Zynga has not been performing well for quite some time now, as the game maker’s user base continued to shrink in 2014, losses mounted and few new major games were launched. Industry dynamics are not in favor of Zynga, suggesting a high-level of threat, says a report posted on Seeking Alpha by analysts at Trefis who analyze the performance of Zynga using the Porter Five Force model.
High competition, low barriers to entry
The social game maker is facing a high level of competition in the industry, which has a potential to grow in the future due to the low barriers to entry in the mobile gaming business. The gaming market faces intense competition as game developers try to get the maximum amount of each player’s time, attention and discretionary spending. The dynamic landscape of the mobile gaming market is increasing competition for game developers, with rapid game launches, rapidly changing mobile platforms and launches of new technologies, says the report.
The gaming landscape has only a few entries to barriers, making it less challenging for new entrants to the gaming market. Also with the mobile gaming market continuously evolving, a large number of players come to the market with new products and services.
Adverse environment for Zynga
Customers will have high bargaining power as their expectations continue to grow, suggesting these factors will put an upward pressure on development and customer acquisition costs over the coming years, says the report.
Further, Zynga’s business depends on suppliers of traffic such as Facebook, Google and Apple. Primarily, Facebook holds substantial bargaining leverage as it is distinctively positioned as the key source of distribution, marketing, promoting and payments for Zynga’s games, says the report.
As per the report, the mobile gaming market is expected to grow at a rapid pace over the coming years, and global mobile gaming revenue is expected to increase from $17.7 billion in 2013 to $28.2 billion in 2016. With so much potential, mobile apps can keep rising every day to challenge Zynga’s business, highlighting the threat from substitute products.
Overall, on the basis of Porter’s Five Force Model, the report assigns the following intensity to Zynga: competitive rivalry within the industry (high), bargaining power of customers (high), threat of new entrants (high), bargaining power of suppliers (high) and threat of substitute products (low to moderate).
