I keep hearing people say that the OMGPOP acquisition ($180mm + $30mm retention) doesn’t make sense or is a sign of bubble prices, or wondering why OMGPOP would sell so quickly after an immediate hit. Without writing a super in-depth post, here’s why I think that it’s a value accretive deal (and good for both parties):
- First of all, Draw Something has a rumored 15 million Daily Active Users (DAU). That is a ton of active users; by contrast, Zynga’s Q4 earnings report placed it at an equal 15m DAU. With one purchase, Zynga doubled its mobile DAU. Mobile is clearly where casual gaming is going and this solidifies Zynga’s foothold for the future.
- On OMGPOP’s side, there is no guarantee of a second hit after Draw Something. OMGPOP produced a ton of games before creating Draw Something for iPhone and there is no guarantee that they will ever recreate the phenomenon. The lifecycle of games is such that people get bored of them and go on to the next one. What Zynga and other mobile publishers have done successfully is learn how to move traffic around their networks to keep their DAU when the audience tires of games. If OMGPOP had remained independent and failed to produce another great game, they might lose all the DAU they’d built up from Draw Something.
- OMGPOP as a company is 6 years old and had failed to achieve success before Draw Something - this is purely speculation but I imagine there was a fairly significant team fatigue and the team was jonesing for an exit.
Seems like a good deal for both parties: Zynga gains dominance in the more profitable mobile games market (compared with Facebook games), and OMGPOP reduces their risk significantly.
What do you think?