Zynga Timeline

VBeat has a timeline of Zynga, from April 19, 2007 when Mark Pincus started PresidioMedia, till present. I pulled out a piece around the key social media platform acquisition on June 5, 2009.

July 31, 2009 — Surpassing Yahoo Games, Zynga becomes biggest online game operator in the U.S. with 44 million monthly unique users. Pincus says that Zynga will generate more than $100 million in revenues in 2009. Zynga has 330 employees and 110 open jobs.
June 30, 2009 — Zynga hires Brian Reynolds as chief game designer. He sets up Zynga East as a new game studio in Baltimore, Md.
June 22, 2009 — FarmVille launches. It will grow to become the biggest social game of its time.
June 13, 2009 — The company bans a number of players for hacking the system to get more poker chips.
June 12, 2009 — Mark Pincus says Zynga is not planning an IPO. The company has more than 250 employees. Top rivals include Playfish, Playdom and SGN.
June 5, 2009 — Zynga acquires social network and game maker MyMiniLife. The company’s game engine becomes the infrastructure for FarmVille.
March 24, 2009 — At the first annual GamesBeat conference, Mark Pincus declares that social gaming isn’t a fad.

Around that time, Zynga had become a game platform on top of Facebook application platform. 

tags:  social, games, networking, platform, 4q diagram, infrastructure, evolution

Zynga: sweet, cheap, frequent, and easy.

MIT Technology Review has an article that looks into Zynga's business model beyond "freemium."

...what makes Zynga stand out is its success in mining an aspect of behavioral psychology: playing in shorter bursts can be more addictive in the long run.

Unlike companies that spend years crafting elaborate, $60 video games whose stories rival or even exceed movies in their complexity, and which are designed to be played for hours on end, a Zynga game generally asks players to perform quick activities: click here to plow a field in FarmVille; click here to fight a rival in Mafia Wars.

The games are also meant to be conversation starters: you are encouraged to invite your Facebook friends to play with you and team up on various tasks, though you don't all have to be online at the same time for it to work. At nearly any given time, if you stop playing, it's easy to pick up where you left off. In fact, Zynga's games sometimes give you cues that it's fine to stop—for example, by telling you that some plot of farmland won't be ready to harvest for a few more hours.

By making it easy for its games to be consumed in sociable, nugget-sized increments, Zynga hopes to get you so accustomed to popping them into your days that eventually, you'll have no problem spending real money to enhance the experience.

 It's addictive because it creates an illusion of achievement. With Zynga, it is easy to get started and get something done in a very short period of time. Unlike the real life, playing Zynga frees people from the need for planning. Activities are chunked in sweet easy bites. Just like sugar drinks and candy snacks that help proliferate the obesity epidemic.

tags: control, psychology, business, model, content, behavior, games, 10x

Premium vs Freemium

MIT Technology Review runs a series of articles on gaming. Among other things, the fremium business model seems to be winning in the mobile space. It can be a side effect of a long recession, but the trend will probably stick long term (a game is an experience good, therefore it makes sense to design it with the freemium biz model in mind.)

 

tags: games, mobile, business, model, economics

A 2% rule?

The economics of Zynga is amazing. 98% of people who use the service get it practically for free, and the company still makes a lot of money. The only comparable examples I know of would be Newcomen's steam engine where 99% of energy was not utilized for useful work, and the patent system, where estimated 98% of patent applications are commercially useless. Other candidates include online ads, but I don't know exact numbers.

As Zynga said in its SEC filing, the top 2 percent of loyal players are crucial to its success, as those players are “whales,” or the company’s biggest spenders. They play three times more than the average player.The top 2 percent play Zynga games for 120 minutes per day, compared to 40 minutes for an average player.

The data reveals that Zynga’s user base of more than 265 million monthly active users are playing games almost as much as the top hardcore gaming franchises.

In social games, Zynga has more than 60 percent of the overall market. While hardcore franchises such as Call of Duty and World of Warcraft are played for longer durations, Zynga’s Ville games are played four times more frequently. Zynga also takes advantage of those frequent sessions by constantly serving up marketing messages to stir up engagement, cross-promote  its other games, and handle transactions.

tags: games, economics, efficiency, synthesis, business, model, internet

Why building cars is not fun?

NY Times recently pointed out the vast difference in jobs and market value between information and manufacturing companies

Facebook has about 2,000 employees worldwide. Google has about 29,000. Even in its new, slimmed-down state, General Motors, a decidedly less valuable company, has about 200,000 employees.

What escapes this analysis is that hundreds of millions of people work for Facebook and Google for free. That is, Facebook is built around users creating its content; Google is built around people searching free content created by others. Gaming is another area where millions of users spend innumerable hours on building free stuff: virtual farms, cities, worlds. Sometimes they even pay their own money for doing that. But nobody wants to design or build cars for General Motors for free. The next breakthrough in social networking will probably come when we get the online community to produce sellable electronic stuff beyond virtual gold. Just 1% of the total effort could produce huge value.

VBeat: :

Game publishing company Electronic Arts‘ newest social game, The Sims Social, has passed social gaming supergiant Zynga’s Farmville and now has 36 million monthly active users just under a month after its launch,

Electronic Arts is now the second top Facebook app developer with 77.8 million monthly active users. Its well behind Zynga’s 273 million monthly active users, but it’s much further than the next closest social game maker Wooga, which has nearly 40 million monthly active users across all its games.  Before The Sims Social launched, Electronic Arts had around 29 million monthly active users, according to AppData.

tags: games, social, networking, commerce, economics, market, technology

Invention of the Day: Virtual guest of a real event.

Bill Gates and a dozen of other people from Microsoft invented a virtual guest:

From the US Patent 8,012,023 issued today:

... a virtual reality generation component that emulates real-life activities of a guest that is remotely viewing a spectator event that takes place outside of a virtual environment into corresponding virtual activities of a virtual guest representation in the virtual environment;
....

The idea is to let virtual and real guest mingle during a spectator event. The figures from the patent (below) show a bunch of bio sensors, but the physical can also be a brain reader too.

 

The best part of the patent is that it references our ( Mike Schmitt and I) 2002 patent application, where we claim a system that allows external spectators watch and participate in online games.

tags: games, virtual, social, information, biology, patent, example, ideality

Facebook Credits, the reserve currency of the future.

Facebook and Zynga are taking great strides in making social commerce a reality:

Because Facebook appears to favor Zynga more than other game developer, including through an unusual growth-target agreement, those two companies seem to be just about joined at the hip.

A year ago, Zynga’s chief executive Mark Pincus told employees that Zynga planned to expand beyond Facebook and start its own Zynga Live web site as a portal for its own social games. That never happened because Facebook cut the deal on Facebook Credits with Zynga.

Zynga already has enormous advantages over other developers on Facebook, with more than 264 million monthly active users on the social network, more than the top 15 other game companies combined.

If this partnership is a long-term cooperation game like the one Intel and Microsoft played in 1980-2000, Google will have a hard time catching up with this freight train. Facebook Credits represents a new transactions technology, which has a chance to become a platform for new commercial applications beyond games, e.g. video conferencing, content sales, etc. You can see Netflix's cooperation with Facebook as an example of a possible Zynga-like play in a different entertainment domain.

Can you finance a Facebook revolution with Facebook Credits? ;)

A couple of diagrams to illustrate the transition from social networking to social commerce.

tags: games, facebook, commerce, virtual, deontic, payload, platform, 4q diagram, social, control point, business model

Everyting's under control, Captain!

Growth in the number and variety of portable devices spurs growth in content demand and, as a result, increases the stakes in the battle for owning the marketplace for content-related transactions. So far, Apple has been a dominant player in this space and it seems like neither Google, nor HP can seriously challenge Apple's position. In February of this year, Apple announced a new in-application sales policy for iOS–compliant devices that forbade external payment and subscriptions links. In short, all transactions have to happen within the application itself.

From a CNN report:

Apple's goal is to steer more of the revenue for content purchases through its own in-app payment system, which typically nets Apple a 30% cut of the sales.

On Monday [July 25, 2011], Amazon updated its Kindle apps for Apple devices to remove the "shop" button that sent consumers to Amazon's site to buy digital books.

Hulu changed its iPad app last month to remove a link to its website.

..the Google Books app disappeared from the App Store last week. Sony's Reader app has been unavailable since February, when Apple booted it because of an external link.

For Stanford CSP BUS74-75 students: You can see how Apple successfully shifted its business model axis from Source-Tool to Distribution-Control. Owning iTunes, first as a free PC application, then as a cloud service that includes AppStore and other marketplace entities, is an essential part of this strategy. Note that Microsoft (xbox) and Facebook have implemented similar in-game purchasing policies earlier.

tags :business, model, control, distribution, system, evolution, apple, google, information, market, transition, games

Rhetorical question of the day.

VentureBeat asks:

Mobile gaming is the wide-open battleground of the entertainment industry. While Zynga dominates social and big publishers rule console games, the global smartphone game market is up for grabs. Since there are potentially billions of users in this market, mobile gaming could become the largest game market of them all. Who will win it?

Answer: Apple. They get 25-30% of revenue from every game sold with 0% in R&D costs.


tags: games, mobile, business, model, information, payload, deontic

Invention of the day: Depreciation of virtual goods.

WSJ reports on novel accounting rules used in Zynga's books.

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.

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.

Creativity prescription: 2 miliamps to the scalp.

An old technique for electrical stimulation of the brain is getting a new life. According to a Nature Neuroscience article

Last year a succession of volunteers sat down in a research lab in Albuquerque, New Mexico to play DARWARS Ambush!, a video game designed to train US soldiers bound for Iraq... With just seconds to react before a blast or shots rang out, most forgot about the wet sponge affixed to their right temple that was delivering a faint electric tickle.

Volunteers receiving 2 milliamps to the scalp (about one-five-hundredth the amount drawn by a 100-watt light bulb) showed twice as much improvement in the game after a short amount of training as those receiving one-twentieth the amount of current1. "They learn more quickly but they don't have a good intuitive or introspective sense about why," says Clark.
== Nature 472, 156-159 (2011) | doi:10.1038/472156a ===

The article also mentions development of Thinking Cap, a device for stimulating people's creativity. Allan Snyder, director of the Centre for the Mind at the University of Sydney in Australia, claims that in earlier experiments electrical stimulation helped people solve creative problems three times faster than in control conditions.

tags: creativity, brain, health, games, electronics, mind

Channeling free money

Another sign that virtual goods are becoming as important as real goods and services:

Visa has agreed to buy virtual goods company PlaySpan for $190 million in a big move into the market for digital goods.

PlaySpan enables game companies and video publishers to make money through the buying and selling of virtual goods. It’s a key part of the food chain in the free-to-play business model.

Also related, according to NYT, Apple wants to channel all in-application sales through its AppStore:

Apple is now saying the app makers must allow those purchases to happen within the app, not in a separate browser window, with Apple getting its standard 30 percent cut of the transaction. At the moment this applies only to e-book purchases.

tags: money, virtual, games, social, market, communications, 4q diagram, control

Good teaching and learning habits

Cognitive neuroscience research has discovered six processes that influence the establishment of long-term procedural and declarative memory. These processes are

1. repetition of the procedure or information,
2. excitation at the time of learning,
3. association of reward with the material to be learned,
4. eating carbohydrates before or during learning,
5. sufficient sleep after a learning session,
6. avoidance of drugs of abuse and alcohol

Source: Lynn Waterhouse. Multiple Intelligences, the Mozart Effect, and Emotional Intelligence: A Critical Review. EDUCATIONAL PSYCHOLOGIST, 41(4), 207–225

There's an interesting dilemma hidden in points 1 and 2 that require both repetition and excitement during a learning session. Good teachers and good games solve it by keeping learners deeply engaged while repeating the same basic procedures. They also provide rewards (p.3), either through grades or points.

For comparison, the "Chinese mother" educational style described in a recent WSJ article focuses on repetition and reward.

tags: teaching, information, learning, control, psychology, education, games, dilemma

3D content and equipment for you

CNet reports on Nvidia's 3D website:

A quick glance at the site reveals some imagery that one might expect to appeal to the stereotypical gaming nerd who pays for premium graphics technology--photos of scantily clad women and stills from various video games. There also are plenty of landscape and other subjects with potentially broader appeal.

Also of interest:

Samsung and 3D specialist RealD announced a plan today to jointly develop a technology called RDZ that they say will mean brighter 3D TVs that work with 3D glasses used in RealD-equipped movie theaters.

Darn! I just threw away a pair of 3D glasses I got at the theater.

tags: content, information, entertainment, video, movie, source, tool, games

Cloud computing: the gossip of virtual crops

Each day, Facebook game developer and FarmVille creator Zynga delivers about a petabyte of data — that’s 1 million gigabytes, or more than six Libraries of Congress — for its array of social games, chief technology officer Cadir Lee said.

The challenge for Zynga is unique compared to other large sites that are “read-only” or “input-only,” such as photo-sharing sites like Flickr or e-commerce sites like Amazon.com, Lee said. Zynga instead faces an environment that is constantly updating, with each new crop planted or fertilized and each message left on a friend’s farm.

In many ways today's gaming environments create a ubiquitous communications fabric reminiscent of the planet Pandora from James Cameron's movie Avatar; environments where virtual plants and animals communicate to real people, generating enormous streams of information, connecting experiences bordering on magic, giving players a feeling of being a part of a growing social organism.
It would be an interesting experiment to use these messages to drive Leo Villareal's LED art mentioned in my previous post. Some incredible light patterns may emerge from the gossip of virtual crops.

tags: games, cloud, information, communications, environment, virtual, art, 10x, content, synthesis

Creativity Quote of the Day.

...autonomy, complexity, and a connection between effort and reward are ... the three qualities that work has to have if it is to be satisfying.

If I offered you a choice between being an architect for $75,000 a year and work­ing in a tollbooth every day for the rest of your life for $100,000 a year, which would you take? I'm guessing the former, because there is complexity, autonomy, and a relationship between effort and reward in doing creative work, and that's worth more to most of us than money.

Malcolm Gladwell. Outliers, The Story of Success. 2008. HC ISBN 978-0-316-01792-3.

tags: creativity, quote, technology, control, social, networking

More on Amazon from VentureBeat:

Amazon Web Services has become a huge business, with revenues of $500 million in 2010, according to UBS Investment Research. And that success is due in no small part to the rapid rise of social games such as FarmVille on Facebook.

...Amazon hosts six to eight of the top 10 games on Facebook at any given time. That includes top Zynga and EA Playfish games, meaning that hundreds of millions of players are playing games on Amazon’s servers, without even knowing it. Overall, Amazon has hundreds of thousands of customers in 190 countries for its web services. It also powers big operations such as Netflix, NASA, Autodesk, NASDAQ and the New York Times.

Cloud services is only about 2% of Amazon's revenue. But still it's a good, and growing, chunk of change. I wish I bought their stock around July 1, this year.

tags: cloud, information, service, source, games, virtualization, commerce

Electronic gold

I just finished re-reading A History of Money, by Glyn Davies. It's a very competent book on evolution of money from cowrie shells to electronic transactions. Since I believe that money is one of the greatest innovations of all time, I'm going through this and other books on history of finance searching for recurring invention patterns that can be re-used in various technology domains. After all, transaction money is just a control signal that the buyer sends to the seller in order to obtain the goods. Capital is another interesting function of money that follows innovation patterns in storage technologies. The days of the gold standard are long gone, but even today all central banks hold tons of this precious metal in their secure vaults. Just in case, people will trust useless metal more than useless paper or useless electronic signals.
It is interesting though that something very similar to the gold standard is being developed in the virtual world today. Here's an excerpt from an article on Facebook Credits:

How do I set up my own currency?
You permit the user to purchase only one thing with Facebook Credits: your currency. Once the users have exchanged Facebook Credits for your currency, they can participate in the broader game economy. There should be no direct purchase of any items or anything other than your currency with Facebook Credits.

Once the exchange is made, you’ve locked up the value of those Credits in your own currency, ensuring it won’t move off to another application.

Replace "Facebook Credits" with "Gold Coins" and you get the good old gold standard. In Facebook we trust! Funny, how history runs in circles.

tags: control, money, business, signal, commerce, games, virtual, market, payload

a 10X change in mobile app revenue model

About a month ago, I cited a study showing that on average revenues from iPod/iPad applications don't cover development expenses. But it appears that a certain type of applications emerged to solve this problem. The key to revenue seems to be in-application purchases:

Apple turned on the in-app purchase feature for the iPhone last fall. That enabled game developers to embrace the same “free to play” business model that has made companies such as Zynga so successful on Facebook. In that model, companies offer their games for free, but they charge real money for virtual goods such as better weapons or online multiplayer play. The in-app purchase feature allows gamers to purchase their goods without leaving their games at all.

The results are surprisingly good. In January, Flurry said that the games that it tracked generated revenue of $9 per user per year, on average. In June, that number had risen to $14.66 per user per year. Previously, these games were generating around 99 cents to $1.99 per user per year.

I think this approach can work for all kinds of digital content, including books. Essentially, we need to create a new product placement technology where the product is sold, rather than advertised, within the context of the story.

A 10X diagram note for my students: by increasing the frequency of transactions, we are moving to the left along the time axis of the diagram.

tags: 10x, content, commerce, money, business, games, mobile, apple, market, book, virtual, problem, solution, course

Recessions are great for entertainment companies because people have a lot of free time on their hands. Moreover, playing social games is much cheaper than even going to the movies, so we can expect a strong new industry emerge from this economic downturn.

TechCrunch: Google has quietly (secretly, one might say) invested somewhere between $100 million and $200 million in social gaming behemoth Zynga, we’ve confirmed from multiple sources. The company has raised somewhere around half a billion dollars in venture capital in the last year alone.
...
Zynga’s revenues for the first half of 2010 will be a stunning $350 million, half of which is operating profit. Zynga is projecting at least $1.0 billion in revenue in 2011.

Another quiet milestone along a similar path was reported by Bloomberg about a week ago:

Microsoft Corp.’s Xbox Live online video-game service probably broke the $1 billion revenue mark for the first time in the year that just ended, helped by sales of movies, avatar accessories and extra game levels.

tags: games, internet, business, industry, entertainment, economy, microsoft