Contact: Jarrett Streebin
Zynga has become a serious collector of small to medium-sized game development studios, acquiring seven companies so far this year. Beyond just buying more titles, the company has used M&A to get into other markets. For instance, Zynga has expanded internationally with XPD Media in China, Dextrose in Germany and Unoh in Japan. With the latest purchase of Bonfire Studios, which was announced October 5, it goes beyond Facebook gaming altogether into console and PC gaming.
Founded in 2007, Zynga has grown from a small social games developer into the largest shop on the block. The San Francisco-based firm is the leading developer of Facebook games and makes its money by selling virtual goods in its games. (We looked more fully at the market for virtual goods in a recent Sector IQ.) Users can pay real cash to buy weapons for their mafia or crops for their farms. Things were going well until Facebook unveiled Facebook Credits earlier this year. There was even a standoff between Zynga and Facebook due to the 30% cut that Facebook takes. Eventually, Zynga gave in and signed an exclusivity agreement.
Still, we sense that the company learned a valuable lesson about being overly dependent on a platform that it doesn’t own. At least that’s how we might read the fact that six of Zynga’s past seven deals are in other areas of gaming. The diversification has seen Zynga broaden its international business with the acquisitions of Chinese firm XPD Media, German game engine developer Dextrose and Japanese social gaming company Unoh. And most recently, Zynga’s reach for Bonfire Studios added a startup that was founded by three gaming veterans with PC and console experience.