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Kyle Orland - Jul 27, 2012 4:25 pm UTC

Remember the days when a lot of "serious" gamers were worried that the runaway success of social gaming companies was going to lead to a world where mindless, microtransaction-pushing social games would crowd out the rest of the industry? Those concerns are looking somewhat quaint this week after market leader Zynga posted results that were much weaker than expected, sending its stock price tumbling.

Zynga's stock fell roughly 40 percent, to a price of just over $3, after the company posted per-share earnings of just a penny, well below analysts expectations of 6 cents a share. The stock is down almost 80 percent from a high of $14.69 back in March, and market analysts have severely scaled back their guidance on the company. “We were wrong about the current state of Zynga’s business,” Morgan Stanley's Scott Devitt said flatly in an analyst note. “Something smells in FarmVille," wrote Evercore analyst Ken Sena, who thinks the stock will continue to fall.

Indeed, the collapse in the user base for the once-dominant FarmVille is indicative of a wider problem Zynga seems to be having with long-term player retention on its games. After peaking at over 80 million players in early 2010, FarmVille is now down to a paltry 18.6 million monthly users, according to AppData. Compare that to a game like World of Warcraft, which, while also on the decline, has managed to hang on to 10.2 million of the peak 12 million paid subscribers it had in 2010.

Sure, most games would have trouble attracting the same level of player interest two-and-a-half years later. But Zynga's free-to-play business model relies on keeping its games widely popular for as long as possible, so a small minority of players will continue spending the Facebook Credits that pay the bills.

Zynga tries to extend the longevity of its games with the frequent addition of new items and small gameplay tweaks. Players still end up leaving in droves, though, mostly because the core experience of its Ville games isn't enough to keep most people interested for very long. After a week of playing these titles for a few minutes a day, anyone with half a brain will have utterly mastered the basic strategy of maximizing the inflow of resources while minimizing the expenditure of time and clicks. After that, the gameplay experience boils down to mindlessly performing the same exact actions by rote as you watch your numbers go up while your tiny virtual empire expands and becomes a little more efficient.

Meanwhile, the games are constantly badgering you to annoy your friend with cries for in-game help, or to spend real money on making the auto-pilot resource engine go faster, making a large part of each gameplay session an exercise in closing pop-up notifications. It can be an addictive experience, and some users will stay on the hook for months or years. But the user numbers show that the vast majority of players who try these games out quickly get bored and move on.

Zynga's strategy to combat the seemingly inevitable player attrition has been to release a steady stream of new games in the same vein, and to use aggressive cross-marketing to move the existing player base to the new titles. So FarmVille begat CityVille, and CityVille begat FrontierVille, and then came Adventure World, CastleVille, and The Ville. All in a roughly year-and-a-half period.

Each new entry puts a new visual coat of paint on the same basic social design, and maybe adds a few small "innovative" gameplay elements, helping to drive a wave of interest that gets a wave of free-to-play lookie-loos. But the core gameplay for each of these titles remains as simple and hollow as ever, and the user numbers inevitably fall off again.

What's really troubling for Zynga, though, is that each new release seems to be seeing further diminishing returns, with smaller user peaks and quicker drop-offs. While CityVille managed to attract over 100 million users at its peak in early 2011, CastleVille peaked at just over 50 million monthly users after launching last November, and is already back down to 16.7 million players (The Ville, which launched earlier this month, is still in the "quick growth" phase of the pattern). This isn't that surprising, since with each new wave of what's essentially the same game, more players are likely to be overly familiar with the basic concepts already, and get bored that much quicker.

To its credit, Zynga is diversifying a bit away from its core Ville games. Bubble Safari is attracting a decent 27.7 million users with a skill-based game in the vein of classic arcade title Bust a Move. Acquisitions like Draw Something makers OMGPOP and Words with Friends maker NewToy have also propped up Zynga's overall user numbers in light of declines in its legacy games. But without some sort of original breakout hit that is able to sustain a decent audience for months and years, Zynga likely won't be able to outrun the inevitable math of declining user numbers.

Or maybe there's another way out. Zynga CEO Mark Pincus promised in an earnings call this week that, next year, it will start offering games that let players gamble for real money in jurisdictions that allow it (which excludes most of the US). That would build on the success of Zynga's current most popular game, Texas Hold 'em Poker, and allow the company to exploit some of the oldest addictive game designs known to man, rather than trying to come up with its own.

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