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Zynga Announces Awesome 1Q15 and Layoffs

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Part 4
Zynga Announces Awesome 1Q15 and Layoffs PART 4 OF 5

Zynga Returns to Amazon for Its Data Center Needs

Zynga turns back to Amazon for data center and cloud requirements

In 1Q15, Zynga (ZNGA) announced its plans to shut down its own data centers and transfer the computing workload back to Amazon (AMZN). This decision is a part of its $100 million savings program.

As we learned earlier in this series, in 2009 Zynga relied heavily on Amazon for its data center and cloud computing requirements. Later on, it spent $100 million to build its own data centers. As it turns out, operating these data centers wasn’t any cheaper than paying Amazon had been.

Zynga Returns to Amazon for Its Data Center Needs

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Amazon’s peers in the cloud space, Microsoft (MSFT) and IBM (IBM), have tried to attract customers by offering the “hybrid cloud.” In the hybrid cloud, enterprises use cloud technologies in their own private data centers as well as a cloud provider. Zynga developed software called zCloud for its data centers to facilitate switching between Amazon’s servers and its own.

As the above chart shows, Amazon (AMZN) continues to be a leader in the cloud space. It has a 30% market share and is followed by Microsoft (MSFT) with a 10% market share. Google (GOOG) and Salesforce.com are other leading players in the cloud space. These companies recorded 87% and 31% year-over-year growth in 4Q14, respectively.

Zynga’s focus is on gaming, not technology

David Moser, chief technology officer of Zenovia Digital Exchange, is of the opinion that “Running a data center is expensive.” He adds, “There are lots of mouths to feed when you have your own data center.”

This explains why Zynga closed its data centers. The move also shows that Zynga would rather be known as a gaming company than focus on technology.

If you’re bullish about the video gaming space, you might consider investing in the Sector SPDR Trust SBI Interest (XLK). Electronic Arts (EA) makes up about 0.47% of XLK.

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