If you own an IPhone, an IPad, or play games on Facebook, you’ve probably heard of the popular new app “Draw Something”. It’s only the #1 free and paid app in over 80 countries, has been downloaded 35 million of times, and is (apparently*) insanely addicting.
*For some reason I’m the only idiot not to have played it yet. I’m going to blame it on the fact that I just got the new IPad (which is amazing) and haven’t had time to explore all the apps I want to yet.
What you may not know is that OMGPOP, the company that created and owns “Draw Something”, was just sold to Zynga this week for up to $210 million. This is an incredible success story for a company that was considering shutting down as recently as 7 or 8 weeks ago.
Here are 6 takeaways from OMGPOP’s sale to Zynga:
1. Don’t Give Up
Most people see the success of Facebook, Google, Pinterest, etc. and probably assume that transitioning from a startup to a successul company with millions of users is relatively easy.
OMGPOP started in 2006 under a different name and created over 35 games before hitting it big with “Draw Something”. Similarly, Angry Birds was Rovio’s 52nd game and Twitter only had 500k users after 1 year.
OMGPOP had several chances to fold over the past few years, but the team had confidence in their products and persevered through years of unspectacular growth.
2. Know When to Cash In Your Chips
Some tech writers/bloggers are criticizing OMGPOP for selling too soon and not taking the time to capitalize on “Draw Something’s” initial success to build a bigger stand-alone business.
Everyone has their own risk-reward ratio, and I’d argue that selling to Zynga offers the OMGPOP employees (and investors) a fantastic opportunity to cash in on their years of grueling work while still having the ability to create great games working at Zynga. They have taken a massive amount of risk off the table, and after some of the struggles they endured these past few years, I don’t see any problem with that.
Even the VC investors, who put in about $16 million of equity, should be thrilled with this result as they have gotten a great return on their investment. If OMGPOP had decided not to sell itself and instead tried to leverage the success of “Draw Something,” raise further VC capital, and scale into a larger company like Rovio, there would be no guarantee (especially in a relatively hit-or-miss market like gaming) that OMGPOP would be able to create meaningful growth after “Draw Something”.
3. You Need to Diversify Your
Bonds Revenue , _***** (link NSFW)
From Zynga’s perspective, this acquisition also makes a lot of strategic sense. Zynga has become the market leader in social gaming and “Draw Something” clearly complements Zynga’s existing portfolio of popular social games as Farmville, Words With Friends, and Zynga Bingo.
More importantly, OMGPOP, and especially “Draw Something,” represent a fantastic opportunity for Zynga to accomplish its strategic goal of diversifying from an online gaming company to a mobile gaming company. While Zynga has been extremely successful online in web browsers, it has become overly reliant on Facebook. If something were to ruin the Zynga-Facebook relationship it would be quite damaging for both companies, but Zynga would be hit hardest as approximately 90% of its revenues come from Facebook. Relying on one company for such a high percentage of revenue is extremely risky as it gives Facebook far too much leverage over Zynga.
As Wu Tang Financial so aptly advise their clients in this brilliant (NSFW) Chappelle Show sketch, you gotta diversify. Zynga needs to pursue further avenues of growth beyond online gaming, and the “Draw Something” acquisition will help Zynga further expand its mobile revenues by adding millions of mobile customers who love playing the game. Additionally, OMGPOP’s employees will provide 50+ highly talented programmers and engineers who can develop Zynga’s future mobile games and help diversify its revenue base.
4. Silicon Valley Tech Giants Continue to Establish Engineering in NYC
While the success of Foursquare, Etsy, Tumblr, etc. have proven that the tech startup scene in NYC has been very succesful, only recently have the “Big Boys” from Silicon Valley actually placed engineering talent in our fine city. Twitter opened up its NYC office in October 2011, Facebook announced in December 2011 that it was opening a new Engineering Office, but Zynga previously had no engineering presence in NYC.
This acquisition allows OMGPOP’s employees to remain in NYC, which gives Zynga an established base to recruit future engineering talent in the City.
5. Keep it Simple, Stupid
“Draw Something” is delightfully simple. It has a catchy name that is clear, concise, and easy to find in the App Store. Also, from what I’ve read, it is ridiculously simple and intuitive to use - anyone from a 5-year old kid to a 85 year old grandpa can immediately figure out how to play the game. There are plenty other, older apps that have similar features as “Draw Something” but they either are harder to find or harder for customers to use. As my 7th grade math teacher used to preach to us, Keep it Simple, Stupid.
6. Apps Can Be a Popularity Contest
The App Store isn’t always the ultimate meritocracy in that the best products don’t always win. What seems to matter as much as quality is momentum. If people love your app, it will skyrocket up the rankings and likely stay there while it’s hot. The problem is that there is no set formula for figuring out what app people will love. It is extremely difficult to break into the iTunes Store’s Top 25 list, but “Draw Something” was able to go all the way to #1 in just about 1 month.
The CEO of OMGPOP tweeted this incredible statistic yesterday:
It took AOL 9 years to hit 1 million users It took Facebook 9 months It took Draw Something ~9 days
From what I’ve read, “Draw Something” isn’t really that unique of a game, but it really resonated with its users and has become an overnight success.
Congratulations to the OMGPOP team on all their success. Now I need to play this damn game to see what all the hype is about.