作者：John Doerr & Bing Gordon
《FarmVille》显然是款仿制作品，但游戏的起源已经无法考证。现于Zynga任职的前EA设计师Mark Skaggs称这款新游戏的构思来自Bing Gordon。有天他问道：“我们为什么不制作农场游戏？”这正与Pincus心中想法一拍即合。
Skaggs是Zynga早期非常重要的设计师。他曾负责监管EA的众多PC游戏，这些游戏共售出1600万份，从《命令与征服之将军》到《魔戒：中土大战》。他在EA任职7年，从EA收购Westwood Studios开始。2005年他离开EA同他人联合创建Trilogy Studios，他们曾制作过一款大型多人在线游戏，但最终未能成功。所以Bing Gordon建议他加入Zynga。他很早就进入Zynga，因此给公司的游戏设计方式带来很大影响。
MyMiniLife成立于2007年，是个拥有400万用户的社交网络。但MyMiniLife极力想要留住自己的用户，Slide的Max Levchin首次提出收购请求，然后是Zynga、Hi5和Challenge Games。Zyng宴请团队成员，不断提高报价。Pincus在此交易中投入较多时间，最终于2009年6月5日达成协议，但收购价码没有向外公布。当时Pincus表现得异常果断。他凭借自己的直觉，促使团队找到正确方向，最终达成交易。
此时《Farm Town》遇到发展瓶颈，而《FarmVille》却在4-5天内就获得100万用户。该游戏当时已收获众多用户，该公司开始使用亚马逊的外部计算机服务（亚马逊Web Services部门外租公司核心电子商务不需要的数据平台）。
乔治亚理工学院教授Ian Bogost非常反感《FarmVille》，觉得游戏缺乏玩法，于是推出效仿作品《Cow Clicker》（游戏邦注：在此玩家的所有操作就是点击乳牛）。
2009年9月，Zynga发布《咖啡世界》，这是款餐馆建设游戏。这显然是是《Restaurant City》（游戏邦注：发行于2009年4月的Facebook游戏）的复制品。这款游戏由总经理Roy Sehgal负责，成为Zynga迄今发展最快的作品。Seghal曾在访谈中表示，Clubhouse Studio团队由25位制作人、产品经理、游戏设计师、美工和程序员组成。他们来自不同背景，不仅仅包括游戏领域，他们在这款游戏中投入5个月时间。并非所有人之前都有接触过游戏领域。
很快，Zynga的《咖啡世界》就获得2800万DAU，而《Restaurant City 》则只有1600万。这仿佛就是《FarmVille》vs《Farm Town》的翻版。
Pleasant的离开逐渐变成某种趋势。大型公司的高管们想要抓住热门社交游戏公司的赚钱机会，趁机谋取利益。在Pleasants离开EA前后，Simon Jeffery也辞去世嘉美国总裁的职位，加盟iPhone游戏初创公司Ngmoco（游戏邦注：这家公司由前EA高管Neil Young创建），担任执行主管。竞赛正拉开序幕，谁都不想落后。
他表示，2005年12月，EA同意以6.8亿美元收购Jamdat Mobile，此时正是手机游戏泡沫的巅峰时刻。风投资本家投资众多手机游戏初创公司，旨在期望能够获得同等收益，结果此高峰却逐步转移至虚拟世界，例如Second Life。
这种态度说明Pincus并不是只着眼于当前，而是放眼未来的更大可能性。他的情况和马克·扎克伯格很像，扎克伯格原本也有机会以10亿美元售出Facebook。据戴维·柯克帕特里克的著作《The Facebook Effect》所述，前Facebook执行总裁Owen Van Natta曾向扎克伯格提出收购要求。雅虎也伸出橄榄枝，想以10亿美元收购Facebook。扎克伯格回绝他的要求。据柯克帕特里克称，事实上，后来微软曾试图以150亿美元收购Facebook，扎克伯格也一口回绝。Pincus的情况和扎克伯格很相似，都是社交网络的天使投资人，他们的思维方式也很相近。
随后2009年11月9日，EA发生两件惊天动地的事情。据悉该公司将裁掉1500位员工，关闭众多工作室。裁员让游戏开发商有所感悟。M2 Research分析师Wanda Meloni发现，有60家游戏工作室在2009年7月-11月期间共裁员8450人。
此法律诉讼表明，业内竞争已变成一场白刃战。Zynga宣称公司前雇员（Raymond Holmes、David Rohrl、Martha Sapeta和Scott Siegel）离开公司时带走很多文件，其中包括“The Zynga Playbook”，这是涉及Zynga竞争武器的“秘笈”。若只是一个员工离开，那还影响不大。但现在是多个员工，其影响就不容小视。
Playdom随后承认Zynga文件被前Zynga雇员Chris Hinton转移到Playdom电脑，这些文件被用于同Zynga竞争。但Zynga Playbook仿佛就是所谓“复制内容”，而Playdom的行为似乎只是如法炮制。
科技博客Techcrunch曾撰文称Zynga 1/3收益都来自导引性销售和其他offers。Zynga内部人员称这不是实况。在众多争议中，Zynga开始采取措施移除欺骗性offers。但Pincus坚持提供CPA offers。
John Doerr and Bing Gordon
During this time, everything was moving fast. As Zynga expanded, it was able to bring on game talent in part because there was a recession that was killing off a lot of console game studios. Bing Gordon’s presence on the board of Zynga — and his regular presence at the company — gave the company better credibility.
Gordon knew what Zynga’s reputation was like and he tried hard to contain some of that damage. According to papers obtained by the SF Weekly, Gordon wrote a confidential memo to his partners at Kleiner Perkins.
It said, “Mark needs strong lieutenants to keep him from micromanaging.” Gordon suggested that he and another top executive play strong roles in the company to offset Pincus’s style. “Bing to temper Mark, and bring on board a billion-dollar game industry COO when Zynga gets to about $100 million.” The memo also warned that Zynga was overly reliant on Facebook.
But Pincus lasted far longer than anyone thought, given that he was running a game company. And he did so by finding talent wherever he could. He didn’t wait for the game developers to come to him.
Sometimes, Pincus found technical experts and asked them to become game makers. Justin Cinicolo, a mid-20s Carnegie Mellon University grad with a few years of work experience, decided to check out Zynga because his roommate got a job there and was coming home with a smile on his face. Cinicolo also joined early and was so thrilled at the fast pace and energy that he recruited another dozen Carnegie Mellon friends to join.
What Cinicolo found was that Zynga tried to live up to what it would later codify as core values. The company told its people to “build the games you and your friends love to play,” “Zynga is a meritocracy,” “Be a CEO and own outcomes,” “Move at Zynga speed,” “Put Zynga first, decisions for the greater good,” and “Always innovate.” Some might find that laughable, but Cinicolo could see the truth in it.
The idea of being a CEO resonated with Cinicolo, and it came from Pincus himself. Pincus recalled that, at his second company, he put some sheets on a wall and wrote everyone’s name on it. “By the end of the week, everyone needs to write what you’re CEO of, and it needs to be something really meaningful…. People liked it. And there was nowhere to hide,” Pincus said.
Cinicolo was installed as a producer on Mafia Wars after the game launched. His job was to keep it growing and to beat its competition.
In analyzing the game, he had to rely on tools from Cadir Lee, who had co-founded two other companies with Pincus and had joined Zynga when it had around 100 employees, in November 2008. At the time, Lee’s mission was to build the greatest data warehouse in the entire game industry.
Lee’s first job was to build a dashboard for analytics, taking it from a bunch of numbers to a user interface that could show producers like Cinicolo everything they needed to know about a game. They could do A/B testing, or test to see if gamers like a pink message better than a blue message. When the results came back, it was easy to decide which worked better and the company could learn such lessons at an extremely fast pace.
“We built analytics from zero to a competitive differentiator,” Lee said in an interview with VentureBeat in the fall of 2010. “We have a mass of infrastructure, analysis, and statisticians. It is the lifeblood of Zynga.”
Benjamin Joffe, chief executive of social game maker Cmune, said that Zynga made analytics into a science and operated on the principle of “do more of what works.”
That was another thing that traditional game developers hated. They wanted to design their games by intuition and craftsmanship, not popular vote. But some of them saw the logic of it. Normally, developers would work for two to five years on a console game and then find out on launch day if the gamers really liked it. With Zynga, a developer could create code that millions of players would see the next day. The feedback was immediate.
With analytics tools, it was a lot easier for Cinicolo to take the Mafia Wars game and boost it. Four months after it launched, it had around 100,000 users. Cinicolo’s goal was to boost it to a million. When he hit that, his boss Eric Shiermeyer asked him to take it to 2 million. In 2008, Mafia Wars generated 20 percent of Zynga’s revenue. The next year, Mafia Wars grew dramatically and it contributed $32 million in revenue in 2009 and $161 million in revenue in 2010. Mafia Wars still has about 6 million monthly active users.
“I went from project to project, with a ragtag group,” Cinicolo said in an interview in the fall of 2010. “I was creatively very energized. If stuff breaks, we fix it.”
Depending on the project, Cinicolo worked with Mark Pincus on a weekly or a daily basis, soliciting ideas from his boss on how to make the games better. The team would stick around for free dinners and drink beer as they talked about where to go next. By 2010, he transferred over to the mobile game frontier.
“Pincus acts like a partner,” Cinicolo said. “He’s never really a boss. He collaborates. In some ways, he has changed. He has gotten calmer. He is super-energetic and as passionate as ever. But he is more willing to do things like mobile where we know it will take some time before it becomes as successful as the web business.”
At age 28, in the fall of 2010, Cinicolo was in charge of a number of major mobile game efforts as general manager of mobility.
By the end of 2008, Maestri settled his lawsuit with SGN and won the rights to Mob Wars. Then, in September 2009, he settled with Zynga, which agreed to pay him $7 million to $9 million. By that time, Zynga had its own bone to pick with Playdom, which Zynga accused of hiring its employees in order to copy its games and steal its “playbook” for making popular games.
The making of FarmVille
In the spring of 2009, a small developer called Slashkey created a game called Farm Town. It was a simple farming game, not much different from farm games in China or the old Harvest Moon games on the consoles. All it did was enable users to simulate the life and growth of a farm. With only viral word-of-mouth for marketing, the game spread like wildfire, adding 300,000 users a day. Within a matter of a couple of months, it had more than 14 million registered users on Facebook.
It seemed like FarmVille was an obvious copycat, but the game’s origins are a little murky. Mark Skaggs, the former Electronic Arts game designer at Zynga, said the idea for a new title came from Bing Gordon, the Kleiner Perkins partner and Zynga board member. One day, he put his feet up on the desk and asked, “Why don’t you make a farm game?” It was a sentiment that Mark Pincus shared.
Skaggs was one of the instrumental early game designers at Zynga. He had been in charge of a variety of PC games that had sold more than 16 million copies at Electronic Arts, from Command and Conquer Generals to Lord of the Rings Battle for Middle-Earth. He spent seven years at EA, after the 1998 acquisition of Westwood Studios. He left EA in 2005 to co-found Trilogy Studios, which was making a massively multiplayer online game. That didn’t work out, so Bing Gordon suggested that he give Zynga a try. He joined early enough to have a lot of influence with the way Zynga designed its games.
Unfortunately, Zynga didn’t have a full team available. Skaggs had to look on the outside. Zynga was in talks to buy MyMiniLife, which had a few employees and a game engine that could be used for the farm game. Between Zynga and MyMiniLife, the team grew to nine people. They worked for five weeks to get the job done. Some of that work was done before Zynga had acquired MyMiniLife, which included Sizhao Yang, Amitt Mahajan, Luke Rajlich, and Joel Poloney.
MyMiniLife was started in 2007 as a social network and it grew to 4 million users. The company was working on a game engine for running Flash-based games on a social network. This was a tough thing to do, as Flash games could run notoriously slow, particularly if they weren’t customized properly. The engine was working well enough that it could be easily modified to run different games.
But MyMiniLife struggled to retain users. Max Levchin of Slide made the first acquisition offer, followed by Zynga, Hi5 and Challenge Games. Zynga wined and dined the team and kept raising the bid. Mark Pincus spent a lot of time working on the deal, which was closed on June 5, 2009 for an undisclosed price. It was one of those times when Pincus had acted very decisively on just a little bit of information. He used his instincts and drove his team in the right direction to get the deal done.
MyMiniLife had built a stable platform that could handle lots of users. Without it, scaling would have been an issue.
The production team moved so fast that they stole the avatars, or virtual characters, from Zynga’s YoVille game. Mothers using Facebook to monitor their kids’ activities or stay in touch with old friends were the primary target. Besides Skaggs and the MyMiniLife team, others who worked on FarmVille included Raymond Holmes, Sifang Lu, David Gray, and Craig Woida.
On June 19, 2009, Zynga launched its Farm Town clone, FarmVille. With the a production cycle of only five weeks, the game grew at an unprecedented rate. Unlike its rivals, Zynga started spending lots of money on ads on social networks. Within two months, Zynga’s FarmVille had 5 million users. Pincus pulled resources from other projects to support FarmVille’s growth.
Meanwhile, Farm Town was hitting growth pains. By contrast, Zynga hit a million players within four or five days. It already had millions of users and was tapping the outside computer services of Amazon, whose Amazon Web Services division was farming out data centers that the company didn’t need for its core electronic commerce business.
Roy Sehgal, Zynga Clubhouse Studio manager
All of that computing power gave Zynga a lot of insight. Cadir Lee, chief technology officer, said in an interview in the fall of 2010 that Zynga could mine its data because it was a web company.
“We get data within 5 minutes of something happening,” he said. “Metrics and watching data is a part of the culture. Web companies do a lot of analysis. You have this virtual world where you track everything that happens, like how many plots of super berries there are.”
Asked if FarmVille beat Farm Town because of Zynga’s better web infrastructure, Lee said, “That’s a fair representation.”
With Amazon, Zynga was about to scale its web servers up or down as it needed. It was much more prepared for hyper growth with a game than a smaller rival such as Slashkey.
“We solved a lot of tech problems for FarmVille,” Lee said. “We had some days where servers were on the edge of blowing up and we would release a new technology that gave us more head room. We learned what scaled way, and later on we would really shift the way we built our games. We found it was not the amount of hardware that mattered. It was the architecture of the application. We had to build it in a way that took advantage of Amazon.”
The MyMiniLife engine proved to be a competitive differentiator and it was used again in every Zynga game from FrontierVille on. It was one of the secrets behind Zynga’s success, as other companies made Flash-based games that took to long to load or just ran unacceptably slow.
Once again, traditional game designers looked down on Zynga’s “game.”
Ian Bogost, the Georgia Tech professor, was so disgusted with FarmVille’s lack of game play that he created a parody called “Cow Clicker,” where all you did was click on cows. It would take a long time for Zynga to escape that kind of criticism.
By July 2009, the world was catching on to Zynga’s fast growth. On July 31, 2009, comScore reported that Zynga had become the No. 1 online game operator in the U.S., surpassing Yahoo Games with a total of 44 million monthly unique users. Pincus said that estimates that Zynga would generate more than $100 million in revenues in 2009 were “conservative.”
The free-to-play business model was working. Within a few months FarmVille had become the biggest online game in the world and a small percentage of users were buying enough games to make it profitable.
Zynga beat out the rivals because of execution. One of its smartest features was “wither,” which aged your crops over time so that they became worthless if you didn’t harvest them soon enough. That kept users coming back to the game often; and Zynga sold “unwither” to revive withered crops. That was one reason why the game monetized well.
In an interview with VentureBeat in 2009, Pincus said:
Look at Farm Town. Something happens around 3 million daily active users. You hit ceilings. You have to be a real company with customer support, deal with fraud and payments, and all of those things force you to decide if you will double down and make an investment for the long-term. Your management hassle goes up and you have a lot of employees. At the beginning, we knew who we wanted to be as a long-term company. There was no question we would be a long-term company.
In September 2009, Zynga launched Cafe World, a restaurant-building game. It was a pretty clear attempt to duplicate the success of Restaurant City, a Facebook game that launched in April 2009. Headed by general manager Roy Sehgal, the game became Zynga’s fastest-growing game to date. Seghal said in an interview with VentureBeat that the Clubhouse Studio team consisted of 25 producers, product managers, game designers, artists and programmers. They were all from a variety of backgrounds, not just games, and they worked on the title for about five months. Not everyone had worked on a game before.
Soon enough, Zynga’s Cafe World game had 28 million monthly active users, while Restaurant City had 16 million. It was like FarmVille versus Farm Town all over again.
Since Zynga raised more money than its rivals, it could afford to advertise, but not in an outlandish way. Still, the stakes were getting higher. Ad network operators such as RockYou were getting a dollar per installation of a game. That meant that other developers would pay $1 for every user that RockYou convinced to try out a game on Facebook. Over time, the cost of advertising on Facebook rose, and many startups couldn’t keep up. It was starting to look uneconomical for them to do anything but sell out to another rival, like Zynga.
By the fall of 2009, Pincus was looking like a prophet. At the Web 2.0 Summit, he predicted the future would be based on an “app economy.” The company had more than 50 million users, including 20 million FarmVille users. Zynga was selling something like 800,000 virtual tractors a day. All of that was happening amid the greatest financial collapse in modern times. That financial collapse was weakening all of Zynga’s competitors.
The Big Three
Zynga was becoming a little more respectable. But inside Zynga, all that mattered was that you could do your job and move with speed. That was why Zynga was ready to pounce when the right game, like FarmVille, came along.
Inside Zynga, Pincus was trying to stay humble and nimble. In a talk, he said he didn’t like good press stories about his company because it reminded him of his “fear of failure mode.”
With the huge growth of FarmVille, it became obvious to a lot of investors that the social game market was on fire in 2009. Console games and ad-based casual web games had cooled off during the recession. The world took further notice when John Pleasants, the No. 2 executive at EA, resigned to take a job as the CEO of Playdom in June 2009. EA had 9,000 employes at the time, while Playdom had 65. It made everybody think social gaming was in its Gold Rush stage.
Pleasant’s departure was starting to look like a trend. Executives at the big companies wanted to cash in on the potential lucrative options at the hot social game companies. At about the same time that Pleasants left EA, Simon Jeffery quit as president of Sega of America to become an executive of iPhone game startup Ngmoco, which itself was founded by Neil Young, a former EA executive. There was a race going on, and no one wanted to be left behind.
The pattern was clear. No executive wants to say it. But rather than try to fix a big company that’s having trouble with the transition to digital, these executives were going straight into the digital market to create or join companies in the hot iPhone or social gaming markets. At the time, EA said that Pleasants was being replaced as COO by the returning John Schappert.
Zynga made the combination of free-to-play and asynchronous gaming — or turned-based gaming, where one player moved at a time — work well for players on social networks, who only had a few minutes a day to play. The turn-based gaming allowed players to make their moves offline, at their own convenience, and play socially with faraway friends. That was a formula that worked well for tens of millions of people, many of whom didn’t consider themselves to be gamers because they just didn’t have the time to play.
Inside Network predicted that the virtual goods market in the U.S. would hit $1 billion in revenue. Much of that was divided among the Big Three of social games: Zynga, Playdom and Playfish. Zynga was far ahead because of FarmVille, but the standings could change at any time if one of the game companies came up with a new hit.
Anybody could make a Facebook game. But the tough thing became getting it noticed as thousands of apps materialized on the social network. The Facebook game leaders could easily cross-promote their new titles to their existing users. The console game publishers took notice. But without a hit game to start with, they had a tough time. Electronic Arts launched Spore Islands — based on a hit game franchise on the PC — in the fall of 2009, but the game bombed.
Desperate to participate in the new market, big gaming brands started circling the market. At EA, Schappert tried to cool the enthusiasm for the startups. In a talk in October 2009, Schappert said that the social gaming bubble was getting bigger and it resembled all of the hype that used to envelop the mobile phone games and virtual world markets a few years ago.
He noted that when EA agreed to buy Jamdat Mobile for $680 million in December, 2005, that was a peak moment for the mobile games bubble. Venture capitalists funded lots of mobile game startups in the hopes of getting a similar outcome, only to see the peak shift to virtual worlds such as Second Life.
“Social games have attracted a lot of eyeballs,” Schappert said. “Venture money is pouring into it. Is it sustainable or is it a bubble? There are a lot of parallels to mobile. For those who say that packaged goods games (sold in retail stores) are going away, they are a little ahead of themselves.”
Schappert didn’t deny that the social and mobile markets were exciting. But he said that in two years, the social game industry will mature and come back down to Earth. At that point, Schappert said that the hit games on social networks will likely be familiar brands, “not games that we’ve never heard of.”
In some ways, Schappert seemed like he was communicating a message to Mark Pincus. EA had made offers to buy Zynga over time. Zynga wanted $1 billion. Based on earnings at the time (Zynga would privately record a loss of $52.8 million on revenue of $121.5 million in 2009), it was an outrageous sum. Pincus was always willing to sell out, but only for a crazy price. Was that price justified? Pincus’s view was that virtual goods were going to become a huge market within five years, and Zynga had a chance to have about 30 percent of that market. On that basis, Zynga’s value could be viewed as much higher. In the meantime, if someone was willing to overpay for Zynga, Pincus was willing to sell.
That kind of attitude showed that Pincus wasn’t thinking just about the near term, but the grand possibilities of the future. He was like Mark Zuckerberg, who early on had an opportunity to sell Facebook for $1 billion. According to David Kirkpatrick’s book, The Facebook Effect, one-time Facebook executive, Owen Van Natta, brought a deal to Zuckerberg. He had an offer from Yahoo, which wanted to buy Facebook for a billion dollars. Zuckerberg turned him down. In fact, later on, Microsoft tried to buy Facebook for $15 billion, Kirkpatrick wrote, and Zuckerberg turned that down too. Pincus was close to Zuckerberg, as an angel investor in the social network, and thought like him.
Then, on Nov. 9 2009, EA dropped two bombshells. It was going to lay off 1,500 employees and close a bunch of game studios. The layoffs were part of an apocalypse for game developers. Wanda Meloni, an analyst at M2 Research, found that 60 game studios had laid off more than 8,450 employees from July to November in 2009.
And it was buying social game maker Playfish for at least $300 and as much as $400 million. Playfish was viewed as valuable because it consistently came up with original titles, like Who has the Biggest Brain? It had more than 60 million monthly active users and it didn’t do much advertising at all to get them. Still, instantly, Zynga was now viewed as being much more valuable than others thought it was because it was a lot bigger than Playfish.
EA had joined the social gaming party. Coming so soon after Schappert’s talk, it seemed like the earlier speech was really aimed at reducing the price EA would have to pay for an acquisition. Before the deal, Activision Blizzard was EA’s clear rival. Now, EA’s public enemy No. 1 was Zynga. It was as if John Riccitiello, the chief executive of EA, wanted to square off against his old colleague, Bing Gordon, in the hottest part of games.
Playdom copycat allegations
Playdom co-founder Daniel Yue (left) and chairman Rick Thompson
Since the stakes were so high, Zynga fought ferociously not only in the market, but in the courts too. In September 2009, just before it settled its lawsuit with Maestri over Mob Wars, Zynga filed a lawsuit against Playdom over trade-secret theft. Many in the industry viewed that lawsuit as ironic, given Zynga’s history with copying. But from Zynga’s viewpoint, copying was OK. But stealing documents, code, and game ideas was not.
The lawsuit showed that the competition had become a knife fight. Zynga alleged that four former employees — Raymond Holmes, David Rohrl, Martha Sapeta, and Scott Siegel — left Zynga and took various documents with them. They included “The Zynga Playbook,” which was the recipe book that contains Zynga’s “secret sauce” for competing in social games. If one employee had left, that wasn’t a big deal. But multiple employees made it appear to be a big deal.
In discovery, Zynga uncovered emails with Playdom executives that showed their loathing for Mark Pincus, according to an amended complaint filed back in May 2010. Playdom co-founder Daniel Yue said, “God I hate Pincus.” Zynga’s lawyers argued that these comments created a place where theft was seen as justifiable.
The court granted an injunction in Zynga’s favor in the lawsuit in March, and another one in August, saying that Playdom was not allowed to use the allegedly stolen trade secrets.
Zynga alleged that Rohrl, its former director of design, stole an entire game idea and its associated innovative game mechanics from Zynga and developed it under a different name for Playdom. Rohrl sent secret emails from his private Gmail account to Yue, who promised to keep them private. They were talking while Rohrl was still employed at Zynga in January 2009, and Rohrl didn’t get a job offer until March, 2009. Zynga alleged that Rohrl got a bonus from Playdom for his actions. In March, the court issued an injunction prohibiting Playdom from releasing the game.
Playdom later admitted that Zynga documents had been transferred to Playdom computers by former Zynga employee Chris Hinton (who was not a defendant) and these documents were used to compete against Zynga. But it seemed as if the Zynga Playbook really just said “copy others” and that Playdom was now doing to Zynga what it did to others.
Zynga also alleged that Playdom hacked Zynga’s computer network and gained access to Zynga’s confidential customer list and customer data, including data on the then-flagship game Zynga Texas Hold Em Poker. Zynga said Playdom used automated scripts to steal Zynga data on 1.6 million Zynga users, including how much virtual currency each customer had. The next day, on Jan. 28, 2009, Playdom allegedly sent solicitations to Zynga’s players to recruit them to Playdom’s own competing Poker Palace game. The lawsuit was settled in November, 2010, after Playdom was under new ownership.
That time in the fall of 2009 was momentous for social gaming for another reason. On Halloween, at the close of the Virtual Goods Summit, Michael Arrington, editor of of the tech blog TechCrunch, confronted Anu Shukla (pictured right) , chief executive of Offerpal, which specialized in creating Facebook ads known as offers, where a gamer got virtual goods if they signed up for a Netflix subscription or something like that. The resulting firestorm engulfed Zynga, other social game companies, and Facebook itself.
At the close of a panel where Shukla spoke, Arrington asked how Shukla could defend her business of making offers that were leading the social game industry “into hell.” He said that Shukla was either “unethical or you don’t know much about your business.”
Shukla responded with a long answer about why Arrington’s commentary was “shit, double shit and bullshit.” The whole answer was captured on video. The question was whether Shukla and other offer vendors realized that there were a number of scam offers where users didn’t realize they were signing up for monthly subscriptions or other “slimy” offers, Arrington said. Under the scam, users wouldn’t realize that if they clicked on an offer page, the small print would put them on the hook for paying for an expensive service for a year or more. They would only find out when their monthly bill arrived.
Offerpal said that it was handling transactions in the millions, and sometimes there were bad offers that had to be weeded out. But Shukla defended the practice of monetizing games and other social apps through offers, which let people pay with their time, participation and attention, rather than actual money. When players wanted to buy something in the games, such as a better plow to farm the land in Zynga’s FarmVille game, they have to pay. As an alternative to shelling out cash, they could accept an offer from Offerpal, which gets the user to do something like fill out a survey or send flowers to a loved one.
Arrington said the offers were ineffective, meaning that advertisers like Netflix weren’t getting their money’s worth from the ads — but Facebook and others involved weren’t putting a stop to the practice because they were all making money from stupid users.
Mike Arrington, then-editor of TechCrunch
Shukla contended that those objections are “shit” because most of the offers were high-quality and were filtered. She said that more than 160 million consumers had participated in Offerpal’s offers over the previous two years. She said the vast majority of offers are working out well, because the advertisers keep coming back.
Zynga’s own monetization team was already scrutinizing the offers. They were within a short time of putting a stop to the bad offers, but Arrington got there first.
Arrington (pictured right) followed up by running an article dubbed ScamVille, where he backed up his assertions with examples of scam offers in the “social gaming ecosystem of hell.” A few days later, Arrington wrote that a third of Zynga’s revenue came from lead generation and other offers. Zynga insiders said that wasn’t true. Amid a firestorm of controversy, Zynga started taking steps to remove deceptive offers. But Mark Pincus defended the practice of offering CPA offers.
Then TechCrunch dropped another bomb on Zynga, running a video where Pincus, in a talk to an audience in Berkeley, Calif., acknowledged that he “did every horrible thing in the book just to get revenues.” Under heat itself, Facebook decided to suspend all play of Zynga’s FishVille game because it found scam-like offers in that game. Six days passed before Facebook allowed Zynga to operate FishVille again. The resulting investigation forced Facebook to remake its policies on offers and narrow down its list of approved vendors. Offerpal was booted out, and Zynga stripped out all offers for a while until it could guarantee there were no more scams.
The incident created a crisis of confidence for Offerpal, Facebook, and Zynga. Shukla was removed as CEO of Offerpal, but the company eventually had to move into a different part of the business. ScamVille further hurt Zynga’s reputation in the game industry as a company that would sell out its users in order to get revenue. By cutting out the offers, Zynga had to reset its revenue and profit expectations. It would mean that ad revenue would be lower in 2010 than it was in 2009.
Regarding his speech about “every horrible thing” at Berkeley, Pincus said to Details magazine later, “I didn’t mean to be so crass. But I was talking in a bar.”
The Russians are coming
Zynga would still end 2009 with more than $121 million in revenues, as it later reported. Its net loss, which no outsiders knew at the time, was $53 million. But that didn’t matter as much as its user count, which was 207 million monthly active users, was more than double the 99 million from a year earlier. Zynga later revealed that its top three games accounted for 83 percent of its revenue in 2009. It closed the year with 576 employees.
Despite the ScamVille crisis, Zynga was clearly one of the hottest new brands and Kleiner Perkins poured another $15.1 million into the company in an extension to its second round of funding. And on Dec. 15, 2009, DST, a Russian investment company led by Yuri Milner (pictured above), agreed to invest $180 million in Zynga.
In an interview with VentureBeat, Milner said, “We put a price on certain intangibles, like the quality of the team, the leadership position in the sector, and obviously the amazing growth of the business. From the time we started talking to the point where the deal was signed, the company grew up a few dozen percentage points on all fronts. That was quite a spectacular growth we have seen. All those things factor in the valuation.”
The deal allowed some employees to sell their shares, but enabled Zynga to stay private. It also gave Zynga a considerable war chest to fight off challenges like Electronic Arts.
Asked if the investment allowed Zynga to put off an initial public offering, Pincus dodged and said, “The approach we have taken with building the company and trying to be a participant in social gaming becoming an industry was to work really hard on the product front and the infrastructure and the growth. We did not want to let the media and buzz get ahead of itself. We did not want the company to get ahead of itself on the financing front.”
What we have done is along the way tried to partner with high-quality, smart investors who added to the DNA of the company and supported our long-term vision and shared it. All the investors have done it before in their own way. The leaders have nothing to prove. Whether it is Kleiner Perkins or Marc Andreessen or DST. There are groups that are ready to go for it and they want to see us go for it. That has been important to have that foundation. With regard to an IPO, it didn’t feel like that was going to accelerate our next four quarters of product and people growth. There are things about being public that can hamper a team’s ability to execute before they are ready for it. This route was a no brainer.
Why would Milner, one of the savviest investors of the new Web 2.0 era, give such a big pile of money to Pincus? Pincus’s vision was that in five years, the virtual goods industry would become huge. If it stayed the top gaming company on Facebook, Zynga would be in a position to have 30 percent or more of a very large market.
Already, Zynga was able to cross promote its new games to its existing game users. Others couldn’t compete on the same scale. Zynga also had collected a huge amount of data and experience on what worked with users. Other companies could copy the features of Zynga’s games, but, without Zynga’s data, they had to guess at what features really generated the most revenue. While Zynga’s losses were still big, its future looked bright.（source:venturebeat）