Zynga poker CEO Mark Pincus announced this week the release of its real money poker application that it hopes to use starting in 2013. Zynga, which is a Facebook application, has gained customers steadily and has expanded its operation on mobile devices and desktop computers. In fact as a play money site, no poker product comes close to Zynga. According to Pokerscout.com, Zynga has over 122,000 daily players compared to only 25,000 play for fun users at PokerStars and less than 2,000 at any other site. Zynga makes money from its sales of advertising and virtual goods and revenue at the company in 2011 was over a billion dollars. The company actually lost money, however, in 2011 due to stock problems. Facebook’s current decline in share price is actually somewhat due to Zynga’s losses.

Pincus and other investors believe that Zynga would be more successful if it added a play for money poker room to complement its play for fun room. Naturally because the company is based in San Francisco it would have to set up operations offshore and ensure that no American clients could access the real money site (the company is incorporated on the NASDAQ). The company hasn’t announced officially where it has applied for a license but suggestions indicate it will be either Malta or one of the other popular offshore destinations in Europe like the Isle of Man, Alderney or Gibraltar. Alderney could be the front runner since the jurisdiction is trying to improve its image following the Full Tilt debacle so it may offer Zynga some special incentives. Alderney also indicated that it is introducing new regulations to boost consumer confidence including the requirement of segregated accounts for post up and operating capital.

In a conference call with the website Digitaltrends.com, Pincus stated the following:

“We have our first products in development and we intend to release them in markets that are regulated and open subject to our getting licensing. The U.S. is obviously an attractive market, but it’s not an open, regulated market”

What makes Zynga particularly interesting and is the reason sites like Poker Stars and Party Poker should be nervous is the platform the company has designed for mobile devices. In the last few years numerous sites have tried to implement a good mobile poker product but with little success. The poker products have been relatively unstable and ineffective on hand held phones and tablets. Zynga, on the other hand, has created a product that operates very effectively on iphones, ipads and android devices and rumor has it that the new product that it will be going live with is even better. Not surprisingly this has many poker players who may never have even used Zynga very interested. Playing on a desktop may be the norm but it’s useless for those who may want to play at work, on their lunch break or even while at an outing or on vacation. I personally have never played Zynga poker but a colleague who plays both play and real game poker was happy to provide his comments about the application:

“It’s an excellent product and is actually better than most desktop products. When I’m playing on a desktop network errors always seem to occur during crucial parts of the game which interferes with the play but I’ve never had that issue with Zynga on my iPad. And the graphics and speed of play are better than either PokerStars or iPoker which I tend to play most often.”

Speaking to technical people at my local telephone and Internet provider, they acknowledge that disruptions in service are far less common on mobile devices than on desktops.  Since mobile devices communicate by satellite, downed power lines and other issues which often knock out either home internet access or electricity simply don’t happen on mobile. And when there is a disruption on a mobile network it’s usually brief.

There are suggestions that some poker companies and casino providers are interested in buying out Zynga but that hasn’t been confirmed and there’s no indication that Pincus is interested in selling anyway. One suggestion has it that PokerStars wants Zynga’s operation and will pay billions for it. The same way Google gave up on its attempts to produce a video sharing product and simply purchased Youtube for a billion dollars after Google realized it couldn’t develop anything better, suggestions have it that PokerStars and other poker companies are on the same wavelength about mobile poker and would rather buy the product and simply change the graphics to reflect their brand. Also, they want to be first with a solid mobile product and it’s unlikely that anything will be developed by 2013 which would give Zynga a big head start on them and other competition. But the price tag for Zynga poker would be astronomical and as mentioned it appears Pincus and other investors would rather try it alone for now. A partnership is more likely but still not probable.

Another suggestion is that Wynn is interested in partnering with Zynga to offer the product in Nevada as a live application once Nevada passes its poker law. Nevada will almost certainly require any licensee to have a land based operation in the state, so Wynn’s casinos are clearly an ideal partnership. The application would also provide a product which all Nevada casinos have been striving for, namely a phone or tablet application which will allow patrons to play on its properties outside the casino via the mobile device. At the last American gambling conference I attended 3 years ago, casino operators in Vegas were stating how the ability to play poker, blackjack and other games legally on a mobile device while relaxing at the pool or in the hotel room was a major objective in getting attendance at the casinos increased again. So Zynga has the perfect application to help the casino operators achieve that objective. Zynga apparently is interested in that offer but they have to determine whether they can do so legally as a San Francisco based company. The last thing the company wants to do is upset the state of California and the DoJ.

Left out in the equation and something that must be considered is Facebook. Currently Zynga is accessed via Facebook and the product accounts for a large percentage of Facebook’s revenues. But industry reports have stated that Facebook is relying on other ventures to increase revenues and Zynga is a small part of the equation. Zynga products will always be a part of the company but they don’t seem to believe Zynga is an integral part of their success. It’s also doubtful that Facebook has any interest in delving into real money gambling. So it seems most likely that Zynga won’t have many objections from Facebook to taking the application and running it outside of the social network website which will be required to make it successful, just as long as the play for fun option stays on Facebook. Whether or not the company will be able to advertise the real money site to non Americans on Facebook or provide a link to the site on the social network is another story.

If Zynga is able to finalize its licensing issues and launch its product in 2013, current poker networks should be scared. Aside from having a proven mobile application, Zynga also has over 120,000 play for fun players who may be quite interested in moving to a real money game, albeit most of those 120,000 are Americans who would not be able to play offshore. Nevertheless, the product is proven and the potential limitless. Zynga may prove to be not only a great place to play poker but also a great investment opportunity at its current $3 per share.

Contact Hartley via email at Hartley[at]osga[dot]com.

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