而单凭Pincus自己的能力是不可能做到这些的。在这期间，他很幸运地遇到了游戏元老Bing Gordon并接受了他的帮助。前Facebook首席运营官Owen Van Natta也在这期间给予了Pincus巨大的帮助。资深游戏设计者，如Mark Skaggs和Brian Reynolds也不断创造出有创意且吸引人的好游戏，帮助该公司洗清其早期因为制作仿制游戏和垃圾邮件游戏落下的坏名声。Zynga能有今天如此杰出的成绩都离不开这些人的帮助，而如此雄雄气势导致其竞争对手，如Playfish和Playdom不得不另辟蹊径，尽快寻找其它能够赚钱的出口。
Pincus开玩笑地说道，最后留给他的选择就只剩下创业了。他曾经读过George Gilder（游戏邦注：当今美国著名未来学家、经济学家，被称为“数字时代的三大思想家之一”）的著作《微观宇宙》，并因此对于这个受技术主导的经济学世界充满兴趣。因此让他萌生了接触新媒体的想法。1995年，携着25万美元的贷款他来到了硅谷，创办了FreeLoader这家网络推动公司。运营7个月后，他将FreeLoader卖给Individual赚得了3800万美元，可以说这是一家见证了Web 1.0时代开端的网络公司。
那时候，其他以数千万美元甚至是上亿价格出售的科技公司并不鲜见，Pincus出售这家公司算不上是什么重磅交易。但不管怎样，这第一家初创企业的成功让Pincus在硅谷的网络浪潮中获得了立足点。随后他便与Cadir Lee和Scott Dale共同创办了Support.com（也就是后来的SupportSoft）这家以提供自动化软件维护和服务的公司。该公司在2000年7月上市。
他与好友Reid Hoffman（付费平台PayPal的核心成员以及Linkedin的创办者）合作，以70万美元从Sixdegrees手中购买了社交网络的专利权。随后他们便投资于当时还没什么名气的Facebook这家最终开启了Web 2.0潮流，并最先利用动态网络而推动用户在网上进行交流的公司。如此Pincus便与Facebook的创始人Mark Zuckerberg建立起了密切关系，而为他今后所掀起的“社交游戏革命”创造了有利条件。
按照官方的说法，Pincus总共创办了4家公司，但是根据他自己的描述，他已经遭遇过15至20个项目的失败了。但是Pincus确实一个非常成功的天使投资者。他投资的公司包括Napster, eGroups, Technorati, Socialtext, Friendster, Ireit, Nanosolar, Merlin, Naseeb, EZboard, Advent Solar, Xoom以及Facebook。显然，我们在这个列表中却看不到任何游戏公司的身影。
2007年7月，Pincus将其新公司重新命名为Zynga（与其斗牛犬同名）。Zynga的首个总部位于旧金山Potrero Hill附近的Chip Factory。
Zynga早期的团队成员包括Eric Schiermeyer, Michael Luxton, Justin Waldron, Kyle Stewart, Scott Dale, Steve Schoettler, Kevin Hagan, and Andrew Trader。Pincus对这些成员们的要求很高，但那是因为他真心希望能够创建一家非常优秀的公司。
Pincus在Berkeley发表的演讲中说道“之前我们采取的是大家所熟知的立刻获益的方法。”而在Zynga的第一款Facebook游戏《Texas Hold ‘Em Poker》中他们通过使用扑克筹码间接获益，即让玩家下载了维基工具便能够获得该筹码。
在2008年中旬，Zynga发行了第二款Facebook游戏《Mafia Wars》，以及随后收购的《YoVille》。《Mafia Wars》同时出现在Facebook和MySpace上，因为那时候Zynga还不能判别哪个网站能够最终脱颖而出。
他已经和许多投资者交好，在2008年1月15日宣布已经通过Union Square Ventures, Foundry Group, Avalon Ventures, Reid Hoffman, Peter Thiel等天使投资者融资5百万美元的资金。
《Mafia Wars》和《Zynga Poker》取得的好成绩推动了Zynga的快速发展，并帮助他赚得了一大笔利润。而此时的Facebook也处于不断进步状态。
在2008年7月，风险投资公司Kleiner Perkins Caufield & Byers向Zynga投入2900万美元的消息引起世界的关注。Bing Gordon，EA前创意总监及现在Kleiner合伙人加入了Zynga的董事会。Mark Pincus真心欢迎这位大牌顾问的加入。
后来，Pincus总结道，避免失败的一大教训便是待在那些让你有所收获的人群之中。Gordon便是这种良师益友。Pincus拥有Web 2.0的经验，而Gordon比之更了解游戏，他能够让Pincus接触到游戏产业中更多有潜质的人才，而吸引他们到Zynga创造出更多优秀的游戏。如来自EA的资深游戏设计师Mark Skaggs，他在2008年11月以游戏主管的身份加入了Zynga，他将帮助该公司创造出更多更成功的游戏。
Gordon在2010年秋天接受VentureBeat的采访时以Robert Duvall在电影《教父》中的角色为例进行说明：“我只是一个参谋。比起Robert Duvall，我甚至更像是一名招聘人员。但是我非常重视Mark Pincus这个有眼力的合作者。他很巧妙地将网络，游戏和社交结合在一起。这是前所未有的伟大创举。”
《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。
Norwest Venture Partners的风险资本家Tim Chang在2009年秋说道：“现在还很难分析出未来的用户流失率是多少。社交游戏存在一定的用户流失率，就像船底有个洞。但是船只移动速度相当快，以至于你未曾发现有水渗入。”
这种措施对不断成长的大型游戏公司来说非常重要，看看EA早期的境况便可知晓。EA经常让员工加班，导致员工对公司的厌恶，甚至有个女员工将自己称为“EA Spouse”。Erin Hoffman随后透露，EA Spouse代表所有工作时间过长的EA雇员发表抗议。随后整个行业进行了充分的调查和自省，EA不得不面对由此产生的诸多法律问题并被迫减轻员工压力。
Brian Reynolds是Zynga声誉成长的原因之一。Reynolds是传统游戏开发者，受过游戏行业泰斗Sid Meier的指导，与后者配合制作过《文明》、《文明2》、《盖茨堡战役》和《半人马座阿尔法星》等游戏。2000年，他离开Meier的公司，成为Big Huge Games的首席执行官，随后制作了即时战略游戏《国家的崛起》。2008年，该公司被THQ收购。
Bing Gordon将Reynolds引荐给Mark Pincus，Pincus认识Reynolds，因为他在年轻的时候很喜欢同自己的侄子玩即时战略游戏。
Reynolds帮助Zynga挽回公司在游戏设计师心中的形象。2010年2月，Reynolds在拉斯维加斯一年一度的游戏开发者集会Dice Summit上发表了有关Zynga的演讲。当时，Zynga的产品占据Facebook前10名产品中的6位，月活跃用户超过2.39亿。仅《FarmVille》就是逾7900万用户。Reynolds在游戏开发者群体中有一定声望，他的演讲展现出Zynga友好的一面。正是在此次盛会上，Zynga的Mark Skaggs被评为最佳社交游戏设计师。
在Reynolds加入Zynga之后，许多著名游戏制作者也纷纷进入公司。2010年春，Steve Chiang成为公司游戏工作室领导人。其他加入公司的明星开发者包括前EA和Westwood Studios资深人士Louis Castle（游戏邦注：此人刚刚于近期离开Zynga），在微软关闭制作《帝国时代》的Ensemble Studios后担任Zynga顾问的Bruce Shelley。
随即，新的变故发生。Facebook要求Zynga使用新的Facebook Credits虚拟货币作为Facebook游戏中唯一的虚拟交易货币。Facebook从虚拟商品交易中收取30%的回扣。有些人认为，平台拥有者肯定会设定税费，这种情况是无法避免的。30%的比例与苹果对App Store中应用销售的资费比例相同，也是微软从Xbox Live在线游戏销售中的抽成比例。
但是30%的费用比例并不受开发商欢迎，因为Zynga已经习惯于仅向Facebook上的其他虚拟货币供应商支付10%的费用。5月7日，有消息称Zynga准备发布名为“Zynga Live”的网站，作为公司旗下社交游戏的门户网站。Mark Pincus召开全体员工会议公布了这个计划，公司同Facebook间的紧张关系在会议上表露无遗。
Zynga已经创建了FarmVille.com，并计划发布Zynga Live这个承载公司游戏的自有网络。对于行业中的某些人来说，如果Facebook想要以广告和Facebook Credits为中心建立切实可行的业务模型，那么Facebook的这项措施是必要的。Zynga的措施也是有意义的。如果想要让产品面向全体用户，就必须脱离Facebook。
Owen Van Natta当时正在Zynga就职。他之前担任过MySpace首席执行官和Facebook首席运营官，在后者的工作时间为2005年9月到2008年2月。Van Natta很了解Zuckerberg和Facebook其他雇员。他正是Mark Pincus需要的那种顾问，能够帮他处理Facebook Credits谈判问题。
5月18日，Facebook和Zynga暂时化解了Facebook Credits问题谈判陷入的僵局。双方声称已经达成了5年战略合作协定，期间内将在社交网络上互相支持。在此协定下，Zynga同意扩展Facebook Credits的使用范围，最终公司旗下游戏在Facebook上只使用这种货币来进行虚拟商品交易。Zynga同意在每次虚拟商品交易中向Facebook支付30%的全额交易费用。
2011年7月，几乎所有的Facebook应用开发商都被要求转向使用Facebook Credits。Zynga、CrowdStar和其他开发商很早就为使用Facebook Credits铺平了道路，因而他们愿意在被强制要求之前就向Facebook支付30%的交易盈利。合约可以解决由此带来的部分问题。Zynga还成功地让Facebook与之谈判，因为公司探索到了其他运营选择，可以减少其对Facebook的依赖性。但是不久之后，双方找到了双赢的方法。
Zynga和Facebook之间关于Facebook Credits的协议细节公开一年多后，其他游戏开发商开始觉察到问题。他们得知任何公司都无法在Facebook Credits问题上获得特殊关照，甚至是Zynga也不例外。但是Zynga成功地让Facebook做出妥协，以换取公司接受Facebook Credits，30%的费用对Zynga来说显得更加合意。Zynga仍旧显得不慌不忙，该公司在2011年4月前完成向Facebook Credits的过渡即可。而且，Zynga仍然向Facebook独家提供游戏。
尽管Brian Reynolds是Zynga的首席游戏设计师，但是其有些想法似乎并不出众。他在巴尔的摩的团队开发过各种各样的想法。《Fashion Wars》没有取得成功，《Civ Wars》也没有。即便他是游戏行业的资深人士，也需要花些时间来探索正确的社交游戏之路。
McCreary自己是在听取了Bing Gordon的意见后加入公司。她此前同Mark Pincus有过3个小时的谈话，但她拒绝了Pincus转投EA。但是Pincus仍然与她保持联系，在4个月后再次尝试，后来她终于接受了邀请。
Zynga需要对自己的雇员负责。Kleiner Perkins的合作伙伴John Doerr说服了Pincus采用“目标和关键结果”，Google和英特尔使用的就是这种管理方式。Pincus让他的员工写下每周的三个目标，然后在周五审查他们的完成情况。Pincus表示，这让员工专注于工作。这个系统帮助公司淘汰了表现较差的员工，同时也使他们脱离无关紧要的事情。
当Zynga文化变得越加成熟之时，Pincus亦然。他并不像是《FarmVillains》（游戏邦注：佐治亚州技术教授Ian Bogost在SF Weekly发表的一篇文章）描写的那般“邪恶”，我们可以发现Zynga的很多员工都是来自于其早前初创公司Support.com。如果他并不是一位好老板，怎么还会有如此多的人愿意追随他？
但是并非所有人都认可Pincus的做法。风险投资公司Elevation Partners联合创始人Roger McNamee在《纽约时报》中说道：“Zynga本应成为最佳创业典例。但是他最终却成为了哈佛商学院关于创始人过激行为的案例——对于我们来说这绝对是个警示。”
但McNamee曾经与Zynga的最大对手EA首席执行官John Riccitiello合作过，所以他发表如此言论也是情有可原。然而还有一些问题存在。Andrew Trader这名Zynga早期员工在2010年3月离开了公司，后来Pincus却着要求其返还之前公司授予的股票。据报道，Trader不得不针对此事与Zynga做个了结。根据《华尔街日报》报道，这种“追回利益”的行为不只出现在Trader身上，而且这种做法之后给Pincus带来了负面影响。
随后，Zynga便开始追赶其他对手了。它曾试图收购Ngmoco，这是前EA高管Neil Young创办的iPhone游戏开发公司。Bing Gordon非常赞同这一决定，因为他同时是Zynga和Ngmoco的董事，而Kleiner Perkins也同时投资于这两家公司。
2010年10月，Zynga任命雅虎前高管David Ko为该公司移动部门的高级副总裁。2010年12月，Zynga收购了美国手机游戏开发商Newtoy，该公司开发了《Words With Friends》这款iPhone拼字游戏，在短短时间内便创造了1千2百万的下载量。这是Zynga在7个月以来进行的第七笔收购交易，但这次明显更加针对于手机领域。
他们创造的这款城市模拟游戏便是《CityVille》，其中包含了一些新的Zynga游戏元素。游戏中，在城市地图上有一些移动的好友动画和图标，如此设置会让玩家感觉这好像是一种即时游戏，同时游戏还渲染了3D多边形表达方式，即允许城市转动，并让玩家从不同视角观看游戏画面。同时游戏中还有新手教程，帮助新手玩家更方便地进行游戏，它既包含了《FrontierVille》的社交功能，即允许玩家在好友的帮助下前进，同时也允许玩家购买Facebook Credits而更快地前进。从外表来看，这更像是《模拟城市》或者Playdom的《Social City》。但是Zynga的游戏更简单且更适合Facebook平台，即并未涵括太多交互性内容。
在2011年的Dice Summit上，700位游戏设计师及其他业内杰出人士听到的是关于《FarmVille》和《愤怒的小鸟》之类的作品如何瓦解传统游戏领域的公开谈论。Zynga派出的代表是Bruce Shelley，他是曾制作出《Age of Empires》等作品的著名设计师，现在是Zynga的咨询顾问。
Blizzard Entertainment主管Mike Morhaime表示，他会玩《Words With Friends》（这是款类似Scrabble的iPhone文字游戏），这样他就能够同老朋友保持联系。
EA BioWare部门的联合创始人Greg Zeschuk表示，他会把其他人拉到自己办公室，向他们展示Facebook游戏《CityVille》，然后说，“过来，来看看未来游戏的样子”。他表示，游戏设计师如今能够凭借这些通俗易懂、便于操作的游戏快速覆盖众多用户。
现已倒闭的Ensemble Studios的联合创始人及《Age of Empires》设计师Bruce Shelley非常着迷于Zynga的《FrontierVille》（由其好友Brian Reynolds制作，他是游戏领域的元老），决定也涉足Facebook游戏开发。
峰会上，Bing Gordon获得电子游戏领域的最高荣誉。他凭借自己在游戏领域的25年投入获得Academy of Interactive Arts and Sciences颁发的“终身成就奖”。Gordon是EA的早期员工，担任公司首席创意总监。他本可以在于EA任职25年后退休，但作为Kleiner Perkins合伙人，他雄心勃勃。他投资Ngmoco（后来以4.03亿美元售出的手机游戏公司）和Zynga。Gordon的奖项不仅是对他过去的认可，也是对他当前成就的肯定。这意味着Zynga、Mark Pincus和社交游戏如今都在游戏领域占有一席之地。
在隔天的演讲中，Gordon告诉Dice观众，Zynga着眼于更广泛的体验含义。早在2004年，EA就发现公司游戏所获得的体验时间超过电影。EA《Club Pogo》2004年的体验时间多达2.25亿小时，而《Madden NFL》只有1.8亿小时，《光晕 2》只有1.5亿小时，就连当时最热门的电影《怪物史莱克 2》也只有1.26亿小时。在Gordon看来，游戏设计非常强大，将超越游戏领域的界限。他将此称作“一切事物的电子游戏化”。游戏设计师的想法是深入非游戏网站，获取更多用户。社交软件重新改造所有内容，从企业学习到教育。尽管他推崇Zynga游戏，但他还是认为“《魔兽世界》是新托尔斯泰”，以此表示对硬核游戏的尊重。
观众倾听Gordon间或的闲聊，这汇集掌机和社交领域的经验积累。他是行业的桥梁。他让Zynga脱离被嘲笑的境地。UBM Techweb Game Group执行副总裁Simon Carless表示，“现在的情况要比过去缓和很多。社交开发商运用更多游戏设计理念，他们的游戏比以往更富趣味。硬核游戏开发商如今正在学习如何创造更具社交性的体验。”
多年来，Zynga出现众多Pincus的接班人。Bing Gordon给他提供建议，但公司还有Vishal Makhijani之类的运营总监。前MySpace CEO Owen Van Natta，同时是Zynga天使投资人，于2010年初加入公司。他是公司执行副总裁，主要负责营收策略、公司发展、国际扩张和品牌方面。
但2011年6月3日，Zynga聘请前EA第二大决策者John Schappert，担任公司首席运营官。Schappert此举清楚说明（同其前辈John Pleasants 2009年转投Playdom一样），社交和休闲游戏是电子游戏领域的一股巨浪。行业元老如今更愿意游走在此浪潮的前沿。
Schappert在EA任职很久，起初只是游戏程序员，1994年他创建自己的游戏工作室Tiburon，其团队替EA制作《Madden NFL》，后来EA于1994年收购Tiburon。Schappert从毫不起眼的角色慢慢变成公司第二主要决策人，但他2007年跳槽加入微软，担任Xbox Live在线游戏业务的主管。他在Pleasants离开EA转投Playdom后，重返公司。在EA，Schappert促使公司将扩张方向转至数字游戏领域，同Zynga进行竞争。到2012年3月，公司的数字游戏收入有望增至8.33亿美元。
Pincus终于找到自己在Zynga的接班人，此管理人员也是投资者非常信任的电子游戏领域专家。Van Natta成为公司商务总监，但他最终辞去自己在Zynga的职务。他依然是公司董事会成员，但Schappert的加入令Van Natta显得有些多余。
Schappert的加入伴随若干重要事件，这些意味着Zynga的成熟。Zynga起诉巴西重要社交游戏公司Vostu抄袭公司作品。Zynga还推出《Empires & Allies》，这是公司的首款战斗社交游戏，由制作《Command & Conquer》系列的EA元老完成。《Empires & Allies》发展很快，给以卡通为主的社交游戏市场添加新类型，Zynga意图覆盖各种题材。很快，类似于《Pioneer Trail》、《Adventure World》的其他游戏都将诞生。似乎确保公司能够顺利进行首次公开募股的所有必要工作都已准备就绪。
被问及如何看待有关Zynga估值时，PopCap CEO Dave Roberts表示，“大家要谨慎看待基于二级市场的估值。我并不是说Zynga不是颇具价值的公司，事实上我觉得公司价值很高。但没有人会相信这是合理市场估值。同样当少量普通股由其他公司掌握时，你也要非常小心。假如若微软在某项目中投资5000万美元，他们丝毫都不会在意，因为这对他们来说只是小数目。但这并不意味着公司其余资产就价值很高。我觉得只有等Zynga真正上市，我们才能知晓其真实价值。”
据《纽约时报》报道，Pincus据传曾试图以9.5亿美元现金收购PopCap Games。但后来PopCa听说Zynga有增税回收记录，还取消股票回馈奖励，且公司内部存在激烈斗争，于是决定回绝Zynga的要约。相反，PopCa接受EA 7.5亿美元现金和股票（以及5.5亿美元的追加款项）的要约。
PopCap联合创始人John Vechey曾在访谈中表示，EA就像场精彩的比赛，因为公司CEO John Riccitiello在游戏领域知识渊博，清楚PopCap擅长什么。EAi（游戏邦注：EA的手机和休闲游戏工作室）主管Barry Cottle表示，PopCap是在Facebook和手机领域发展较快的休闲游戏公司之一。公司每年创收1亿多美元，且以30%的速度发展。PopCap首席执行官Dave Roberts表示，《宝石迷阵》的销售额占公司总营收的40%，另外有20%的收入来自《植物大战僵尸》。但公司诞生于2000年，早于社交游戏时代，按资历来算，应该是PopCap收购Zynga才对。
此时，EA有款巨作《模拟人生》（这款游戏在PC和掌机平台售出1.4亿份）推出Facebook版本《The Sims Social》。这款热门游戏由Playfish制作，此社交游戏公司2009年被EA以至少3亿美元的价格收购。就Zynga在此社交平台的主导地位来看，这是非常惊人的反击。
据社交游戏网络Raptr基于平台1000万用户所做调查显示，很多《The Sims Social》用户都来自Zynga游戏。EA自己的社交游戏及《模拟人生 3》用户只占《The Sims Social》总玩家的15%。而Zynga玩家则占这款游戏玩家总量的50%。
9月12日，《The Sims Social》的用户数量超过《FarmVille》。到10月12日，《The Sims Social》成为Facebook排名第二的游戏，MAU达6600万（游戏邦注：而《CityVille》有7600万）。若这款游戏有近一半玩家来自Zynga，那么就有3300万Zynga用户发生“叛变”。当然不是所有Zynga玩家都是在放弃Zynga游戏的前提下选择《The Sims Social》。但《CityVille》玩家确实已由原本的1亿人跌至当前水平。
EA高管Jeff Brown笑称，“《The Sims Social》证明这些玩家是能够通过争取获得的，若他们会发生转移，我们就有办法获得他们。”
就目前运作情况来看，《The Sims Social》显然无法追上《CityVille》。由于《The Sims Social》发展速度的下滑，及Zynga投入额外营销资本，《CityVille》又再次呈现发展势头。
Zynga在文件中公布的另一个有趣内容是，公司声称其从《FarmVille》中赚得的钱比以往更多，即便这款游戏的发布时间可以追溯到2009年。《FarmVille English Countryside》之类的扩展内容促进了盈利的提升，尽管游戏已经发布两年之久，《FarmVille》目前仍然拥有巅峰时期的半数用户。相比之下，多数主机视频游戏在出售仅数周后，玩家便开始转向其他的新游戏。因而，就用户积累和留存情况而言，Zynga做得很不错。
修改文件中的某些内容给公司带来更大的困难。当Facebook游戏开发商发现Facebook和Zynga之间的紧密关系后，他们感到极为愤怒，原因是Zynga透露和监管者签署的新内容显示，Zynga从平台处获得了其他游戏公司显然无法得到的实惠。在文件中，Zynga阐述在1年前同意让游戏采用Facebook虚拟货币Facebook Credits时，与Facebook达成1项特别交易。在这项交易中，Zynga同意按照Facebook Credits的标准费用比率，将游戏中虚拟商品盈利的30%支付给Facebook。
Digital Chocolate首席执行官Trip Hawkins曾对此表示：“我们都知道Zynga存在合同上的优势，但是居然达到让其他开发商难以在Facebook立足的程度。今年的政策改变已经影响到了盈利和市场占有，现在发现这个市场还缺乏公平竞争，这着实令我们感到心寒。他们之间的关系极为复杂，就像是场夫妻双方仅为金钱而组建起的婚姻。你丝毫感觉不到双方真正从这场婚姻中享受快乐或自由。讽刺的是，他们居然还能够利用更多的好友。”
据VentureBeat报道，《Mafia Wars 2》这款Zynga最成功的游戏之一的续作，由80人耗时18个月完成。Zynga于9月20日对外公布这款游戏，10月10日正式发布。游戏以3D Flash动画为特色，但是总体来说仍为二维游戏。游戏的用户量增长到1700万以上，但是随后开始下滑。
首先，他讲述了Zynga在2007年的辉煌岁月，那时公司刚开始针对Facebook制作游戏。他说道，那时团队从街对面的Culinary Academy中雇佣了某些学生，在公司的小总部内烹制食物。Amelia属于这批学生之一，她随后成了Zynga游戏《Cafe World》中的虚拟主厨，现在她成为了真正的主厨。他让记者们转向上方看，成排的雇员站在建筑物上层的开放走道上。Pincus为当天占用餐厅向他们道歉。
Zynga Direct和Project Z
在记者招待会上，Pincus提到公司的创新项目Zynga Direct，公司在这个项目上已经投入了两年时间。这是个围绕Zynga游戏创造更多社交互动的平台，无论用户使用的是电脑网络还是移动设备。Schappert随后描述了Zynga Direct的部分内容，可称为Project Z，这是个Zynga玩家可以用来玩Zynga游戏的在线站点。Schappert表示，Project Z是个“社交游戏游乐场”，玩家可以在享受自己选择的游戏。但是，他对该项目的描述也仅仅止步于此。
Project Z将是个独立的网站，只含有Zynga的游戏。网站将使用Facebook Connect功能来构建玩家好友社交图谱。随后，你可以直接访问Project Z玩Zynga的游戏，而不用登录Facebook。这是Zynga的自有平台，类似微软的Xbox Live在线游戏服务。在这个平台上，Zynga无需支付30%的盈利费用。
Schappert说道：“Project Z是个Facebook Connect平台，让Facebook好友在自己独立的环境中玩游戏。我们通过数据和交谈掌握了大量的玩家相关信息，这就是玩家们想要的产品。”
Zynga还展示了其他新的Facebook游戏，比如《Zynga Bingo》、《Hidden Chronicles》和《CastleVille》。该公司声称，《Mafia Wars 2》将登陆Google+平台。这场新闻发布会都旨在向外界表明，Zynga的雇员此前都很繁忙，公司现在正向各个领域扩张。
2010年10月，Zynga购买了Bonfire Studios公司。这个公司中有大量曾经在微软Ensemble Studios（游戏邦注：《帝国时代》的开发商）中工作的经验丰富的开发者。在微软关闭Ensemble后，Bonfire诞生了。Zynga收购了这家公司，将其命名为Zynga Dallas。
Zynga Dallas创意总监Bill Jackson是前Ensemble雇员，他带领工作室开发这款游戏已1年有余。现在，Zynga Dallas发布的Ville系列游戏最新产品《CastleVille》已经成为Zynga旗下模拟游戏的骨干。这款游戏摒弃了Zynga常用的卡通风格，有着比以往更为有趣的游戏玩法。
游戏的灵感来源于《怪物史莱克》之类的电影，但是其玩法风格却不同于市场上的任何其他产品。Zynga于11月14日发布这款游戏，当天便消除了《The Sims Social》对公司构成的巨大威胁。Zynga在Facebook的社交游戏市场份额约为40%，日活跃用户逾4500万，而EA只有1250万日活跃用户。
竞争者对外公布Zynga对待雇员的负面做法。几乎在一瞬间，Mark Pincus又成了那个没穿衣服的皇帝。《华尔街日报》报道称，Zynga的Pincus逼迫表现不佳者退回他们的股票。11月17日，首席商务官Owen Van Natta辞职。《纽约时报》报道称，Zynga雇员对公司很不满，PopCap Games因担心Zynga的文化而拒绝了其9.5亿美元的收购出价，转而支持EA的7.5亿美元及5.5亿美元追加款项。据报道，Rovio也拒绝了Zynga伸出的24亿美元收购公司的橄榄枝。
但是即便市值下滑，Zynga的市值依然比EA要高，尽管后者的盈利是前者的4倍，但是市值却只有70亿美元。Comcast Ventures合伙人Andrew Cleland回忆称，Pincus曾经告诉他Zynga的市值将在5年内超过EA。事实上，Pincus只花了几年时间就实现了这个目标。
Michael Pachter（游戏邦注：他是专注于游戏和数字化媒体的Wedbush Securities调查分析师），他表示1到2年内有多种情况可能导致Zynga的付费用户数量翻倍。其中，两个关键的驱动因素便是Facebook和移动设备的发展。
How Zynga grew from gaming outcast to $9 billion social game powerhouse
Zynga has turned the video game world upside down in its short five-year history. As it’s poised on the verge of a massive initial public offering, the social game startup is now one of gaming’s great success stories.
But its success was never a foregone conclusion. In fact, most game industry veterans didn’t view it as a real game company. Mark Pincus was a four-time entrepreneur, but had no experience in the game industry and had never managed a big company. He was the most unlikely entrepreneur to create a game industry giant.
Now Pincus is poised to become a multibillionaire as the largest shareholder in a company that is about to hold on Thursday one of the biggest initial public offerings of the year. Zynga’s
billion-dollar IPO, at an $8.9 billion valuation, will be one of the biggest events in gaming history and will make it a financial peer to established rivals like Electronic Arts and Activision Blizzard. Through the IPO, Zynga hopes to meet the ambitious goal of investing more “in play than any company in history.”
And it is possible in no small part because Pincus, the gaming novice, dreamed bigger than the game industry when it came to giving users accessible and social games, anytime, anywhere. Against all odds, Zynga has out-competed big gaming brands in the great social game Gold Rush. Zynga games have continuously held the No. 1 ranked spot on Facebook since the beginning of 2009. As of today, it has five of the top five games on Facebook.
Pincus couldn’t have done it on his own. Along the way, he has been helped by the fortuitous friendship of gaming veteran Bing Gordon. Facebook insider Owen Van Natta played a key role at a critical time. And experienced game designers like Mark Skaggs and Brian Reynolds have led the creation of innovative, addictive games, helping the company rise above its early reputation as a creator of cheap knockoffs and a persistent spammer of Facebook news feeds. Together, these people helped Zynga get where it is today, while rivals like Playfish and Playdom decided to take earlier, less lucrative exits.
Since its inception in 2007, Zynga has generated more than $1.5 billion in revenues — a remarkable sum for such a young company. It is now trying to seize the leading share of a $9 billion virtual goods market that it believes could triple in the next five years.
Now the company’s ambition is to become as synonymous with play on the internet as Google is with search, Amazon is with shopping, and Facebook is with sharing. It was lucky that Zynga started out with so little game experience in the beginning. But throughout its life, it would have to prove over and over again that it was a real game company that mattered.
In the following pages, I’ll tell the tale of Zynga from its earliest days. This story is based on extensive interviews and research since 2008. We’ve had limited access to Mark Pincus. In recent months, he hasn’t been giving interviews, due to a quiet period mandated by regulators. But the story of Zynga isn’t just about the founder of the company. It’s also about the whole cast of characters who surrounded him, the rivals who drove him to succeed, and the industry that challenged Zynga to prove itself over and over. We’ve done our best to triangulate on how Zynga became what it is today — and how it almost didn’t happen.
“I had a lot of careers before I became an entrepreneur,” Pincus said in a speech about starting companies at Startup Berkeley in the spring of 2009. “And I failed on other people’s money. If you were trying to become a professional athlete, you would want to go through junior leagues first before you started a pro circuit. Fail a lot before you are paying for the failure….I got fired or asked to leave from all my jobs.”
The option that was left for him, Pincus joked, was to become an entrepreneur. He had read George Gilder’s book, Microcosm, and was excited about the economics of the world enabled by technology.
That drove him into new media. He eventually made his way to Silicon Valley, starting FreeLoader, a web-based push company, in 1995 with a $250,000 loan. That company was acquired after seven months for $38 million by Individual. It was the start of Web 1.0, or the first giant wave of the first real internet companies.
At the time, other tech companies were selling out for hundreds of millions or even billions of dollars, making Pincus’ exit look almost paltry. Still, his first startup success gave Pincus a full membership in Silicon Valley’s dot-com era. He then founded Support.com (later SupportSoft), a provider of service and support automation software, along with Cadir Lee and Scott Dale. The company went public in July 2000.
Flush with cash, Pincus co-founded his own incubator, Tank Hill in January, 2000. It was just in time for the dot-com crash, and he and his partner shut it down and returned the funds nine months later. In 2003, at the age of 37, he started Tribe.net, one of the first social networks. Pincus thought of it as a “Craigslist meets Friendster.” That didn’t work out so well. Pincus left in 2005, after the board threw him out. In 2006, he took it back over from the investors and sold its assets to Cisco. At the time, Tribe.net had just eight employees, and Cisco completed its purchase by March 2007.
He teamed up with his friend Reid Hoffman, a PayPal veteran and now founder of LinkedIn, to buy a patent on social networking from the defunct Sixdegrees for $700,000. Then they invested in a little company called Facebook, which turned out to be at the beginning of the Web 2.0 wave of companies, or those that were built to take advantage of a newly dynamic web and its growing network of interconnected users. That put Pincus in close touch with Facebook founder Mark Zuckerberg and gave him the inside track to the social media revolution.
Pincus is on record as starting four companies, but he said there were 15 or 20 projects that failed. But Pincus did have a nice touch as an angel investor. His investments included Napster, eGroups, Technorati, Socialtext, Friendster, Ireit, Nanosolar, Merlin, Naseeb, EZboard, Advent Solar, Xoom — and Facebook. Noticeably absent from that list were any game companies.
Making the right bet
To get to Zynga, Pincus said he had three formal failures, including Tribe.net. Another failure was an ad company called Tag Sense. From that, he concluded, “Don’t go start a company just because you have a customer and someone will fund you. If it is a marginal idea, that’s bad.”
Because Tag Sense failed quickly, Pincus said, he was ready when, in the May 2007, Facebook opened up its applications programming interface, inviting other companies to make applications on top of its social network in hopes of beating MySpace. That move helped Facebook gain users as well as developers, creating a virtuous circle. Pincus decided to go along for the ride.
Previously, Pincus had been operating under the name Presidio Media, a company which he formed in April, 2007, as part of an effort to jump on the Facebook bandwagon.
“The whole time I was doing Tribe, I thought the thing I would have loved to do is games,” Pincus said in a 2009 interview:
I’ve always said that social games are like a great cocktail party: You’re happy at first to see your good friends, but the value of the cocktail party is in the weak ties. It’s the people you wouldn’t have thought of meeting; it’s the friends of the friends….What I thought was the ultimate thing you can do — once you bring all of your friends and their friends together — is play games. I’ve always been a closet gamer, but I never have the time and can never get all of my friends together in one place. So the power of my friends already being there and connected, and then adding games, seemed like a big idea.
In July 2007, Pincus changed the name of his new company to Zynga, named after his late bulldog, Zinga. Zynga’s first headquarters were in the Chip Factory in the Potrero Hill neighborhood in San Francisco.
From his previous experiences, Pincus learned, “Control your destiny. We all write this story for ourselves that we were really successful and the evil VC came in and f***** up our company. They backed us and got rid of us and if they had just left us alone. That’s everybody’s sob story in Silicon Valley. You f****** it up because you gave them control of it.” He said he would settle for half the valuation if he could control his company and destiny. As a result of that desire, he funded Zynga himself.
The early team included Eric Schiermeyer, Michael Luxton, Justin Waldron, Kyle Stewart, Scott Dale, Steve Schoettler, Kevin Hagan, and Andrew Trader. Pincus was intense and drove them hard, but he wanted to build a great company.
Its first successes were on MySpace, where other social game companies were making money from ad-based games. Zynga’s early revenue came from MySpace, but Pincus had the smarts to realize that Facebook would win in the future. It was a smart bet that helped Zynga to catch Facebook’s coattails as it went through an unprecedented wave of growth.
As he tried out ideas, he kept in mind that he should test them as cheaply and as quickly as he could.
The company released its first game for Facebook in September 2007. It created a free social poker game on Facebook, chosen because it was simple and it was a universal game that enabled friends to plan a “poker night” with each other no matter if they were far apart or not. Zynga was riding a wave of resurgence that poker had seen since 2003. Zynga’s first game was successful enough to make the company profitable.
“We were the first company to believe in the social gaming opportunity and go after it with our poker game in July, 2007,” Pincus said in an interview with VentureBeat in 2009. “Everybody else was focused on viral apps like pokes and other things that spread more virally. We were always interested in just the gaming opportunity. By the time we saw it was real and had a sustainable revenue stream, we were the first to start investing deeply in it.”
Before Zynga, free games were often viewed as low-quality shareware. But now they were something that millions of people could enjoy. The poker game gained users for a while, but it had no real monetization beyond ads at first. Eventually, in March 2008, Zynga added a way to sell poker chips via “lead generation,” where a user could get chips if they participated in a revenue-generating activity for Zynga, such as accepting an offer to sign up for something.
In a poor choice of words that would eventually come back to haunt him, Pincus later said in his Berkeley speech that “I did every horrible thing in the book to just get revenues right away.” He said that Zynga gave users poker chips in its first game, Texas Hold ‘Em Poker, if they would download a Wiki tool that was difficult or impossible to remove.
In mid-2008, Zynga launched Mafia Wars, its second game, and it acquired another game called YoVille. The Mafia Wars game was available on both Facebook and MySpace, because it wasn’t clear which social network was going to be the winner yet.
In the process of launching its games, Zynga would hit upon some unique ideas that it would later describe as its philosophy. It believed games should be accessible to everyone, anywhere, any time.
Games should be social. Games should be free. Games should be data driven. And games should do good. Those were lofty goals, but no one else in the industry believed in trying to make all of those things happen.
Pincus’s intent was to create a real business before he needed to go into a venture capitalist’s office. By the time Zynga raised its first round of money, it had generated only $693,000 in revenue in 2007, but it had a path to growth because its user count was growing fast, and it was already profitable. As a result, Pincus was able to command unusual terms, like giving himself stock that had 10 times the votes of common shares and maintaining control of his board of directors.
He was also able to secure investors that he was already friends with. In a deal announced Jan. 15, 2008, Zynga was able to raise $5 million from Union Square Ventures, Foundry Group, Avalon Ventures, Reid Hoffman, Peter Thiel and other angels.
With the new money, Zynga was able to move even faster at a time when the great Facebook land rush was under way. The social network constantly revamped its platform and app makers had to adjust in real-time. Pincus called this “organic development,” where the company’s own internal developers had to pay close attention to Facebook and redo their work every 90 days or so.
The business would be metric-driven, combining intuition and data. The would enable the business to rapidly iterate and drive reach, retention and revenue. That is exactly how Zynga put distance between itself and others; it learned what users wanted and modified its games quickly, sometimes overnight, to better provide what the users wanted. Zynga started testing every idea. Web 2.0 companies behaved in this fashion, but game companies for the most part didn’t.
But it was true the company forever be at the mercy of the rules that Facebook made.
“Does it bother us that we’re a fly on Facebook’s ass?” Pincus joked in his talk. “In 2007, people laughed at me” for doing a Facebook app company. “We live and die by the changes these guys make.”
Data also could be a game designer’s enemy. If a game didn’t take off, Pincus had no qualms about killing it. He spent $3 million developing an unnamed role-playing game. But the title didn’t take off in a viral way when it launched, so Pincus pulled the plug on it. Pincus became ruthless about canceling games that weren’t working.
Zynga was growing fast thanks to Mafia Wars and Zynga Poker, and it was making money. And Facebook was still growing like crazy.
At the time, the speed was important. Not everyone realized it, but Zynga was in a monumental race to beat others to the treasure. If it learned the most about how to make money from social games and executed the fastest, it would own the market, regardless of whether giant companies came into it later.
So just a few months after its first round, Zynga raised another, larger pile of cash.
In July 2008, the world took notice as Kleiner Perkins Caufield & Byers invested $29 million in Zynga. Bing Gordon (pictured above), the former chief creative officer at Electronic Arts and now a partner at Kleiner, joined Zynga’s board. Mark Pincus welcomed him as a key advisor.
The amount of money was huge for a gaming startup at the time. Few other companies had amassed such a large amount. It meant that Zynga was always going to have a pile of money to invest in its next major titles. That was a luxury that many of its competitors didn’t have, and it was why they fell behind.
Later on, Pincus said that one of the lessons of failure was to surround himself with people that he could learn from. Gordon was such a mentor. While Pincus had the Web 2.0 experience, Gordon knew games. He was able to put Pincus in touch with large number of job candidates in the game industry who were willing to try something new. Some of them, like veteran game designer Mark Skaggs, came from Electronic Arts. He joined as a top game exec at Zynga in November 2008. Skaggs would go on to lead some of the most important games that the company would create.
“I’m a consigliere,” Gordon said in an interview with VentureBeat in the fall of 2010, referring to the Robert Duvall character in The Godfather movie. “I have my own assignments now and then.
I have done more recruiting than Robert Duvall. But I have high regard for Mark Pincus as a visionary. He combined the best of the web, games, and social. It never occurred to anyone those would come together.”
Gordon showed up at the company all of the time, lending his advice and bringing in new people as they were needed.
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.
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
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.
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.
A turning point: Real game designers
Tim Chang, then a venture capitalist at Norwest Venture Partners, said in the fall of 2009, “It’s hard to tell for now what the real churn rate will be. Social games have churn rates. You have a hole in the bottom of the boat, but the boat is moving so fast that you don’t see it taking on water.”
Zynga discovered that while it had a huge hit with FarmVille, the challenge was to keep it going and to come out with new games that made up for the users that it lost each week as players tired of older games. It learned that while it could add millions of players in a week, its launches could go even smoother.
It added an office in India in part because it wanted its employees to be able to go home for the evening and hand off their monitoring responsibilities to someone else during a big game launch.
That kind of move was very important for a large and growing game company, given what had happened earlier with Electronic Arts. EA had earned a reputation for putting its workers through “crunch time” so often that it got hit with an employee revolt, started by a woman who called herself “EA Spouse.” Later revealed as Erin Hoffman, EA Spouse spoke up on behalf of all of the overworked EA employees. A full-fledged investigation ensued, the whole industry went into a phase of introspection, and EA had to deal with lawsuits and was forced to ease up on the throttle.
Zynga was vulnerable to the same problem because the company was shipping new code for its games on a daily basis. Opening an India office was an attempt to forestall a revolt.
As Zynga bulked up, it also realized it needed to get more talent for making games on board. And as it hired more and more veterans of the video game industry, Zynga got more and more respect.
Interestingly, even Hoffman eventually went to work at Zynga.
Brian Reynolds was one reason for Zynga’s growing respect. Reynolds was an old-school game developer, trained by game industry legend Sid Meier in the creation of games such as Sid Meier’s Civilization, Civilization II, Sid Meier’s Gettysburg, Sid Meier’s Alpha Centauri and others. In 2000, he left Meier’s company to become chief executive of Big Huge Games, which went on to create the Rise of Nations real-time strategy game. The company was acquired by THQ in 2008.
Bing Gordon introduced Reynolds to Mark Pincus, who knew his name because he loved playing real-time strategy games with his nephews when he was younger.
“That is how Brian Reynolds got here, because Mark was a Rise of Nations fan,” Gordon said in an interview in the fall of 2010.
Reynolds joined Zynga on June 30, 2009, with the aim of starting Zynga East, a new game studio based in Baltimore, Md. He became Zynga’s chief game designer and recruited many of his former colleagues to create a full-fledged game development studio.
“My job is to see what good game design techniques I can bring to bear on social games and to do new, innovative stuff,” Reynolds said.
Reynolds helped Zynga rehabilitate its image among game designers. In February, 2010, Reynolds gave a talk about Zynga’s practices at the annual Dice Summit, an exclusive gathering of game developers in Las Vegas. At that time, Zynga had six of the top 10 games on Facebook and had more than 239 million monthly active users. FarmVille alone had more than 79 million users. Reynolds commanded a lot of respect among game developers and he put a friendly face on Zynga. At that same conference, Zynga’s Mark Skaggs (pictured right in red) collected the award for Best Social Game.
Reynolds could talk to the crowd in terms of game play and the motivations of gamers — topics that they could relate to. He described how social games worked. He said that shame was a good motivator to get people coming back to games like FarmVille, since you didn’t want your friends to catch your farm looking run-down.
“Welcome to the web,” Reynolds said. “The whole game is sitting on servers in a room. You have control of the entire game at all times. The metrics are available in real-time.”
Reynolds said that it made no sense to mindlessly port game franchises from the consoles to the new social platforms without designing something that worked especially well with Facebook users.
This sort of talk was helpful to game developers who wanted to cash in on the social gaming gold rush. But for Zynga, trotting out someone like Reynolds was a powerful expression of its respectability and an equally powerful recruiting tool. Reynolds made the rounds at the conferences, but he didn’t reveal what he was working on until much later. He said he believed that console games and social games would coexist, and that social wasn’t a threat to core games.
The ideas that Reynolds learned from legendary game designer Sid Meier still apply at Zynga, he said. Meier liked to build a prototype as quickly as possible, then improve it based on what users do, and it’s the same at Zynga. At the same time, in both traditional design and social design, it’s important not to overvalue with users say they want. In the case of the Civilization games, for example, if the designers followed every player request, the games would have become overloaded with features and forced players to micromanage the game in a way that became tedious.
After Reynolds joined, so would a number of other famous game creators. Steve Chiang joined in the spring of 2010 to become head of the company’s game studios. Other star developers who joined were Louis Castle (who recently left), a former Electronic Arts and Westwood Studios veteran, and Bruce Shelley, who became a consultant for Zynga after Microsoft shut down his own Ensemble Studios, which made the Age of Empires games.
The “Cuban Missile Crisis” with Facebook
FarmVille showed the power of viral marketing, where Zynga could cross-promote its games across its network and turn new games into instant hits. But Facebook users began to complain that they were getting too many spam messages from other Facebook users who were playing games. Facebook cracked down on the game spam, shutting down game notifications that were sent into the main news feed of Facebook users. Facebook also limited other forms of viral communication on its platform.
The upshot was that Facebook got fewer complaints from users about the game spam, but the usage of game apps dropped dramatically. Suddenly, in the spring of 2010, Zynga was losing tens of millions of users. One of the results was that app makers who previously didn’t have to advertise now had to do so, and the ad revenue went straight into the pocket of Facebook. Zynga effectively had to start paying Facebook more money. At this point, in Facebook’s “post-viral era,” the business models for Facebook game companies weren’t looking so good, and venture capitalists started funding more mobile game companies.
Then another shoe dropped. Facebook came to Zynga and said that it would require the company to use its new Facebook Credits virtual currency as the sole virtual money for transactions involving Facebook games. Facebook would get a 30 percent cut of the virtual goods transactions. Some saw this as an inevitable move by a platform owner to set up a tax. The 30 percent was the same cut that Apple took for apps sold on its App Store, and it was what Microsoft took as its share of Xbox Live online game sales.
Facebook’s Deborah Liu argued that the introduction of a universal currency would be much like the impact of the euro currency in Europe. That allowed people to use the same currency in different countries, and with Facebook Credits, users would be able to use the same Credits currency across all Facebook apps. Facebook contended this would give gamers more liquidity and incentive to spend money across a lot of apps. It would also make it easy to do international transactions.
But the 30 percent fee didn’t go over well, given that Zynga was used to paying just ten percent to other virtual currency providers on Facebook. On May 7, news broke that Zynga was preparing to launch a web site dubbed Zynga Live that would serve as a portal for its own social games. Mark Pincus called an all-hands meeting to tell his staff about the plans, underscoring the tension with Facebook over Facebook Credits. The tension in the meeting was palpable.
“When you operate on someone’s platform, it’s a continuous crisis,” said one former Zynga insider. “We were adolescents growing up together. Facebook didn’t know its own strength, and we didn’t know how to behave. Facebook was worried they were getting too dependent on us. It was like growing up with a best friend. You get into a fight.”
Zynga went so far as to create FarmVille.com and was planning to launch Zynga Live, a web site that would have taken Zynga’s game to a Zynga-owned network. To some in the industry, Facebook’s moves were necessary for Facebook to establish a viable business model built around ads and Facebook Credits. Zynga’s moves made sense as well. If it was ever going to go public, it had to diversify away from Facebook.
But the showdown was a kind of brinksmanship that threatened to destroy both companies. For Facebook, Zynga was the goose that laid the golden egg, keeping Facebook members on the site. And for Zynga, Facebook was an indispensable market, providing access to millions of potential players.
In a speech given during the time, Pincus warned Facebook to focus on what it did best: the plumbing of the social platform.
“Facebook is at a crossroads,” said Pincus. “They have to decide whether its more important to be the web’s social platform, to make their social plumbing pervasive,” presumably through an expansion of more open technologies and communications infrastructure such as Facebook Connect. “It’s sort of like being the plumber for the online world. If I were them, my goal would be to be the social platform. They have to decide to be the plumbing or the portal. I hope they find the business model around the plumbing.”
He added, “Where this ought to go is it should be an open Xbox Live for the web. If we get to this place where there are achievements, a consistent user experience, a way for web publishers and networks and sites to participate, and an easy way for developers to develop amazing game experiences that enhance relationships among people, then I think social gaming can end up being the few real consumer experiences on the web and be a massively large business for all of us.”
Cutting the Facebook Credits deal
Owen Van Natta started showing up at meetings at Zynga during this time. He was the former chief executive of MySpace and the former chief operating officer at Facebook, where he served from September 2005 to February 2008. Van Natta knew Zuckerberg and other Facebook employees well. He was just the kind of advisor that Mark Pincus needed to deal with the Facebook Credits negotiations.
Zynga announced in February, 2010 that it had brought Van Natta on board as an executive, though he had been going to meetings a lot earlier than that.
In talks with Zynga, Facebook revealed that 50 percent of all application programming interface (API) calls were from Zynga games. That meant that half of Facebook’s activity was based on a single partner. Zynga, meanwhile, noted that it was spending an enormous sum of money on ads to try to recruit Facebook users to play Zynga games. Did Facebook really want to squeeze out its No. 1 partner? Why shouldn’t the amount that Facebook collected from Facebook Credits be more like 3 percent to 4 percent, which was what other virtual goods transaction vendors charged?
Facebook was doing its own soul-searching. But Mark Zuckerberg figured out one thing. Facebook itself wasn’t going to be like Tencent, a giant Chinese social network and game company which owned more and more of its own partnership entities over time. Tencent was grabbing more and more of the stack in its ecosystem. Facebook, on the other hand, was the social pipe. Zuckerberg concluded that Facebook wasn’t going to make its own games. It didn’t have the wherewithal to do that. That was Zynga’s core competency. It had to rely on Zynga to provide the most popular applications, so it couldn’t put Zynga out of business.
On May 18, Facebook and Zynga stepped back from their tense nuclear standoff over Facebook Credits. They announced that they had entered into a five-year strategic relationship that ensured mutual support for each other on the social network. Under the deal, Zynga agreed to expand its use of Facebook Credits and eventually use only that currency for virtual goods transactions on Facebook.
Zynga agreed to pay Facebook a full 30 percent transaction fee on every virtual goods purchase.
Facebook and Zynga said the deal would be good for both companies, and Zynga appeared to stand down from its threat to pull its games off the social network and invest heavily in other game networks. The companies said the agreement focused on the topic of Facebook Credits and that there was no special deal that Facebook cut for Zynga in that agreement. That part was true.
But there was another agreement the companies didn’t talk about. In that deal, Facebook promised to market its platform and grow its user base so that Zynga would always have fresh users for its games. For its part, Zynga agreed to make its games exclusive to Facebook as long as Facebook delivered certain user numbers to Zynga. No other companies were able to strike a similar deal.
By July 2011, almost all Facebook app developers would be required to switch over to Facebook Credits. Zynga, CrowdStar and other developers paved the way by using Facebook Credits early, thereby
willingly paying 30 percent of their transaction revenues to Facebook earlier than they had to do so. The contractual matter solved some of the problems. Zynga also brought Facebook to the negotiating table because it exploited its other options for reducing its dependence on Facebook. But after a while the companies figured out how to align their own self-interests.
After it was over, Mike Arrington of TechCrunch said that the dispute over Facebook Credits was like the Cuban Missile Crisis of tech. Gordon agreed. In an interview in the fall of 2010 with VentureBeat, Gordon said, “In all the years of the video game business, there has been natural friction between content publisher and a platform company. We saw in the video game business that, over time the friction got smoothed out. The easiest way to build stable relationships is to have people on both sides that persist for a while. The No. 1 trick of the publisher and the platform company is to survive together for a while.”
When details of the Facebook Credits deal between Zynga and Facebook became public more than a year later, other game developers were steamed. They had been told that nobody got a sweetheart deal on Facebook Credits, not even Zynga. But Zynga extracted some concessions out of Facebook that made its acceptance of Facebook Credits and the 30 percent fee more palatable to Zynga. Still, Zynga was in no hurry: It would be April 2011 before Zynga completed its transition to Facebook Credits. And Zynga kept making exclusive games for Facebook.
FrontierVille changes Zynga
As chief game designer, some of Brian Reynolds’ ideas at Zynga weren’t going so great. His team in Baltimore was working on a variety of ideas. One game called Fashion Wars didn’t work out. Nor did Civ Wars. Even with seasoned game veterans, it took time to get social games right.
Zynga launched Reynolds’ first successful game, FrontierVille, on June 9, 2010, about a year after he joined. His team at Zynga East had 16 employees, so the title took a lot more time and investment than many of Zynga’s previous games. Even so, that team still far smaller than what other companies needed to create console games, which typically had more than 100 developers working on them.
The game was critical in one respect. Facebook’s move to curtail game spam earlier that year meant that Zynga was losing players by the tens of millions. On April 20, 2010, Zynga had 252 million monthly active users. But by the time that FrontierVille launched, Zynga’s numbers had fallen to 216 million monthly active users. It needed something to reverse the slide.
In FrontierVille, Zynga had produced what nobody could criticize. It was an original game, unlike most other games Zynga had created. That was a major milestone at the time. It had a frontier theme where players created a homestead in the wilderness and had to grow it into a bustling frontier town. It was a family game, more about tending crops and livestock than it was about shooting guns off and scalping your neighbors.
Reynolds was as hardcore as they came. He used to delight in setting off nuclear bombs in his game demos while working for designer Sid Meier. But now he had become a casual game maven, essential to Zynga’s mission in raising the bar and attracting new audiences.
The depth of FrontierVille was in its social game play. In FarmVille, your friends could help you tend your crops and you might never pay them much attention. But helping others was key to the game play of FrontierVille. You could help your friend tend crops, feed animals, chop trees and revive withered crops. You could raise your family, tend crops, chase varmints off your land, add neighbors and raise your reputation by helping others.
“In this game, you can see who is helping you more easily,” Reynolds said in an interview with VentureBeat. “What I was taught was to take a lot of simple pieces and have them interact in deep ways. The goal is to improve the quality of the social experience.”
Reynolds described the game as “Oregon Trail meets Little House on the Prairie meets FarmVille.” Being original was part of Reynolds’ charter.
When FrontierVille launched, it saw a lot of user traction right away, but then usage flattened out. The problem was that the team didn’t have an analyst focused on looking at user data, so there were basically a bunch of designers flying blind. Then, when Zynga finally put a full-time analyst on FrontierVille, usage started taking off again. Then it soared past 30 million users, making it one of the company’s biggest games.
Creating Zynga’s new culture
The success of FrontierVille and Reynolds’ team of game developers helped Zynga figure out its identity. As the company grew its revenues, it was able to pick up lots of new developers. Rivals such as Playdom had raised money as well and they were able to start acquiring game studios — already battered by the recession — relatively cheaply. So Zynga decided it needed to do the same thing.
There were plenty of distressed game studios. Zynga looked at hundreds of them before it acquired one. Eventually, it ramped up to where it was acquiring game studios at a rate of one per month.
Zynga added people at a fast rate too. Then, in July 2010, Disney agreed to buy Playdom for $763.2 million. Now not only did Zynga have to compete against EA, it also had to fight against Disney.
Zynga didn’t have any major brands to compete against its rivals. All it had were its people. Colleen McCreary became Zynga’s chief people officer in March 2009. The former human resources executive for Electronic Arts said that it wasn’t easy to create a common corporate culture when the company was moving so fast and acquiring so many new game studios. But she felt like the team had something in common.
“We are a large, motivated group of people who are excited about being on the cutting edge of something new,” McCreary said. “They built their careers elsewhere and see this as the next big thing.”
McCreary’s team pulled together some core principles for creating a better company culture. The only way to get people working as fast as they could was to empower them and make the company live up to its core ideals.
McCreary herself joined after taking a suggestion from Bing Gordon. She talked with Mark Pincus for three hours, and she felt like it was almost like a mutual therapy session. She turned Pincus down to take a job in India for EA. But Pincus stayed in touch, and after four months he tried again. This time, she accepted.
“It said something about his desire that he kept in touch,” she said in an interview in the fall of 2010. “He wanted me to find the best people to come in and build product in a motivated way.
He wanted us to create what every CEO in Silicon Valley wants. At a startup, the first 20 people you hire are friends. The next 80 are those you need to get the work done. At some point, we get so big that we have to figure out how we will scale and manage.”
As Zynga was growing, it could pick up workers from places that were laying them off, like EA. Traditional game developers liked Zynga because “it was a chance to connect with a consumer that they never had.” Those developers had small roles on huge teams. But at Zynga, a team of 10 to 25 people could create a big game in three to six months. With Reynolds, McCreary said Zynga took a big risk on him, trusting him to produce something wonderful after a long time of trial and error.
But employees were under stress at Zynga, where the work pace was punishing. People who didn’t meet the standards were under the whip. They had to perform or leave.
Zynga held its employees accountable. John Doerr, the Kleiner Perkins partner, convinced Pincus to adopt O.K.R.s, or “objectives and key results,” a management technique used at Intel and Google.
The company as a whole and every group within it has one objective and three measurable key results. Pincus asks his people to write down three priorities for the week and then see how they did on Friday executing them. It keeps people focused and keeps them from burning out, Pincus said. That system helps weed out the poor performers, but it also keeps them from getting distracted with too many things that don’t matter.
Some people viewed Zynga as “Ghetto Google.” That meant it had perks like free food for employees, but the perks weren’t quite as nice as the search giant’s. Still, Zynga picked up the tabs for employees’ laundry or dry cleaning.
“We don’t want a sense of entitlement and we want people to be scrappy,” McCreary said. “And we are not Goo Hoo Soft.”
After a while, employees started asking what a career path was like at Zynga. If a software engineer was going to move up, what was the next step? Within a few months, Zynga prepared its career path, which involved getting people to work 20 percent of their time on future goals and to train their replacements. In the fall of 2010, Mark Pincus was still spending hours with McCreary going over the goals of each individual employee at Zynga. While Pincus was busy and could be tough, he held office hours so that people felt free to drop in on him. When Zynga has unhappy employees, Pincus gets very involved, McCreary said.
For those who felt overworked, especially at launches, Zynga tried to get relief. It could hand off work to its India office and rotate people through shifts. Later on, Zynga would reveal that 64 percent of its employees had been on board for less than a year, and 92 percent for less than two years. Many of them stayed on, though, even though Zynga was a tough company to work for, because they got lots of promotions and quarterly cash bonuses. They also saw a big payday coming in Zynga’s future, as it was getting into a good position for an initial public offering.
A more mature Pincus?
As Zynga’s culture matured, so did Pincus. He wasn’t quite as evil as the FarmVillains piece made him out to be, since there were dozens of employees from his previous startup, Support.com, who were working at Zynga. If he were such a jerk, why would anybody want to work for him again? He outlasted even the expectations of insiders who thought Zynga would bring in a more professional game industry CEO at some point.
To Bing Gordon, Zynga arose in a disruptive, game-changing time. Nobody rode out this period better than Pincus, Gordon said in the fall of 2010.
“He was prescient and it was wildly interesting to me,” Gordon said. “Mark has a spectacular insight when it comes to audience building, ease of use, and communication with friends.”
Gordon believed that Pincus wasn’t in it for the limelight. He said Pincus happily stayed in the shadows and was not jealous of his own employees’ successes. Reminded that he wrote a negative memo about Pincus’s leadership style early on, Gordon said, “Mark is a different person than he was then. I had said that Mark had never worked at scale before. In 2008, people thought that Mark could not run a big company. There was a previous board that threw him out. That was a concern for normal investors. My role was to make sure that didn’t happen.”
Early on, Pincus was tough on weak performers. He had to be told when he wasn’t talking like a CEO. When Colleen McCreary arrived as chief people officer in the spring of 2009, she had to help eliminate 30 employees who weren’t meeting goals. Over time, Pincus focused on areas that mattered the most, such as the business model, recruiting, partnerships, future investments, and the games themselves. In speeches like a talk at the Web 2.0 Summit, Pincus liked to wax poetic about a future where people played social games so much that the company could consider them perpetual customers. That was how users behave with established sites such as Amazon or Google. Pincus wanted to make Zynga into a destination, not just a passing fancy.
Gordon added, “I said to Mark, I think you can be a world-class CEO. For me, it felt like working at EA in the 1980s, but three times faster and with smarter people.”
Gordon added, “Somebody who started four companies is smarter. You have to hire a lot of No. 1 draft picks, bet on them, give them authority, and take risks on them.”
There was a time when it seemed like investors might want to throw Pincus out of the company. He got a lot of negative feedback from employees. But the venture capitalists and the board didn’t have control of Zynga. Pincus still had a big ownership stake, and he had control of the board and voting power. Much like Mark Zuckerberg, he had been able to negotiate from a position of strength when it came to getting investments. So Pincus had more time than he otherwise might have to change his style and become more people-friendly. He learned to become the CEO of a very large company — something that he had never done before.
Not everyone agreed that Pincus is right for the job. Roger McNamee, a co-founder at Elevation Partners, told the New York Times, “Zynga should be an example of entrepreneurship at its best. Instead it’s going to be a Harvard Business School case study on founder overreach — this will be a cautionary tale.”
It’s worth noting, however, that McNamee was the former business partner of John Riccitiello, CEO of Zynga’s arch rival EA. Of course he would say that. Still, there were some problems. Andrew Trader, one of the earliest employees at Zynga, had left the company in March 2010. Later on, Pincus attempted to take back some of his stock option awards. Trader reportedly had to get a settlement from Zynga. That reported happened to others, according to the Wall Street Journal, and such “clawbacks” didn’t sit well with some people. Those clawbacks would later come back to haunt Pincus.
Building the zCloud
Zynga’s whole game network was possible because of the rapid growth of internet infrastructure and new “cloud computing” solutions such as Amazon’s web services, where it rented out computing power from its data centers to small companies. That helped Zynga create a flexible cloud infrastructure, said Cadir Lee, chief technology officer, in an interview in the fall of 2010.
Zynga started with a hosted infrastructure. It moved to a public cloud, adopting Amazon Web Services, when FarmVille took off. That meant it could tap Amazon’s data centers whenever the demand justified it. After a while, in 2010, Zynga started to create its own private data centers, dubbed the zCloud, as it became bigger and bigger. It was a hybrid approach that let Zynga use its own private data centers as well as Amazon’s public cloud, depending on its needs.
The bill to do this wasn’t cheap. Zynga would spend more than $199 million on infrastructure in 2011, up from $62 million the year before. But the hybrid public-private cloud could do what Amazon did, with lower costs. Now that it had a bunch of major games that were all in their various stages of life, Zynga could move around servers as needed. By making investments in its own data centers, Zynga could save money. If, for instance, it figures out how to reduce power usage, the costs savings will flow to Zynga’s bottom line, not Amazon’s.
FrontierVille benefited from a lot from what Zynga had learned running FarmVille, Lee said. Zynga considered its analytics, storage, cloud computing, and game applications architecture to be competitive advantages for the company. Many of the games shared code and functions. Zynga gathered data and then spit it back out in a form that can help the game designers create better games for users. It also had a huge investment in security to protect its virtual goods from hackers.
The company could now grow its users by tens of millions or lose that many in a matter of weeks. It could move games on or off its own private cloud, known as the zCloud, as needed. In a 24-hour period, Zynga could add or subtract 1,000 servers in an automated fashion. It could deliver more than a petabyte of content per day, and its storage was now in the tens of terabytes. (Later, Zynga would say it processed 15 terabytes of game data per day.) Still, every now and then, Zynga had outages, partly because of its dependence on Amazon.
But owning data centers also came with risks. If the demand for Zynga’s games were to drop dramatically, as has happened on occasion, Zynga would get caught with too much infrastructure on its hands and losses could result. That’s probably why Zynga will likely own part of its data centers and will rely on external hosts for the rest.
Allan Leinwand (pictured above), the CTO for infrastructure engineering, said that Zynga preferred flexibility. It appreciated the four-door sedan that Amazon offered, but he said there were times when Zynga’s applications needed something different.
“Maybe one day you want a sports car, maybe another you want a Winnebago,” Leinwand said. “A four-door sedan is what you’re getting with the public cloud. Once we knew our app, we knew we needed to be flexible. We made zCloud better for our games. Amazon is making a great platform, but we wanted a sports car for some applications and an 18-wheeler for certain applications. We needed to customize the cloud to meet the needs of our players.”
In any event, the fact that Zynga was considering such an option of owning its own data centers puts it into rare company. Only the biggest companies, such as Facebook, Google, and Apple, have invested in owning their own data center operations, when their user counts run into the hundreds of millions of users. And thanks to their cloud operations, those companies have the closest relationships with customers and that is why they believe they will rule the world.
Zynga was thinking seriously in the spring of 2010 about how to restore its growth and position itself for an initial public offering. Beyond its Facebook empire and its data center infrastructure, it needed a global audience. The U.S. social game market had stalled in the post-viral era. But Facebook wasn’t the ruler in every overseas market. In places such as Japan, Zynga needed to find other ways into the market.
So, in June 2010, the company struck a deal with Japan’s Softbank investment firm, which also had rich holdings in mobile. Softbank agreed to invest $150 million in Zynga’s Japan operation. At that point, Zynga had raised more than $520 million to invest in social games, including an unannounced $100 million deal with Google, which was planning its own social network to challenge Facebook.
In April 2010, Zynga’s games were played by 252 million people every month. But many of the games were seeing people trickle away, so the company knew it needed to open new markets. In Japan, Zynga sought to expand into mobile games and produce local content for Japanese users. Masayoshi Son, CEO of Softbank, said he looked forward to working with Zynga to create a social game powerhouse. Zynga also believed it needed to be in Japan to understand the future of mobile behavior in the U.S.
Zynga also wanted to expand into the Asian markets, where free-to-play online games were born and customers were very receptive to virtual goods. The company started looking for overseas acquisitions and it built up an ability to launch its games in multiple languages on the same day.
As part of its expansion effort, Zynga launched the first international version of its Zynga Poker game in August 2010, launching the game in Mandarin Chinese for Facebook players in Hong Kong and Taiwan. The game had 28 million monthly active players already, but the localization effort was aimed at grabbing even more. Zynga had a voracious appetite for more users, and now it was willing to go to great lengths to get them.
Soon enough, Zynga was launching games in multiple languages on the very first day they launched. But in Japan, things weren’t going so well. Zynga was planning to launch games on both the web and on mobile. Big gaming networks operated by DeNA, Gree, and Mixi were growing fast in Japan. But the team didn’t execute well in startup mode in Japan. The games they created were late and weren’t big hits. If Zynga was going to break into the Japanese market, it was clearly going to take longer than it hoped.
One of the best moves that Zynga made was withdrawing from the iPhone game market after its initial foray. Rival SGN was diving headlong into the iPhone in the middle of 2009.
But Mark Pincus found that Apple’s platform was wanting. He wanted Apple to turn the iPhone into a “socially enabled” device, much the way that Facebook had enabled social games on its network. Apple didn’t have a lot of the features that would allow games to spread like wildfire among friends or make it easier to discover games. He also wanted Apple to launch its in-app purchases to enable free-to-play games on the iPhone.
Rivals such as Electronic Arts, SGN, and Gameloft had no qualms about the market. They were investing heavily in learning how to make money with the new smartphone platforms. Meanwhile, Zynga made a ton of money by focusing its teams on Facebook, which generated far bigger audiences and far more revenues than mobile games did. But Zynga stayed on the mobile sidelines so long that it had to start buying its way into the market when mobile began to look more promising.
Zynga later made a run at playing catch-up. It offered to buy Ngmoco, the iPhone-focused mobile game company started by former Electronic Arts executive Neil Young (pictured below). Bing Gordon would have been ecstatic at such a deal, as he was on the board of both Zynga and Ngmoco, and Kleiner Perkins had invested in both of them.
In October 2010, Japan’s DeNA acquired iPhone game maker Ngmoco for $403 million. That price was something like 13 times revenues — a very high price. But DeNA was on a billion-dollar run rate with its business on mobile phones in Japan, and it is intent on expanding to Western markets for social mobile games.
The acquisition set up an interesting competition. While Zynga had been fighting with Playfish and Playdom (and later EA and Disney), it now had to realize that DeNA and Japan’s mobile gaming social network Gree were also gunning for a worldwide mobile social gaming empire. And they would be more than happy to trample over Zynga.
Zynga brought aboard former Yahoo executive David Ko as a senior vice president for mobile in October 2010. In December 2010, Zynga made its biggest move into mobile with the acquisition of Newtoy, the McKinney, Texas-based creator of Words With Friends, a Scrabble-like word game on the iPhone that had become a huge hit with 12 million downloads. The acquisition was Zynga’s seventh deal in seven months, but it showed it was serious about mobile.
Zynga didn’t announce it at the time, but the company paid a hefty $53.3 million for Newtoy, which was started by brothers Paul and David Bettner. That was the most that Zynga paid for a company, but the price was low relative to other kinds of gaming deals. At that point, Newtoy added a mere 23 employees to Zynga’s tally of 1,300. Mobile was yet another way to diversify beyond Facebook.
Justin Cinicolo, the former Mafia Wars producer, assumed a leadership role in Zynga’s push into mobile. In the fall of 2010, he said in an interview that Pincus had more patience now for the mobile market to come into its own.
“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,” Cinicolo said. “We have a good understanding of the web. Now it makes sense for us to spread our games everywhere.”
Of course, Zynga had to figure out how to deal with a big problem. There was no guarantee that its big position in Facebook games would help Zynga at all in mobile games.
CityVille’s population explosion
Zynga had been looking for a sequel to FarmVille for a while. FrontierVille had all the right elements for that, but the game never hit the same mass market as the farm game. So the company put a lot of its effort behind the next game that was spearheaded by veteran game designer Mark Skaggs. Skaggs had established a pattern of creating a big game and then handing it over to others to run while he moved on to something new.
Zynga created the CityVille team from scratch in 2010. Skaggs, who had worked on FarmVille and was a former Electronic Arts designer, estimated that 95 percent of the people on the team had never worked on a game before. The team started with established play practices that had been successful in other Zynga games, such as picking up rewards, or loot, upon achieving something. Then it focused on what would be fun to do in a city game. The result was a lightweight city simulation that can be played in a matter of minutes — but which players feel compelled to return to on a daily basis.
They created a city simulation game called CityVille, which included something new for a Zynga game. It had animations and the icons of friends moving around on a city map, creating the illusion that it was a real-time game. the game was also rendered with 3D polygons that allowed the city to be rotated and viewed from different angles. And it had a guided tutorial to teach new people how to play. It included the FrontierVille social features that allowed players to progress by helping their friends, and it allowed users to buy Facebook Credits to advance faster. On the surface, it looked like SimCity or rival social game Social City. But Zynga’s game was simple and suited for Facebook, which didn’t allow a great deal of interactivity.
Zynga announced CityVille on Nov. 17, 2010, saying it would be available in four languages at launch, the first time Zynga had localized a game for different regions at launch. But CityVille wasn’t quite ready to let CityVille out. For weeks, Zynga kept tweaking the game. Finally, on Dec. 2, Zynga launched the game. At 1:22 am that day, the game launched and the staff drank champagne. In its first 24 hours, more than 290,000 people played the game. That was Zynga’s best launch ever, much higher than FrontierVille, which had 116,000 players on day one.
The crowds kept coming. After five days, Zynga had 6.5 million players. They had built more than 2.7 million homes and created 500,000 bakeries. The timing was good, since the decline of FarmVille meant that Zynga’s numbers had fallen to an overall 193.8 million monthly active users, compared to 260 million monthly active users in the spring of 2010. The grown soon became exponential, with 26 million users playing CityVille by day 12.
“This feels fun,” said Skaggs, the Zynga vice president in charge of CityVille, in an interview at the time. “It’s like reliving the fun and excitement of the FarmVille launch. We are buzzing with energy about how to keep it going.”
CityVille helped create the impression that Zynga was unstoppable in social games. On the secondary shares market, Zynga now had a valuation of $5 billion, larger than publicly-traded rival Electronic Arts, which had $4 billion in revenue and was one of the largest console game publishers in the world. CityVille passed up FarmVille on Dec. 24, 2010, when it still had 58 million users. On Jan. 3, CityVille passed FarmVille’s all-time high of 83.76 million users, a previous record set in March 2010. On Jan. 14, 2011, CityVille hit 100 million users, just 43 days after the game launched. In the 50-year history of video games, CityVille was the fastest-growing game ever in numbers of users. It pushed Zynga’s users to more than 296.6 million on a monthly basis. On Facebook, CityVille was five times bigger than the next closest app.
Bing Gordon, the Zynga board member, said that CityVille shows what happens when you structure rewards in games the right way. He said its success was proof that games are like a “social lingua franca” of the web, where you relate to people or deepen your relationship with them by playing social games with them. CityVille drove Zynga’s bookings and revenues upward in the first quarter of 2010, as users bought virtual goods such as batteries.
The big numbers drew sponsors. In May 2011, Zynga launched an in-game deal with DreamWorks to promote the film Kung Fu Panda 2. Users added 15 million Kung Fu Panda 2 themed drive-in movie theaters in their cities. While Zynga didn’t have well-known game franchises, it figured out how to cash in on brands with its games through simple virtual item integrations that were basically ads.
CityVille was so successful that Zynga ran with it. The company later launched CityVille Hometown, a mobile version of the game, and it also announced it would launch a version of CityVille in China on the Tencent social network. The latter deal could give Zynga access to China’s most popular internet service portal, with more than 674 million users.
The so-called Zynga City game was under development at the Zynga China Studio in Beijing. Zynga acquired that studio in May 2010, when the studio was known as XPD Media. The studio has a team of local Chinese game designers, artists and developers. Zynga would also launch it on a new social network in the future. CityVille went more global than any game Zynga had ever made.
Gold Rush or bubble?
In January 2011, Zynga privately obtained a valuation of its company. The third party evaluation firm said that Zynga was now worth $4.98 billion. As the economy improved and the value of both Facebook and Groupon kept going up. Zynga also benefited from a period of froth, as investors were looking for a way to cash in on the Facebook phenomenon. Only a few investors could actually invest in Facebook, but the demand for shares was rising.
On Feb. 13, 2011, the Wall Street Journal reported that Zynga was raising $250 million in a round of funding that valued the company at $7 billion to $9 billion. It was a lot more than the secondary market valuation of $5 billion and it showed that investors were still excited about investing in social games and anything related to Facebook. At the time, Zynga was still riding high on CityVille and it had 275.8 million monthly active users.
EA’s value was around $6 billion. The comparison between the valuations was crazy. EA’s projected revenue for the fiscal year ending March 31, 2011, was expected to be as high as $3.7 billion (non-GAAP). For calendar 2010, Activision Blizzard’s revenues were $4.8 billion (non-GAAP). EA and Activision both had more than 7,000 employees. Both were profitable on a non-GAAP basis.
Everyone had an inflated belief about Zynga’s value. Zynga’s revenues in 2010 were estimated to be $850 million, with a profit of $400 million, according to confidential sources cited in the Wall Street Journal. (Actual revenues, revealed later in Zynga’s IPO filings, were $597 million and net income was $90 million). The company had more than 1,500 employees and it had been buying a game studio once a month. By comparison, EA said it was on track to hit digital revenues of $750 million in the fiscal year that ends March 31.
Back in October, Zynga’s value was a mere $5.27 billion, according to limited trading on secondary markets, where employees and other shareholders were allowed to sell their stock to well-heeled investors. At that point, its value surpassed EA’s. Bubble-conscious observers asked: what did Zynga do to double its market value in a little more than three months?
Zynga was trading at more than 11 times 2010 revenue. Activision Blizzard was trading at around 2.7 times 2010 revenue, and EA was somewhere around 1.7 times revenue. Zynga was most likely being valued on the basis of its potential revenues and earnings; since it was growing at a faster rate, investors were naturally going to value it higher. And Zynga was clearly part of the rarefied social media technology club that also includes Facebook, whose value soared to $50 billion in a recent funding; Groupon, valued at more than $6 billion; LinkedIn, which is preparing to go public; and Twitter, valued at $8 billion to $10 billion.
Zynga attracted enormous investor interest since it cracked the free-to-play gaming model, where the games are free but players pay for virtual goods. Asian game companies had done that as well and it was worth noting that Tencent’s value was around $46 billion on the Chinese stock market. Most of China’s online game companies, however, were valued at under $4 billion.
People could argue that Zynga’s value isn’t real, since it was in the midst of an investment bubble, and it is bound to deflate. But traditional game companies had to realize that Zynga could use its valuation to buy assets with real value. Zynga was buying a small game studio every month, but it had built enough of a cash hoard to buy a traditional game maker. It could invest enough money in new games where it would become a threat to be reckoned with. That was how bubble value could turn into real value.
Lots of big game brands were going to attack Zynga’s core market of Facebook games during 2011. But it was likely going be very hard to dislodge Zynga, which had moved into a kind of self-perpetuating state. Zynga had to spend a lot of money on marketing to stay there, but as long as it had the cash, and could get more of it, Zynga was very formidable on Facebook. Zynga could also point to mobile as the next great market for expansion.
At the time, no one got the details on Zynga’s investment round exactly right. But Zynga later said that it raised $490 million in February. The large round served Zynga’s purposes of postponing an IPO until it could accomplish goals such as regular profitability, diversification beyond Facebook, mobile expansion, and international expansion. All of those goals would help Zynga produce earnings that could keep investors from getting spooked. Previously, Zynga had raised around $360 million, so the new round gave Zynga more cash than the company had raised to date.
By March, Zynga’s valuation was $10 billion. By late May, Zynga’s valuation was determined to be $13.98 billion. At that point, rumors that Zynga would go public started building. Some backlash had begun to build that no company could create value at such a rate, and that this was part of another Silicon Valley bubble.
Recognition at last
At the Dice Summit in 2011, 700 game designers and other elite members of the industry listened to an opening discussion about how games such as FarmVille and Angry Birds were disrupting the traditional game industry. Zynga was represented by Bruce Shelley, a famous game designer who had created titles such as Age of Empires and was now a consultant for Zynga.
Mike Morhaime, head of Blizzard Entertainment, said he plays Words With Friends, a Scrabble-like word game on the iPhone, so that he can connect with old friends.
Greg Zeschuk, co-founder of Electronic Arts’ BioWare division, said he pulled someone into his office to show off CityVille on Facebook. “Come take a look at the future of games,” he said. He said game designers can now reach so many users so fast with games that are accessible and easy to play. At the time, CityVille had around 100 million users.
“We have never had a chance to reach so many people so fast with something so easy to play,” Zeschuk said.
Bruce Shelley, co-founder of the now-defunct Ensemble Studios and maker of Age of Empires, was so enthralled with Zynga’s FrontierVille (made by his friend and game veteran Brian Reynolds) that he decided to start work on Facebook games himself.
“This [game] had engagement,” said Shelley. “It was a real game. It meant that game design had been brought to a new space where it had never reached before.”
At the summit, Bing Gordon received one of the highest honors in the video game industry. He received the lifetime achievement award from the Academy of Interactive Arts and Sciences for his work in the game industry over 25-plus years. Gordon was an early employee and chief creative officer at Electronic Arts. He could have retired after his 25 years at EA. But as a partner at Kleiner Perkins, he had scored big. He had funded both Ngmoco, the mobile game company that was sold for $403 million, and Zynga. Gordon’s award was not only recognition of his past, but also his current successes. And that meant that Zynga, Mark Pincus, and social games now had a place in the game industry.
Rich Hilleman, chief creative director at Electronic Arts, said that Bing’s comments often have to be translated from “Binglish.” But Hilleman, game designer Will Wright, and others said that Gordon was frequently brilliant (with one of them saying, “you can’t judge a book by its cover.” In the video celebrating Bing, Mark Pincus said, “The scariest thing about Bing is that he is usually right.”
Gordon wrote a poem called the Golden Age of Gaming, which celebrated the industry’s ability to reinvent itself. Gordon thanked many of his colleagues for “giving me the chance to reinvent myself.” He added, “Twenty five years later, we are all an overnight success.” One of the gems from the poem: “Today our industry is experiencing reframing; but recognize this: we are all in the golden age of gaming.”
It certainly was a Golden Age for Bing, and for Zynga.
There was still some lingering tension and doubt. Jade Raymond, a celebrated game developer at Ubisoft, said she found it depressing that people were spending less time with the hardcore console games that her company had made. However, most game companies were furiously creating digital gaming businesses in social and mobile games. Zynga had changed the whole industry.
In a lecture the next day, Gordon told the Dice audience that Zynga was focused on the broader topic of play. As far back as 2004, Electronic Arts had noticed that its games were consuming more time than movies. EA’s Club Pogo accounted for 225 million hours of play in 2004, compared to 180 million for Madden NFL, 150 million for Halo 2, and 126 million hours for the most popular movie, Shrek 2. Gordon believed that game design was so powerful that it was going to spill beyond the borders of the game industry. He called it the “videogamification of everything.” The thinking of game designers was spreading into non-game web sites that wanted to attract more people. Social software was remaking of everything, from corporate learning to education. And while he touted Zynga’s games, he also said, “World of Warcraft is the new Tolstoy,” in a nod to hardcore games.
The audience listened to Gordon’s sometimes rambling talk, which brought together experience from both the console side and social. He was a bridge between the industries. He had helped bring Zynga a long way from its days of ridicule. Simon Carless, executive vice president of the UBM Techweb Game Group (which puts on the Game Developers Conference), said, “There’s a lot less tension than there used to be. The social developers are using more game design concepts, and their games are more fun than they used to be. And the core game developers are learning how to create more social experiences.”
Google courts Zynga with Google+
Google quietly gave Zynga more than $100 million in venture funding in a round that was never announced. One of the reasons was that Zynga didn’t want to cause an open rift with Facebook. But Google was clearly aiming at driving a wedge between the two partners as it prepared to launch its own social network. After much preparation and media speculation, Google finally unveiled Google+ on June 28, 2011. After two weeks, the service hit 10 million users; after four weeks, it hit 25 million. By October 2011, it hit 40 million users.
The company slowly doled out invitations so that it could add features and maintain good service. On Aug. 11, the company opened the service up to games. Vic Gundotra, senior vice president of engineering, said that the experiences that people share together are just as important as relationships, so the goal of Google+ games was to make online games as fun and meaningful as playing in real life. That meant Google was going to put a premium on social sharing in games, which would be built by third parties.
In a little jab at the spam-like nature of game notices on Facebook, Gundotra said that “Games in Google+ are there when you want them and gone when you don’t.” In other words, Google designed its game business so that it wouldn’t spam non-gamers.
It launched 16 titles, including Zynga Poker. Once again, Zynga was trying to diversify away from Facebook. And Google looked like it was going to be a major platform that could grow as large as Facebook and even steal some users away from it.
There was a reason why Google seemed like it was in a big rush to get games up and running on its Google+ social network. That’s because games were the way that Google would put financial pressure on Facebook.
Joseph Ranzenbach, vice president of operations at PrivCo, a New York company that evaluates financial data for private companies, had some interesting analysis of the Facebook-Google fight. He said that Google+ games could badly damage a major source of revenue for Facebook.
That’s because Google started by only taking a 5 percent cut of virtual goods transactions from third-party game makers, while Facebook was taking 30 percent. If developers sell virtual goods for a game on Facebook, they have to use Facebook Credits and Facebook gets to keep 30 percent of every transaction. That has made a number of developers angry.
PrivCo calculated that roughly two-thirds of Facebook’s revenues come from advertising, while the remaining third came from Facebook Credits. So Google+ games was attacking a third of Facebook’s revenues. Of course, lots of Facebook’s ads were placed on pages where users are playing games, so a significant chunk of the ad revenue was related to games as well.
Google found a way to attack Facebook, and Zynga was an important piece of the puzzle in making it happen. In the future, Zynga might not have to fret so much about being dependent on Facebook. With Google+ around, Zynga could be a kingmaker among the social platforms.
Finding a replacement
Zynga became a place of rapid advancement, with a chance to get promotions at an unbelievable pace. One of Mark Pincus’s rules was that employees should try to find their own replacements. The rule applied even to him.
Zynga had a number of possible successors to Pincus over the years. Bing Gordon gave him advice, but there were operations chiefs such as Vishal Makhijani. Owen Van Natta, the former CEO of MySpace and an angel investor in Zynga, joined the company in early 2010. He was an executive vice president in charge of running revenue strategy, corporate development, international expansion and brand.
But on June 3, 2011, Zynga hired John Schappert, the former No. 2 executive at Electronic Arts, as chief operating officer. Schappert’s move signaled loud and clear, like his predecessor John Pleasants’ move to join Playdom in 2009, that social and casual games were a giant wave in video games. And the veterans of the industry were now more than willing to surf on the leading edge of that wave.
Schappert had a long history at EA, starting as a game programmer and founder of the Tiburon game studio in 1994. His team made Madden NFL sports games for EA and EA bought Tiburon in 1994. Schappert rose through the ranks to take the No. 2 job, but jumped ship in 2007 to join Microsoft as head of its Xbox Live online gaming business. He rejoined EA as Pleasants — who EA made clear was asked to leave — departed for Playdom. At EA, Schappert helped steer the company’s expansion into digital games, in competition with Zynga. That business was on track to generate $833 million in digital game revenues for EA in the year ending March 31, 2012.
At Zynga, Pincus had finally found his future replacement and also brought aboard an executive that investors would have faith in as an expert in the video game industry. Van Natta became chief business officer and was eventually moved out of his executive job at Zynga. He stayed on as a board member, but seemed redundant after Schappert came on board.
Clearly, the hand of Bing Gordon, Zynga’s “consigliere,” seemed apparent in the recruitment. Schappert’s job was to bring order to the house, which had been expanding at a rate of an acquisition per month. He also had to preside over a rapid expansion of game launches as those teams started finishing games they had started under Zynga’s ownership. Schappert brought more game cred to Zynga, and that meant he was good for a potential IPO. Those potential investors who weren’t comfortable with Pincus were likely to be very comfortable with Schappert. And while there was a delay between the announcement of Schappert’s departure and his arrival at Zynga, EA didn’t sue Zynga for hiring Schappert.
Schappert’s hiring was marked by a couple of other events that signaled Zynga’s maturity. The company sued Vostu, a leader in social games in Brazil, for copying Zynga games. And Zynga also launched Empires & Allies, the company’s first combat social game made by for EA veterans who created the Command & Conquer series. Empires & Allies grew quickly and it filled another genre in the cartoon-oriented social game market that Zynga was starting to cover from all angles. Soon, other games like Pioneer Trail and Adventure World would arrive. It seemed that everything necessary for a good initial public offering had fallen into place.
The EA empire strikes back
During the summer, Zynga was courting a big prize. PopCap Games, the maker of outstanding casual game titles such as Bejeweled and Plants vs Zombies, was openly exploring its own initial public offering. PopCap’s employees had waited a long time for some kind of payoff, and it was finally coming near. Zynga wanted to buy PopCap and it was willing to part with almost all of its cash — or at least take out a huge line of credit — to do the deal.
Asked what he thought of Zynga’s purported value, PopCap CEO Dave Roberts told VentureBeat, “One has to be careful about believing valuations based on the secondary market. I am not saying Zynga is not valuable. I think it is a very valuable company. Nobody believes that that really is an appropriate market evaluation. And likewise you have to be careful when small pieces of equity are raised by companies. If Microsoft invests $50 million in something, they don’t care about the valuation because it’s a small amount of money to them. That doesn’t mean the rest of that company is worth a lot. I don’t think we’ll ever know Zynga’s true value until it is public. The same is true for PopCap.”
Then, on July 12, EA snatched PopCap away. It agreed to pay $750 million in cash and stock, as well as a potential bonus of $550 million if goals were met.
The New York Times said that Pincus reportedly offered PopCap Games a total of $950 million in cash to buy the Seattle-based casual game maker. But after hearing about the company’s history of “clawbacks,” or rescinding share awards, and fierce internal fights, PopCap decided against it. Instead, the company agreed to take a $750 million offer in cash and stock (plus a $550 million possible bonus) from EA, the Times said.
That explanation was an odd one, given the rescinding of share awards was a story that broke in November 2011, many months after the PopCap deal was announced. And on its face, the offer from EA looked a lot more attractive than Zynga’s offer. Still, when EA snared PopCap and Zynga didn’t, it started to make people wonder. Why wouldn’t a company like PopCap want to hitch its fate to a winner like Zynga? Was there something under the hood that didn’t look right? Pincus had indeed taken back stock options from some early Zynga employees.
The Times also said that three unnamed sources said that Rovio, the maker of Angry Birds, walked away from a Zynga acquisition offer worth $2.25 billion in cash and stock. Rovio made it clear that it wanted to go public. Zynga had been painted as walking on water. Was it now falling back down to Earth?
PopCap cofounder John Vechey said in an interview with VentureBeat that Electronic Arts felt like a great match because John Riccitiello, CEO of Electronic Arts, was very knowledgeable about games and understood what PopCap was good at. Barry Cottle, head of EAi, the company’s mobile and casual game studio, said PopCap was one of the dominant companies in casual games with fast growth on both Facebook and mobile games. The company made more than $100 million in revenues a year and was growing at a 30 percent rate. Sales of Bejeweled made up about 40 percent of its revenues, and about 20 percent came from Plants vs Zombies, PopCap chief executive Dave Roberts told VentureBeat. But the company was born in 2000, long before the era of social gaming. If there were any justice in the world, PopCap should have been in a position to buy Zynga.
Almost on cue, just as Zynga seemed to lock up the Facebook market, it took a broadside from EA. Almost as revenge for stealing Schappert, EA launched its life simulation game on Aug. 9, 2011.
EA had the massive franchise of The Sims, which had sold more than 140 million copies on the PC and the consoles, to fuel the growth of The Sims Social on Facebook. The game was the first massive hit from Playfish, the social game company that EA bought for at least $300 million in 2009. It was a surprise comeback, given Zynga’s dominance on the social network.
Raptr, the social network for gamers, revealed that an analysis of its 10 million users that many of The Sims Social users — millions upon millions of them — had come from Zynga. EA’s own social games and The Sims 3 accounted for only 15 percent of the total players of The Sims Social. Zynga players, on the other hand, account for 50 percent of all of The Sims Social players.
On Sept. 12, the Sims Social’s numbers exceeded FarmVille’s. By Oct. 12, The Sims Social became the No. 2 game on Facebook with 66 million monthly active players, compared to 76 million for CityVille, according to AppData. If roughly half of those players came from Zynga, that was about 33 million users who had defected. Of course, not every single one of the Zynga players quit playing a Zynga game in order to play The Sims Social. But CityVille dropped from more than 100 million players.
EA’s success reminded everybody about what Zynga itself acknowledged as a risk factor in its IPO filing: The barriers to entry are low in social games, and the competition is intense.
“The Sims Social proved they can bleed, and if they can bleed, we can kill them,” said Jeff Brown, vice president of corporation communications at EA, laughing.
But by the end of its run, it was clear that The Sims Social wasn’t going to catch CityVille. The rate of growth fell off and, with extra marketing spending by Zynga, CityVille started to grow again.
The long awaited IPO filing
In late May, word leaked that Zynga had decided to file for an initial public offering. LinkedIn did so well with its IPO that Zynga was considering diving through the same open window for IPOs.
It was a false alarm. Then, again, in late June, rumors surfaced that the company might raise as much as $2 billion at a valuation of $15 billion to $20 billion. That would have made Zynga worth as much as three times the value of EA. Finally, Zynga filed registration papers with the Securities and Exchange Commission on July 1 to raise more than $1 billion. By that time, more than 80 tech companies had filed to go public as the window for IPOs opened wider.
For the rest of the game industry, there were mixed feelings. Those who hated Zynga had even more reason to whine about the injustice of a company with copycat origins having such a huge potential valuation. On the other hand, Zynga’s S1 revealed a treasure trove of information about the company that had been secret so far.
Zynga’s S1 said that in four years, the company generated more than $1.5 billion in bookings and it had amassed $995.6 million in cash. Its players created and stored more than 38,000 virtual times every second and spend 2 billion minutes a day with the service. The company had 2,268 employees, an audience of 148 million monthly unique users in 166 countries, and more than 232 million monthly active users (as some users play more than one game). On a daily basis, Zynga had 62 million daily active users, up from 24 million in September 2009. That was far more than any other social game company on Facebook and a reason why Zynga’s IPO was so highly anticipated. Those users interacted with each other 416 million times a day. Every day, Zynga processed 15 terabytes of game data.
Zynga revealed some other interesting metrics in the filing. It said that 2.5 percent of its users paid for virtual goods in games. That was only 7.7 million paying customers. In one sense, that meant that Zynga was vulnerable. If someone stole away those 7.7 million users, Zynga’s revenues would plummet. On the other hand, it was a huge opportunity. Zynga could double its revenues simply by increasing the number of payers to 5 percent. That was why Zynga was pursuing alternative monetization techniques. This kind of data was invaluable to the industry, and it only seemed that, because Zynga was going public, the industry was now learning critical things about itself.
One of the interesting parts of the filing was that Zynga noted that it was making more money from FarmVille than ever, even though that game had been launched in 2009. Expansions such as its FarmVille English Countryside helped boost revenues, and even after two years, FarmVille still had half of its peak users. By contrast, most console video games sold for a few weeks before gamers moved on to something new. So Zynga had done a good job getting a broad group of users and holding onto them.
Ad revenue was only about 5 percent of total revenue. Zynga had opportunities to increase that as well, but it had been wary ever since the ScamVille incident, which jeopardized Zynga’s relationship with consumers.
But Zynga didn’t go public right away. The SEC had questions and Zynga had to amend its filings to make the regulators happy. Then the stock market became increasingly unpredictable. Throughout the summer the news about the world economy started to turn sour. By Aug. 5, 2011, everything was looking sour again as European economic fears bled into everything else, knocking the stock market down again.
Some of the amended filings raised hell. Facebook game developers were furious when they found out about the tight relationship between Facebook and Zynga. The developers were angry because of a new disclosure by Zynga, filed with regulators, which showed that Zynga gets benefits that apparently no other game company gets. In the filing, Zynga said that it received a special deal when it agreed to support Facebook Credits, a new virtual currency from Facebook, a year ago. In that deal, Zynga agreed to give 30 percent of its virtual goods game revenues to Facebook, the standard fee for using Facebook Credits.
In exchange, Facebook had agreed to help Zynga hit growth targets for its games. Facebook did not, as initially reported, agree to kick back revenue to Zynga from ads placed by Facebook alongside Zynga games on Facebook. Facebook said there was a deal to share ad revenue with Zynga if it chose to move its Facebook games off of Facebook, but that ad deal never kicked in, according to a statement by Facebook. The 30 percent fee is what every developer pays, and Facebook told developers that everyone was treated the same.
But other developers were upset about Facebook’s support of Zynga’s growth targets. Facebook reportedly (in a redacted section) promises growth by the end of the five-year agreement, according to a source familiar with the agreement.
“It’s an outrage,” said an executive at one Facebook game developer, who spoke on condition of anonymity, at last week’s Casual Connect game conference in Seattle, where the Facebook-Zynga deal was the subject of much conversation. “It means we can’t move to Google+ soon enough.”
“We all knew Zynga had contractual advantages, but the extent of it makes Facebook a tough platform for everyone else,” said Trip Hawkins, chief executive of Digital Chocolate. “Policy changes have made revenue and margins more challenging this year, so it is a bitter pill for all of us to find out that the market is neither competitive nor fair. Their relationship could not be more complicated. It’s like a bad marriage that is staying together for the money. You don’t get the feeling that either side really feels happy or free. Ironically, they could both use more real friends.”
In conversations with game developers, Facebook tried to calm developers down and explain that it really doesn’t favor Zynga in a way that is unfair to the rest of the development community. There were, in fact, times when Zynga hated the Facebook-Zynga relationship.
Meanwhile, Zynga’s on-again, off-again IPO started becoming a joke. Lots of IPOs were yanked altogether starting in August. Finally, rumors surfaced that Zynga would go public in November. Then it became after Thanksgiving. But first, Zynga decided to hold its first-ever press conference at its new headquarters, a high-rise building that could fit 1,700 employees and was affectionately named “the doghouse.”
The Big Bang
Zynga’s huge staff of what would shortly become 2,700 employees needed a lot of space, and many of them moved into the old Sega U.S. headquarters building in San Francisco’s South of Market neighborhood. But the question arose: Zynga had only launched a handful of games in 2011. What were all of those game developers doing? If it took six weeks to make FarmVille with a staff of maybe 10 people, then Zynga theoretically now had enough developers to make around 1,600 FarmVille games in a year.
Of course, the ante for game development was getting higher. It was taking longer to make games (FrontierVille had taken around a year to get right), and the teams were getting bigger. Zynga never told anyone publicly how many people it took to do games. It considered that information to be a competitive secret. But a lot of observers thought Zynga had too many people.
VentureBeat has learned that Mafia Wars 2, the sequel to one of Zynga’s most successful games, took 80 people about 18 months to complete. Zynga announced the game on Sept. 20 and launched it on Oct. 10. The title featured 3D Flash animations, but it was still mostly a two-dimensional game. The game grew to more than 17 million users, but then the audience started dropping off.
But finally, on Oct. 11, it was evident that those employees had been busy. The event was like Zynga’s own little E3, the big video game trade show. At a press conference in its sprawling cafeteria (with everything from Zynga french fries to cafe mochas offered for free), Pincus unveiled 10 mobile and social game initiatives. Not all of the titles were ready to launch, but it was the sort of Big Bang you expected out of talented development teams that had been busy toiling in secrecy.
The event was orchestrated to give the press, analysts and investors a taste of what was to come on a number of fronts. Each initiative showed that Zynga was hammering a way at the concerns investors might have about its ability to stay on top. Mark Pincus, the would-be multi-billionaire, made his first appearance on a stage in months. In the past, he hadn’t been careful or scripted. But that day, he was pretty polished.
He started out with a story about the good old days at Zynga in 2007, when the company first started making games for Facebook. He said the team hired some students from the Culinary Academy across the street to create food in the company’s small headquarters. One of those students, Amelia, later became the fictional head chef in Zynga’s Cafe World game, and she was now the head chef. He asked the journalists to turn around in their seats and look up. Thereupon they saw rows of employees standing on the open walkways of the building’s upper levels. Pincus recognized the staff and apologized for taking away their cafeteria for a day.
Pincus didn’t hog the stage. Pincus laid the groundwork for all of the presentations by senior Zynga executives. He allowed each domain expert to get on stage to describe their own games. When he introduced the company’s chief operating officer, John Schappert, who was recruited away from Electronic Arts, he said Schappert had fulfilled Pincus’s goal of finding his own replacement.
Pincus said, “We challenge ourselves every day to … get you guys to play. You are busy. You are on the move. You don’t have time to sit and play games. But we really think play is this macro theme and activity that we all need to fit back into our lives. Everything behind what we are building is this mission to build a platform for play.”
Pincus said Zynga’s basic design principles focus on the FTUE, or first-time user experience. The best opportunity for Zynga to make an impression on a player is in the first three clicks of a game. He said that in casual games, you have to sell the player on the whole game in the first three clicks and that five to 15-minute experiences of playing should “feel like a meal.” You shouldn’t have to change your routine for Zynga’s sake.
Zynga Direct and Project Z
At the press conference, Pincus mentioned one new initiative, Zynga Direct, which the company has been working on for two years. It’s a platform for creating more social interactions around Zynga games, whether they’re played on the web or on mobile devices. Schappert later described a part of Zynga Direct, dubbed Project Z, as an online destination where Zynga players can go to play Zynga games. Schappert said Project Z was a “social gaming playground,” where players could play under their own gamertag names. But he didn’t go into much detail, either.
Project Z would be an independent website that exclusively hosted Zynga games. It would use Facebook’s connect feature to build a social graph of your friends on Project Z. You would then be able to go directly to Project Z to play Zynga games instead of playing them on Facebook. It was Zynga’s own platform, like Microsoft’s Xbox Live online gaming service. And on this platform, Zynga wouldn’t have to pay 30 percent of the proceeds to anyone.
“Project Z is a Facebook Connect platform that leverages your Facebook friends to play in an environment tailored with just your friends,” Schappert said. “We learn a lot more about our players, not just from stats but from talking to them, and this is what they wanted.”
The world hadn’t heard about these off-Facebook projects since more than a year earlier, when Zynga was threatening to move off Facebook in the showdown over Facebook Credits. Zynga had never stopped doing work on these projects, even though it established a detente with Facebook. But these projects were stopped and started multiple times. The problem was that the job amounted to Zynga creating its own social network. And the difficult thing about that was that Facebook had succeeded in creating its own broad-based social network that was heading toward 800 million members. Zynga needed to figure out how to differentiate its own social network enough to draw Zynga fans to a separate web site.
Now, it appeared, Zynga really had been serious when it said it wanted to diversify beyond Facebook so that it could have a direct relationship with its gamers without having any intermediaries in between. It wasn’t just a paper tiger, meant to threaten Facebook.
David Ko, head of mobile, came on stage to describe five new mobile games. Mobile could be a bigger market than Facebook games, so Zynga had to try to grab market share in that market in order to keep growing fast, diversify beyond Facebook, and continue executing well prior to going public. Ko had spent $53 million on Newtoy and was acquiring more and more mobile game developers.
Zynga also showed off new Facebook games like Zynga Bingo, Hidden Chronicles, and CastleVille. And it said that Mafia Wars 2 would now run on Google+. The whole press event was meant to show that Zynga’s employees had been busy and the company was now spreading out in all directions.
Pincus closed the event saying that Zynga is committed to one vision that hasn’t changed since the founding: “We want to be the biggest macro bet on social gaming.”
“We believe that this is the way everyone around the world will want to embrace play in their lives,” he said. “We know it is early. We know it is primitive.” He said social gaming will come to life in the next few years and will become more mobile, so that you will get something like a World of Warcraft experience in five or fifteen minutes.”
CastleVille saves the day
In late October and November, the stock market was still volatile. Toward the end of November, a new IPO window opened as companies such as Yelp filed for IPOs and Angie’s List succeeded in going public. But Zynga had its ace in the form of CastleVille, a game whose purpose was to bring massively multiplayer online role-playing games to the larger mass market.
Zynga bought a company called Bonfire Studios in October, 2010. It included a number of seasoned developers who had worked at Microsoft’s Ensemble Studios, the creator of Age of Empires. As Microsoft shut Ensemble down, Bonfire was born. Zynga pounced on it and renamed it Zynga Dallas.
Bill Jackson (pictured right), creative director of Zynga Dallas and a former Ensemble employee, had led the development of the game for more than a year. Now Zynga Dallas was launching CastleVille, the latest in the series of Ville games that had become the mainstay of Zynga’s simulation games. The title mashed up Zynga’s usual cartoon style, which had a wide appeal among Facebook users, with more interesting game play than it had in the past.
“CastleVille takes Zynga’s Ville legacy to a new level of social,” Jackson said.
The game was a goofy title inspired by movies like Shrek, though its play style wasn’t an exact copycat of anything else in the market. Zynga launched the game on Nov. 14. On that day, The Sims Social was no longer a huge threat. Zynga had roughly 40 percent of the market share for social games on Facebook, with more than 45 million daily active users. EA had just 12.5 million daily active users.
After six days, CastleVille had 5 million users. About 68 percent of CastleVille players were playing at least twice a day. Zynga said that in six days, 135,176,035 quests had been completed. Players had expanded into new parts of the map (covered by dark Gloom spaces) a total of 4,594,750 times. About 23,845,983 beasties had been banished. Some 8,262,768 baby cows had been raised. And 182,360 Bubbly Grogs had been crafted.
Seventeen days after CastleVille launched, it had 20.8 million monthly active users. A full year after CityVille had launched, CastleVille had taken the title of the fastest-growing game in history. On Dec. 12, 2011, CastleVille had 31.6 million monthly active users, according to AppData. If anything would make investors happy, it was another hit game. And this was just one of the first launches in what Zynga’s No. 2 man, John Schappert, would call “the most active launch period in the history of the company.”
Back in 2009, there was a time when Zynga got nothing but good press. At that time, Mark Pincus said he should have been thrilled that Fortune, Forbes, and BusinessWeek had all written about his company, but he wasn’t.
“I should feel happy, but I feel shitty,” he said. “I feel like the emperor with no clothes.”
He said that both social games and Zynga have a lot of potential, but they also had a long way to go before they could be considered successes.
When you headed for imminent failure, the best thing you can do, Pincus said, is to be in a position where you can intellectually and emotionally own your failure. At that point, he said, “You know you can control your own destiny.”
By 2011, however, there was no longer much danger of imminent failure.
As the IPO season neared the end of the year, Zynga was wrapping up its details. It changed its accounting to suit the regulators on Oct. 14. For the period ended Sept. 30, Zynga said net income was $12.5 million in third quarter ended Sept. 30, down 54 percent from a year ago. Revenue was $307 million, up 80 percent. Bloomberg reported Zynga would likely go public after Thanksgiving. Zynga’s destiny would be in the hands of investors.
Competitors tried to stir up negative stories about how Zynga treated its employees. All of a sudden, Mark Pincus was the emperor with no clothes again. The Wall Street Journal reported that Zynga’s Pincus had been leaning on poor performers to give back their stock options. On Nov. 17, chief business officer Owen Van Natta resigned from his job. And the New York Times reported that Zynga’s employees were dissatisfied and that PopCap Games had been so alarmed about Zynga’s culture that it turned down a $950 million cash offer from Zynga in favor of the $750 million plus $550 million bonus from EA. Rovio also reportedly turned down a $2.4 billion Zynga offer.
But Zynga didn’t seem to worry about the negative press. The company filed its plan to raise up to $1 billion at a $8.9 billion valuation on Dec. 2, with a per share price range of $8.50 to $10. It planned to initiate a nine-day roadshow to pitch investors. It would price the stock on Dec. 15 and start trading on Dec. 16. It was the last real window of the year for going public, and the company decided to take it.
The amount of money being raised and the valuation were a lot smaller than what everyone had expected, which was a $15 billion to $20 billion valuation. Worse, the valuation was less than it had been during the company’s previous round, which means the most recent investors were seeing the value of their investment in Zynga decline. If the price rises above $14 a share, those investors should be OK.
But even at the reduced amount, Zynga would be worth more than EA at $7 billion, although EA had four times the revenue. That was a long way from the good old days. Andrew Cleland, the partner at Comcast Ventures, recalled that Pincus had told him Zynga would be more valuable than EA in five years. In reality, it took Pincus just a couple of years.
Cleland’s calculations suggested that Zynga would spend more than $500 million in research and development in 2012, and that Pincus probably wasn’t managing for profitability in that year. The long-term vision demanded heavy investment, not quick profits.
“Zynga is a remarkable venture story, and the company’s impending IPO is a huge moment for the games industry — it marks the coming of age of the West’s leading proponent of casual, free-to-play gaming,” Cleland wrote. “With the timing for the company’s roadshow now seemingly confirmed, what should we expect from Zynga as it goes public? The answer reflects Pincus’ exceptional level of ambition and has implications both for how investors should think about the company and how other developers manage their go-to-market strategies.”
But Cleland’s long view might not have been shared by investors spooked about the European economy and Zynga’s own slowing growth. Where would Zynga’s new users come from in the wake of reinvigorated competition? To slide in value from $20 billion to $10 billion from July to December was almost as precipitous a drop as Zynga’s rise. The company was no longer walking on water. Now it had to earn every bit of respect and credibility. The reaction from the employees has been anger, in part, because the value of what they own is half of what they thought it was.
Once the company unveiled its investor roadshow, Pincus finally had a chance to make his pitch to everybody about why Zynga had a bright future. He said that he expected the number of gamers to double from 1 billion in 2011 to 2 billion in the next five years. About 18 billion apps were likely to be downloaded in 2011, and that would quadruple in five years. And $9 billion would be spent in 2011 on virtual goods, and that would triple in five years.
On mobile, Zynga had 11.1 million daily active users in October, up from 991,000 a year earlier. That’s a much smaller share of the overall mobile gaming market, but the growth rate is impressive. Zynga bought much of that with its acquisition of Newtoy, but it was still good progress.
Zynga’s ad revenue is $55 million, up 162 percent from a year ago. Advertisers include Best Buy, which had a campaign where players in CityVille built 8 million new Best Buy stores in the game. Ads are just 5 percent of total revenues now, but are growing. That represents a vast revenue opportunity. If Zynga makes just $1 a month in ad revenue from each of its 200 million users, that would amount to $2.4 billion in revenue a year.
The good thing about ads, Wehner said, is that they can be inserted long after a game launches. FarmVille launched in June 2009, but its Lady Gaga sponsorship was launched in May 2011. Hence, Zynga has some significant opportunities to backfill on revenue, making ad money and better sales per user with older games.
During the road show, Pincus reportedly said that Zynga might be able to double its number of paying users. Right now, about 2.5 percent, or 7.7 million users, pay money for virtual goods in games. It was no easy task, but if Zynga could double that, it could potential double the revenues of the company.
Michael Pachter, a research analyst at Wedbush Securities who specializes in games and digital media, said there are several scenarios in which Zynga could double its paid user base within the next one to two years. The two key drivers of growth will be Facebook and mobile devices.
Pachter said that if Facebook hits 1 billion users, the number of people who play Zynga games will almost certainly increase in tandem. And if this happens, Zynga could still be close to doubling the number of paid users it has without significantly shifting the total proportion of Facebook users who play its games.
Zynga’s John Schappert said the company will launch new games, enter new international markets, expand to new platforms from Google+ to Tencent to Zynga.com, and grow its markets in mobile.
“Why now?” Schappert asked. “We are entering the most active launch cycle in the history of the company.”
“We believe it’s the most powerful business model in entertainment,” Schappert said. In other words, if you think about Zynga as an investment, it seems like a bargain at a $10 billion valuation.
When Zynga goes public, the stock market will put that notion to the ultimate test. And if all goes well, Mark Pincus, the Pretender and the Man Who Would Be King, will finally get to say to all of his detractors, “I told you so.”（source:venturebeat）