Quick Thoughts On Business Models

Zynga shares sunk 18% today after they released earnings showing they made 5 cents a share (excluding compensation costs for going public) on $311.2 million revenue for the quarter.  What's interesting about Zynga is that they reported that they have 54 million daily users and 240 million monthly users.  Count me among the monthly users-- my girlfriend and I occasionally like to play "Words With Friends", "Scramble With Friends" and "Hanging With Friends" on our Iphones.  The problem for Zynga is that we've never paid for it, and Zynga hasn't really compelled us to.  And considering they have so many users and so little revenue from them, almost everyone must feel the same way.  Sure you can buy these games for 99 cents if you would like to be able to skip the 5 second ad after each play, but this has not been inconvenient enough for me to care.  Zynga needs to improve their business model in order to be successful.  I'd probably institute a policy where you can play each game 10 times a month, and if you'd like to play more, you have to pay the 99 cents.  I don't know anyone who plays these games that wouldn't do that.  This will also be Facebook's problem.  It's great to have a product with wide reach--making that product profitable is the problem.

UHaul on the other hand has figured out a way to make free money in one of the most ingenious ways I've seen in a while.  I recently rented a UHaul for my move from Chicago to DC.  When I got in the vehicle, the gas tank was only a quarter of the way filled.  I was told to return it at the location with that much gas left in the tank, or I'd be charged a $30 fee and $5 per gallon.  Obviously, if I returned it on empty, this would make sense.  They'd charge me $30, fill it up to a quarter tank, and charge me a premium on the gas.  The genius of this business model isn't for that situation though.  It's for someone who picks up the truck with a full tank of gas.  The same rule would apply.  But lets say the person returns it at just over 3/4s of a tank.  They'd be charged the $30 and told what the $5 a gallon gas charge would be to get it back to a full tank.  Only UHaul wouldn't have to actually put in any gas at all.  They'd just tell the next person to return it at just over 3/4's of a tank.  So they potentially made about $100 for doing nothing. If the next person returned it at a half tank, there's another $100 for doing nothing.  If the next returns it at 1/4 of a tank, another $100.  By the time someone returns it on empty, they would have charged $400 for the $40 charge of filling it up a quarter tank.  I don't know if any rental car companies use this model (I've only ever gotten rental cars at full tanks) but it seems brilliant--and something they should consider doing themselves.