When Will Zynga Stop Riding on the Success of Others?

In every conceivable way, Zynga relies on others to fill its bottom line. Which, at this point, is rather empty. But don't tell that to investors, who bought into the social games company, boosting its share price by more than 16% yesterday following the news of Facebook's (FB) IPO. But Facebook is a different entity. It could break records when it begins trading later this year, but that still won't change the fact that Zynga ZNGA is a seriously troubled company that is losing $150 on every new paying customer. It's no secret that Zynga's entire business model is tied to the success of Facebook. But did you know that the company is also the video game industry's leading plagiarist? Despite hiring some talent from other, more respectable corporations – including Electronic Arts EA – Zynga has repeatedly shown that it has no intention of developing original content. The word on the street is that Hidden Chronicles borders on originality. But without much experience in playing hidden object games (one of the few genres I don't play regularly), I will have to pass on giving it a proper critique for the time being. Even if Hidden Chronicles is original, that doesn't change the fact that everything else in Zynga's lineup is absolute trash. The games aren't just bad knock-offs of existing titles – they are downright boring! People have been known to become addicted to them, but recent data shows that the addiction is wearing off. Consumers have been moving from game to game, hoping to find their next fix. But with Zynga, they aren't having much luck. This isn't a problem for the social games industry, which is still in its infancy. At this stage, social game developers have yet to find a long-term business model that works, and few of them are able to produce games that are actually fun. If Zynga were to fall off the face of the Earth right now, only the most loyal FarmVille players would notice. The rest of the world would pack up and move onto something else. Unfortunately, “something else” may not include other video games. The potential benefit of Zynga (and its mission to develop the most menial and mainstream games possible) is that it could function as a gateway drug to other, more involved video game experiences. That was the hope, at least. But Zynga, like any fad within the game industry, is only capable of expanding the market on a temporary basis. Zynga's games have not had the same affect on Average Joes that Nintendo Wii had on senior citizens (who may or may not also buy a Wii U – we'll see). These were paying customers who accepted the launch price of $250 (along with games at $50 and controllers at $40 apiece). In my experience, most of these seniors did not acquire more than five or 10 games after purchasing a Wii, indicating that Nintendo (NTDOY) is limited in how many games it can market to older gamers. But that's true of some younger players as well. Not everyone is going to stock their shelves with three-dozen games. But if Nintendo could sell five games to every customer, it would make a very nice profit. While Apple AAPL and Google GOOG may not be able to permanently expand the video game industry, they are definitely having a more positive impact on the market than Zynga. Whether you play games on an Android or iOS device, you are likely to be paying customer. There are free options, but they usually serve as a catalyst for actual sales. Plus, users have to buy special hardware (the iPhone, iPad, iPod Touch, an Android phone, or an Android tablet) to play these games. That's not true for Zynga's games, which can be accessed with virtually any Web browser. People come. They play. They get bored. And they leave. The amount of active users is diminishing. While it is wholly possible that this will change in the future (don't count on it), it won't change the fact that Zynga still hasn't figured out a realistic way to profit from its users. So what's the point in having any users at all? Zynga's ad revenue isn't strong enough for the company to survive on promotions and sponsorships alone. Investors (and consumers) need to realize this before placing their trust in the hands of a company as dangerous as Zynga. Follow me @LouisBedigian