facebook game [...]

  18. Report: EA acquires social games dev Playfish| Latest breaking News on Video Games Hardware and Software.| BadPower.com Blog says:

    [...] sources claim EA has completed a deal to acquire social games developer Playfish, report Inside Social Games and Silicon Alley Insider. Unconfirmed estimates put EA’s buyout bill at $250 million, while [...]

  19. ZYGNA-Eat or Get Eaten…The Gaming Take Over Wars « Yo World News says:

    [...] grow in leaps and bounds as the number one online Social gaming company in the world.  Meanwhile (read article) rumor has it that ZYGNA could be the target of a takeover…so, take over or public stock [...]

  20. Has Playfish exited to EA for $250m? The VC chatter says yes. says:

    [...] report by Inside Social Games suggests the deal was struck weeks [...]

  21. Bizzmodels.com » Blog Archive » Why Social Gaming Is Ripe For A Major Acquisition says:

    [...] Arts (NSDQ: ERTS) potentially buying hot social-gaming company Playfish—with sources telling Inside Social Games that the deal may have closed “a few weeks ago”, and GamesIndustry.biz reporting that [...]

  22. EA จะซื้อบริษัทเกมบน Facebook | Wordpress.Tligg.net says:

    [...] – Blognone.com – Inside Social Games [...]

  23. Virtual Currency – Media Types for Online Games Applications | The Adsmarket Blog says:

    [...] already a part of the virtual currency wave as participants.   Look what may happen to Zynga! we can only learn and make more [...]

  24. More Rumors on EA-Playfish Deal: Due Diligence, Acquisition Numbers says:

    [...] has been looking closely at acquiring a leading social gaming company, Playfish, we and others have heard from multiple sources in the last couple weeks. However, we have since heard some new details about the valuation, and [...]

  25. Pet Society World » Blog Archive » Playfish to be purchased by Electronic Arts? says:

    [...] Looks Like Playfish Is Still In Play, Tech Crunch, The Washington Post October 23, 2009 More Rumors on EA-Playfish Deal: Due Diligence, Acquisition Numbers by Eric Eldon, Inside Social Games, October 23, [...]

  26. More Rumors on EA-Playfish Deal: Due Diligence, Acquisition Numbers | umojahosting says:

    [...] has been looking closely at acquiring a leading social gaming company, Playfish, we and others have heard from multiple sources in the last couple weeks. However, we have since heard some new details about the valuation, and [...]

  27. Former MySpace CEO Looking at Social Gaming Roll-up says:

    [...] in social gaming. Big, traditional gaming companies like EA are looking at either buying companies (possibly Playfish, we first heard some weeks ago) and are meanwhile building their own social games. Leaders, like [...]

  28. Why Zynga couldn’t go public soon enough – Customer Ecosystem Weakness « Customer Ecosystem says:

    [...] they have some leverage with Facebook…. heck, it’s been reported that they’re on pace to spend $50M annually on Facebook ads. However, as Facebook matures they are going to start [...]

  29. Low Down on Hideeni and the Cash Shop’s Immortal Wings | fritzified.com says:

    [...] There’s a rumor about EA Sports’ bid and a consequent purchase of PlayFish to the tune of US$250 Million, yes, and you can read all about that here. [...]

  30. EA Buys Playfish in Deal Worth Up To $400 million says:

    [...] In fact, as Inside Social Games readers know, we first heard much of the details from industry sources, around a month ago. From our first article: [...]

  31. EA Buys Playfish in Deal Worth Up To $400 million says:

    [...] In fact, as Inside Social Games readers know, we broke the story around a month ago. From our first article: [...]

  32. Susan says:

    Thanks for this article, I dropped by because I heard rumors of Zynga being sued for copyright violations by Nissan and others are lining up as I write. My SRPG of choice has been Street Racing since the day it came out. Over the past 4 months, the game has gone from bad to worse. Game developers fail to fix glitch after glitch, add items,then remove them. i.e.: they offered us (on Myspace) free favor points then took them away 3 days later claiming “exploitation” from players. The BBB gives them a big fat “F” in Customer Support and it is clear that players are dropping their apps at a much faster rate then they claim. The reason they look bigger, is thousands of folks make multiple myspace/facebook “dummy/imposter” accounts which adds to their growing account numbers. Zynga just does not care as long as their numbers go UP! Take off about 30 million users, and you would be closer to RIGHT about ligit accounts. Thanks for letting me post!!! -susan in AK

  33. Playfish COO: EA Acquisition Validates the Future of Virtual Goods in Social Games says:

    [...] a month ago, we first reported that gaming giant EA (ERTS) was looking to acquire large social game developer Playfish. Today, the [...]

  34. EA’s $400M Playfish Acquisition Bodes Well for Developers of High Quality Facebook Games says:

    [...] a month ago, we first reported that gaming giant EA (ERTS) was looking to acquire large social game developer Playfish. Today, the [...]

  35. Talking With Accel’s Kevin Comolli About This Week’s Playfish Acquisition says:

    [...] the acquisition of social game developer Playfish in a deal valued up to $400 million, that we first reported on a few weeks ago. The move was a watershed event in the young history of the social gaming space, [...]

  36. Zynga Raises $15.2 Million At a $625 Million Valuation — Or Is This Old News? says:

    [...] the number increasing over the course of this past year to $50 million, then $100 million, then $200 million. These days we hear far more incredible rumors, that we’re not confident enough about to [...]

  37. Is Facebook The Future Of Micropayments at 3D Research & Development says:

    [...] social game maker Playfish, with estimated revenues of up to $75 million from selling virtual goods in its games on Facebook and other platforms, has [...]

  38. Rumor: Zynga to Introduce Employee Stock Sale Plan as It Waits On IPO says:

    [...] that this is “way off.” Rumors about a $1 billion valuation have gone around already; we heard it in October, when rumors of a Zynga IPO were also circulating. Others have heard or estimated a similar [...]

  39. Taking Stock of Facebook’s Top Social Game Developers in 2009 says:

    [...] After its seminal sale to Electronic Arts earlier this fall in a deal worth up to $400 million, the company has appeared somewhat distracted [...]

  40. Qu’est-ce qui devrait Zynga faire ensuite ? | Tissu de folie says:

    [...] serait quelque part près du haut… 4.) IPO (ou sont achetés par EA) Tous les deux ont été dits, avec celui-là probablement mieux que le dernier. En tout cas, les 6 mois suivants ressemblent à [...]

  41. ¿Qué debería Zynga hacer después? | Tela de locura says:

    [...] estaría en algún sitio cerca de la cumbre… 4.) IPO (o son comprados por EA) Ambos han sido rumoreados, con el antiguo probablemente más probablemente que éste. Los uno o el otro camino, los próximos [...]

  42. Was sollte Zynga, als nächstes tun? | Stoff der Albernheit says:

    [...] 4.) IPO (oder werden durch EA gekauft) Beide, sind mit dem ersteren wahrscheinlich wahrscheinlicher verbreitet worden als die Letzteren. Auf jede Weise sehen die nächsten 6 Monate wie eine gute Zeit aus, um auf [...]

  43. Social Rumors about Chinese Gaming Companies: Tencent Looked at CrowdStar, Shanda Going for RockYou? says:

    [...] not just US game and media companies who are looking around at buying big social game developers. Chinese media and [...]

  44. Chinese Gaming Companies May Be Looking at Acquiring Top US Social App Developers says:

    [...] not just US game and media companies who are looking around at buying big social game developers. Chinese media and [...]

  45. Zyngaの(噂の)評価額$7〜$10Bはついにゲームソフト最大手EAを超えた says:

    [...] 前回メディアがZyngaに関して具体的に出した額は40億ドルで、それは新株発行を申請したときだ。Bloombergの記事は、流通市場SharesPostにおけるZyngaの現在の評価額が約62億ドル、これに対しゲーム機用やパソコン用ゲームの大手Electronic ArtsはNASDAQで時価総額が62億ドル、と言っている。EAはかつて、Zyngaを買収すると噂されたことがある。今日の価額でざっと計算すると、SharesPostが約61億5000万、NASDAQが61億7000万だ。 [...]

  46. Two of Playfish’s Cofounders Are Leaving EA says:

    [...] Arts’ purchase of social game developer Playfish in late 2009 was a watershed event. The deal, valued at up to $400 million, signaled that traditional gaming companies believed social [...]

  47. Demetrice Sedam says:

    Nice website, but a bit funny, I jumped straight to the comment page from your home page … Not sure if that was supposed to occur?

  48. Zynga’s Reported $7-$10 Billion Valuation Surpasses That Of EA says:

    [...] $6.2 billion market cap for console and PC gaming giant Electronic Arts, which was once rumored to be considering Zynga as an acquisition prospect. A quick glance today shows those numbers are [...]

  49. Zynga Scores Another EA Exec, Interactive Head Barry Cottle | TechCrunch says:

    [...] Cottle. Among a long list of other accomplishments, Cottle has been behind the acquisitions of social game developer Playfish, casual gaming leader PopCap, and mobile developer Chillingo — deals that allowed EA to [...]

  50. Playfish Product Leader John Earner Is Leaving Be An EIR At Accel | TechCrunch says:

    [...] and many other developers, and provided the revenue and traffic numbers that got Electronic Arts to acquire Playfish in the fall of 2009 in a deal worth up to $400 [...]

  51. paidContent Quick Hits: 10.14.09 — paidContent says:

    [...] »  Will EA buy social gaming companies Zynga or Playdom? [Inside Social Games] [...]

  52. Why Social Gaming Is Ripe For A Major Acquisition — paidContent says:

    [...] Arts (NSDQ: ERTS) potentially buying hot social-gaming company Playfish — with sources telling Inside Social Games that the deal may have closed “a few weeks ago”, and GamesIndustry.biz reporting that [...]

  53. Tyinternety.cz | Chystá se EA koupit Zyngu nebo Playfish? says:

    [...] na konci září, Zynga má potenciál letos vydělat přes 200 milionů dolarů. Podle serveru Inside Social Games byla nedávno o převzetí vedena předběžná jednání právě mezi Zyngou a EA, přičemž [...]

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