I want to know what kind of thought process goes on company/individual's mind when they decide to do an acquisition like this, for $200M, which doesn't make enough money to justify it.
You would think when you are throwing around that kind of money, they would do some rudimentary research?
How much money was omgpop making at the time of the acquisition?
MP: "FUCK! OMGPOP's drawsomething is the number one game! COPY IT!"
varucasalt.jpg
Legal: "Mark, uh - I don't think we can copy that one"
MP: "WHY?! - We've done it with everything else!"
Legal: "Yeah - but this one's too big, too successful. If we copy the number one game, it would be too obvious."
MP: "How much to buy it? I WANT IT!"
/stamps foot
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I picture an internal battle around wanting to copy it and realizing that there was no way to copy them without a PR nightmare - so they opted to purchase them for an insane amount... even though that amount was not reflective of their ability to maintain or succeed with future releases.
"They have a huge hit, and no money in the bank. Let's acquire them now, before they raise money, for relatively cheap, so we don't have to sink time and resources into developing a clone ourselves."
It probably went something like this: Zynga is in the hit-driven games business. Engagement around games has shifted to mobile, and Zynga is weak in mobile. Draw Something could have potentially been a new big franchise, and given the current state of affairs at OMGPOP, was probably already up for sale. $200M is not that much money to a company like Zynga, especially when they are handing out stock and not all cash. Add that to a little hype, and you've got the makings of a deal.
Zynga might have simply bought the userbase. Divide the paid $200mil to the number of users OMGPOP had at that time and then compare it to the amount you expect to gain per user once you have them consuming Zynga stuff.
Of course, this thought is not always what actually happens, but Zynga might have been desperate already at the time for new distribution channels, that they agreed to pay a premium for that bundle of users.
I think it's a testament to how quickly the business is changing and how increasingly broken the conventional wisdom surrounding investment and acquisition is becoming.
If you look at the way business worked in, say, the '80s most companies that became big did so by selling stuff, and having positive rates of return. And the general trend for a company that was growing was for it to maintain that growth for several years, or at least retain that level of business. But today business is far more ephemeral. Revenue can be far more sporadic, monetization can be far more complex, and the valuation of a "customer base" can be much more difficult because of that.
So you can get these flash in the pan products that produce millions of dollars in revenue for a few months but then maybe they go away just as quickly and aren't worth anything later. It makes for a weird market, and it makes for an even weirder industry, especially when things tend to be organized around "empire building" and such-like.
I suspect that in the future there will be more and more of a focus around project-based business services rather than organization-based services. Kickstarter, I think, is an example of this.
Highly speculative publicly-traded businesses have been around as long as there have been stock markets and aren't new at all. Historians have suggested that in the 1850s/1860s more money was made selling shares in mining companies than was ever mined out of the ground. In the 80s you had the S&Ls and the post-deregulation airlines. Then the Dot Coms and Enrons of 2000 era. Everyone just tends to conveniently forget, because the companies disappear and our memories are short.
The book Doing Capitalism in the Innovation Economy by William Janeway has a fantastic history of speculative bubbles and venture capital, and then some. It's a tough book to read if you don't have a background in finance and econ, but it's well worth the effort if you want to understand Western capitalism in practice.
I haven't checked, but I assume the OMGPOP deal was stock. If your CEO was selling stock like mad and your stock is currently worth a fraction of what it was valued at when you did the deal that is a strong piece of evidence that you never believed you "spent" $200MM. If you recast it as a $40MM deal (based on current valuations, iirc) it puts it in a different light. The instagram deal was similarly artificially inflated.
It seems a lot of these companies don't perform proper due diligence. As someone who went through the first dot com bust, I would've thought many of these companies would know better - I guess not.
At the risk of being (rather) trite, I would suggest that old saw, "Follow the money."
Someone was incentivised (for lack of a real word) to make this happen. I would look toward short term incentives and/or compensation.
Without getting into issues of culpability or "guilt", at a very basic level I can't help viewing the repeating series of these instances as simply being another form of "pump and dump".
They keep happening, because someone (or, a certain kind/role of someone) is making money.
How much money was omgpop making at the time of the acquisition?
That's probably an overly simplistic way of looking at it. OMGPOP had very little money in the bank but had just gotten a runaway hit with Draw Something. So they were a prime target to take over
Talking to users? I don't know if you saw anyone play Draw Something, but unlike every other social game I've watched my wife play, she seemed to talk about it as a horrible chore after the first two days.
You would think when you are throwing around that kind of money, they would do some rudimentary research?
How much money was omgpop making at the time of the acquisition?