Zynga Inc.'s filing to become a public company answers the question of how the social gamer plans to book real money from the sale of virtual goods, which make up the vast majority of its revenue, expected to total more than $1 billion this year.
For example, a player of Zynga's CityVille might purchase energy, which Zynga classifies as a consumable because its full use comes at the election of the player. When the player buys the energy, Zynga records the purchase as deferred revenue on the balance sheet, and when that player uses the energy in gameplay, the revenue is recognized on the income statement.
Conversely, a player might buy a tractor on FarmVille to help manage a virtual farm. Similarly, the revenue is immediately classified as deferred, but it is recognized on the income statement ratably over its estimated useful life, just like a durable good in real life.
Except in Zynga's case, it isn't rust or a broken axle that will determine when the tractor has outlived its usefulness, it's when the player stops playing the game.
For example, a player of Zynga's CityVille might purchase energy, which Zynga classifies as a consumable because its full use comes at the election of the player. When the player buys the energy, Zynga records the purchase as deferred revenue on the balance sheet, and when that player uses the energy in gameplay, the revenue is recognized on the income statement.
Conversely, a player might buy a tractor on FarmVille to help manage a virtual farm. Similarly, the revenue is immediately classified as deferred, but it is recognized on the income statement ratably over its estimated useful life, just like a durable good in real life.
Except in Zynga's case, it isn't rust or a broken axle that will determine when the tractor has outlived its usefulness, it's when the player stops playing the game.
Very clever. Like with any other toy, things become worthless when they are no longer fun to the player. Instead of attention span, we can now talk about "fun span" of users to characterize their interest in a particular item. In a world where the difference between real and virtual is becoming smaller and smaller, changes in fun span could have a major impact on the country's GDP. Also, imagine opportunities in trading fun options along with oil and pork belly futures!
By the way, I checked with Google search and it appears that I just invented the term "fun span."
tag: invention, innovation, virtual, games, economics, psychology.
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