Will Online Poker Save Zynga?

August 17, 2012
Will Online Poker Save Zynga?

Zynga announced its intention to enter the real money online poker market in the first half of 2013.  Barring an acquisition of a company that is already poised to enter the Nevada online poker market, real money play will not be in the U.S.  If Zynga keeps their word and enters the real money online poker world, it will be in tough regulated markets or markets that clearly allow online poker.  Most of these markets are in Europe.

Several U.S. companies have entered the real money online poker market outside of the U.S.  There have been no success stories from those U.S. companies.  International Game Technologies took the easiest, but most expensive route.  IGT acquired the Entraction Network in 2011 for about $115 million.  IGT renamed the network the IGT Poker Network.  According to Poker Scout, the IGT Poker Network’s traffic is down around 50% in the past year.  Some of this is due to banning some gray area countries, some can be blamed on the fragmenting of the European market through ring fenced player pools, and some of the losses can be attributed to the overall decline and increased competition in the online poker industry.  Regardless of the reason, online poker is not the gold mine it once was.

Some U.S. companies took a less expensive route than buying an existing network.  These companies, including Yahoo, Caesars Entertainment, World Poker Tour (before its merger with Party Gaming), and Playboy, all licensed their brand or bought skins on existing networks that serve regulated and fully legal markets.  These brands either closed or provide little to no revenue for their parent companies.  World Poker Tour (WPT) managed to fail twice.  WPT was a standalone poker room that purchased their poker software from Big Bet Poker, an online poker room that failed in 2004.  After that did not work, the company bought a skin on the now offline Cryptologic Poker Network.  The company vacated their contract with the network and surrendered their players to the network’s Interpoker skin in 2008 to cut their losses.

Zynga is better poised in terms of player counts than the big brands licensed to offer online poker before them.  The problem is that Zynga knows how to convince Facebook users how to spend a few dollars to increase their Farmville levels or buy millions in play money chips for their Texas Hold’em Poker app.  The company has no experience on how to convince a play money player to make a deposit for more than a few dollars.  If these play money players wanted to play real money poker, they would be playing it, and not the social play money poker games available through Facebook.  These players are either based in countries where online poker is widely available or the players are located in countries such as the U.S. where Zynga is unlikely to be a major factor for years to come.

Zynga also does not have viable software for real money games.  In fact, most real money online poker players would laugh at what Zynga calls software.  It operates as an app within Facebook’s interface.  It is slow with many distractions that most experienced players would find annoying.  This is why Zynga has been rumored to be seeking a real money software platform.

After Shuffle Master backed out of the Ongame Network purchase, Zynga was rumored to be the new front runner to purchase one of the top online poker networks from BWIN.PARTY.  Industry insiders are now suggesting the Ongame negotiations have ended and Zynga will not be acquiring the network.  The industry is also discussing a potential partnership between Zynga and software providers GTECH G2 or Playtech.  GTECH G2 owns the Boss Media poker network while Playtech owns iPoker.  There have even been rumors about Zynga teaming up with Wynn Resorts in the U.S.  Any partnership with Wynn Resorts would require a real money software platform, something Zynga has yet to develop or purchase.

Zynga is a powerhouse in social media games.  The company reported 306 million monthly users and 72 million daily users in the quarter that ended in June 2012.  The problem is that the company only turned 4.1 million of those users into Monthly Unique Payers (MUP), which means paying customers.  That is just 1.34% of the monthly player base.

Even though Zynga’s stock price is down about 70% from its initial public offering and down 80% from its high, the company still has $435 million in cash and nearly $1.5 billion in assets.  The company is far from dead and can still make an acquisition in the online poker world that can make them factor.  The problem is that they are probably too late to the game.  With 35 million monthly active users on their Texas Hold’em Poker app, they at least have a chance.

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