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Red Wedding: Zynga stabs the $200 million bride

Zynga OMGPOP Acquisition Analysis

A year ago, Zynga spent $200 million to buy OMGPOP, the creator of a popular game called Draw Something. Within 48 hours of the acquisition, Draw Something started dropping down the rankings of the United States app charts. By August 2012, the game that had been No. 3 top-grossing app on the iPhone in early April had dropped out of the top 100 chart. And now Zynga has basically closed down OMGPOP, a $200 million acquisition that turned into dust in 14 months.

In classic Zynga style, some of the key OMGPOP employees apparently learned about the move via Facebook. Industry sources are speculating today that one major reason for Zynga’s massive new lay-off wave is in fact the performance of the Draw Something sequel, which launched on April 24.

Draw Something 2 has been a target of intense scrutiny, because it is widely regarded as a test of how well Zynga can keep up with the rapidly evolving mobile game market. Since the first Draw Something game debuted, the app market has been blanketed by a blizzard of picture recognition games, most of them free downloads. “Hi Guess the Brand,” “The Pic Game,” “4 Pics 1 Word” and others have become hot properties over the past year.

Zynga chose basically to ignore the competition and launch Draw Something 2 as an expensive, direct sequel to a faded property. The game was priced at what now counts as a nosebleed level of $3. The results were disastrous. The paid version dropped out of iPhone top 50 download chart in three weeks. The free version dropped out of top 100 chart on May 28th, just five weeks after it debuted.

The $200 million game franchise had officially crashed and burned. One week later Zynga closed down the OMGPOP office and laid off hundreds of other employees on both coasts. The company aims to focus on mobile games in the future, trying to shake off its Facebook past. But the real problem for Zynga isn’t its Facebook dependency: It’s the fact that it seems to be astonishingly tone-deaf when it comes to handling mobile app franchises.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.