Reports first surfaced in the spring that Zynga, the social games maker behind hit Facebook apps like “Texas Hold’em” and “Farmville,” would reach $100 million revenues in 2009. Since then, sources have told us that’s a “conservative” estimate.
Sure, $100 million, in the Google-sized grand scheme of things, it isn’t all that much. But in a year when the ad market is flat at best and venture capital is back to 1994 levels, to hear that a startup is actually making that much money with a previously unproven business model — well, it’s music to our ears.
It’s music played by a symphony of cash registers — Tcha-tching, by Tchaikovsky.
Zynga makes all this money two ways: Some of it comes through ads it runs next to its games. But the lion’s share of it comes from selling users virtual goods and in-game upgrades.
$100 million selling virtual goods? We’ll admit, it shocked us too. So when Zynga CEO Mark Pincus told us he was coming through New York this week, we had to sit down for a chat and find out as much as we could about how he’s making all this happen.
Silicon Alley Insider: How’s growth?
Pincus: We’ve grown from about 2 million daily active users this time last year to close to 18 million daily active users as of yesterday. In the last quarter we grew 60% from 8 million daily active users to 13 million. The majority of our growth has come from growing our core games. They’ve grown almost every week since they’ve been launched. Poker just passed 3 million DAU on Facebook and 4 million overall.
One criticism of Zynga is that it’s in an entirely hits-driven business. Is that true? And if so, how do you make hits repeatable?
Our business is predicated on running games as a service. Our growth comes more from integrating great new features into our existing games than from launching new games. In the game industry, other than World of Warcraft, you are only as good as your next launch. But all our games are built into a social network and a way for people to communicate. We think as long they are a fun way to connect with your friends users will keep coming back. In Poker, 70% of the time people log-in, a friend of theirs is already logged-in. 25% of the time they start their Poker session by joining a friend.
Still, hits are important.
If we can launch one new hit game every two quarters, that’s awesome.
Farmville was a hit, Guild of Heroes was a big flop. One thing I think we can get better at is failing faster. We’ll keep trying to innovate and trying new games, but the key that will differentiate us is how quickly we pull the plug on something that’s a flop or even worse, in the middle. The thing that can kill your company is a mediocre hit that you work at for a couple years.
So how do that — avoid launching a flop or a middling success?
There’s two ways of making not only games, but any consumer Internet service: the intuitive approach and the data-driven approach. They can both work. Google is very intuitive. Facebook is very intuitive. They don’t take the cake out of the oven until its a cake they want to eat. Playfish has said that’s how they do it: ‘We know a game is ready for release when everyone in our office is playing it.’ We try to combine the inuitive with the analytical. Everyone in our office did like Guild of Heroes and we killed it because the metrics sucked.
How fast is Zynga the company growing?
We’ve grown to 310 fulltime, 390 including contractors. That’s more than double where we were in November. We’ve actually tried to slow down the growth a little bit. At the same time, we’ve brought on some great senior executives and promoted some people internally who’ve become rock stars.
Anybody we know?
Vish Makhijani ran search at Yahoo. He joined our company as SVP and in the first quarter he was with us we promoted him to COO. He’s now running all of the business and operations side, which lets me focus more on the games. Mike Verdu, he ran EA’s LA studio. He’s already running some key parts of the company. Brian Reynolds was one of the founders of Big Huge Games. He was the creator of civilisation II and he created my favourite game, Rise of Nations. He started a new studio for us in Maryland.
Any other secret locations we should know about?
The rest are secret secret.
Facebook has had lots of success expanding Facebook Connect and now its even experimenting with something called “Pay With Facebook,” which we think could be a real competitor to PayPal. Is that something you see as well?
If ‘Pay With Facebook’ follows FB Connect around the Web it could grow to be a competitor to Pay Pal in a very short time. PayPal was built on eBay and this is an eBay-sized audience. If Facebook users start transacting, Facebook could be that intermediary and Facebook could make a revenue stream as big as their ad revenues.
Critics say you’re not a gamer and that you don’t have a gaming industry pedigree.
I was a hardcore addicted gamer until I was 16. And after that, like most other people, I would only play on drinking nights in college and that was it. I had no time. I feel a real affinity to the mass market audience who are not out looking for games. There are hardcore gamers who are adults who feel really passionate about console games and there’s a broader audience that will even buy Nintendo Wii games. We’re after an even broader audience that will not even go to a destinations games site — people who would love a five-minute World of Warcraft. Three-minutes to learn, five-minutes to play: that’s who I am.
Is Zynga profitable?
We’re profitable and we’ve been profitable break-even or profitable every month since September 2007. We haven’t spent a dollar of our venture capital [~$39 million —Ed.]. We do spend a lot of money on advertising when we want to, like when we launched Farmville. We spent a couple million dollars advertising it and we’re not shy about that.
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