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Zynga & the Game of Growth

In Hiring Strategy — by Recruiterbox

It’s all about the game, and how you play it. Mark Pincus, an undergrad from Wharton and a Harvard MBA sure knew how the game was played. But the jury is out on the fate of his creation, Zynga, which in today’s financial reality trades at $6.03 a share and has a market cap of $4.44 billion. Will the proverbial fortune favor the brave or will investor sentiment spill water on a carefully designed plan, drawn on the canvas of the teeming and writhing world of social networks and ‘Web 3.0’? Once the fat lady sings, you know it’s over but till then, here is a synopsis of how Zynga came to rule the roost.

Mark before Zynga

Mark Pincus was never the one who saw himself as climbing the ladder by taking orders as a subordinate. After numerous experiments of trying to work as a regular employee, when Pincus eventually got fired, entrepreneurship appeared to him as the logical next step. So he took it, with open arms and consequently began the journey, dotted with startups such as FreeLoader (web-based push company), Support.com (later Supportsoft) and an incubator called Tank Hill, which he co-founded after being inundated with cash post the public listing of Supportsoft. But the venture that set him on course to tech-stardom was the one where he partnered with Reid Hoffman and bought a small stake in Facebook in 2007. The stake brought him in contact with Mark Zuckerberg and gave him an inside entry to the social media revolution.

Zynga – The Beginning

Zynga, according to Pincus was formed after he failed with TagSense and Tribe.net. It was during the time that Facebook opened up its API for programmers, and riding the wave of people flocking to acquire ‘Facebook land’ was Pincus, armed with ideas of making it big on the social networking platform. In his own words, Pincus had always been a closet gamer and with the advent of social media, he did the math and it told him that ‘Friends + Social Network + Games’ could be a win-win proposition for all. This wasn’t a new idea at all, considering that rivals like Slide, RockYou and the 2008 ‘springster’ Social Gaming Network emerged as big rivals to makers of games on Facebook. But the timing on the part of Zynga was bang on. The fledgling start-up hung on to the coattails of Facebook and rode the journey to the throne of online gaming.

Growth

Facebook’s growing popularity helped Zynga grow its user base in leaps and bounds. Coupled with that was Pincus’ focus on rapidly evolving its games to suit user tastes and demands. His vision was simple – Zynga’s business should be metric-driven, combining intuition and data. Insights and analytics would help Zynga rapidly iterate and drive reach, retention and revenue. This is exactly how Zynga differentiated between itself and others; it learned what users wanted and modified its games quickly, sometimes overnight, to better provide what the users wanted. The iteration reached its zenith when Zynga started testing every idea. In those heady days of tech entrepreneurism, one usually perceived Web 2.0 companies behaving in this fashion, but game companies for the most part didn’t.

Monetization of online games was seen as a big challenge by companies during the advent of social media. Pincus saw a way around it and brought into the scheme of things, what he likes to call ‘Web 3.0’. Virtual objects for sale – the idea on the face of it seemed innocuous. But the revenues it generated were staggering. In contrast to conventional gaming parameters, Zynga did not restrict the amounts users could pay to play. This resulted in some users, across Middle East and Europe paying as much as $100 for poker chip packages. The trend, as it would in a network, caught on and the proverbial ‘Network-Effect’ took over. The results were evident as the user base grew. By April 2009, Zynga had 40 million monthly active users and its poker game was the top title on Facebook. The game, Texas Hold’em Poker, was the first one to reach more than 10 million monthly active users. Following close at heels were Mafia Wars and Farmville. Investors flocked to pour money into the burgeoning gaming ‘whiz-kid’ – 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.

Turbulance

However, the growth wasn’t all hunky and dory for Zynga and Mark Pincus. Since the days it broke into popular consciousness with famous gaming titles, Zynga has had to suffer the ignominy of being called a ‘Copy-Cat’. Cases were filed against it by Dave Maestri, designer of Mob Wars (allegedly the original of Mafia Wars) and Playfish, a fierce competitor. At one time, the industry had considered it a foregone conclusion that Zynga would die its natural death, cloning games and ideas. But it was Pincus’ bullheaded approach to moving fast that proved the detractors wrong. Ideas were brought to the table, designed iteratively, tested in real-time and the ones generating users were accepted.

The ones that couldn’t were summarily rejected. The continued efforts, with the opening up of an office in India, finally made the difference with the launch of Frontierville, Café World, Cityville, Empires and Allies and the acquisition of OMGPOP.

Looking Ahead

The present day realities for Zynga are a mixed bag. While Project Z (code name for Zynga’s vision of its own social network for gaming) is the next step forward for Zynga (breaking away from the ‘Facebook dependency’), Pincus isn’t shy in buying companies out there, doing good work and producing games that have promise and a market potential. “Draw Something” has a tremendous user base among iPhone and Android users which naturally gives Zynga another network (within a network) to tap into. But, although its revenue has seen growth in the past, its operating income and margin has taken a dip from 2010 to 2011. Although Wedbush Securities is of the bullish opinion that – “Zynga remains well positioned for long-term growth.” What will be interesting to see is how Pincus and his crew steer the ship amid stormy waters in the years to come.

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