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Saturday, December 17, 2011

Zynga and Google-more simillar than different?

Many of you would heard of Farmville/Cityville. The company which produced those games('Zynga') recently had an IPO at a $10bn valuation, riding the dotcom bubble. To be fair, the company has been making profits though. At first blush, nothing seems to link Zynga and Google except that Google was a pre IPO investor in Zynga, and has been linked to takeover attempts/bids. But on a closer reading of the Zynga prospectus(http://sec.gov/Archives/edgar/data/1439404/000119312511341923/d198836ds1a.htm), quite a few similarities pop out. The small text is a direct quote from the Zynga prospectus, and the text in normal font is my remarks.
  1. Free:-All of our games are free to play, and we generate revenue through the in-game sale of virtual goods and advertising. Even Google does the same, with only enterprise applications being priced, and that too selectively.
  2. Network Effects:-Because the opportunity for social interactions increases as the number of players increases, we believe that maintaining and growing our overall number of players, including the number of players who may not purchase virtual goods, is important to the success of our business. Google search results are 'intelligent' and improve from each search. Also for applications like Gmail, the network externalities are good. 
  3. Data driven:-gather daily, metrics-based player feedback that enables us to continually enhance our games by adding new content and features.We continually analyze game data to optimize our games. We believe that combining data analytics with creative game design enables us to create a superior player experience. Google is also a famous analytics fan, which it uses to inform decisions.
  4. Dual Class voting shares:-Zynga has a triple class voting share, which gives the founder around 36% voting power post IPO(1 share of his Class C shares=70 votes of Class A shares). This structure was held by Google as well.
  5. Cloud Computing Dependence:-Zynga uses Amazon Web Services, while Google is all about cloud computing especially for Google Docs
  6. Hiring through acquisitions: We have historically hired a number of key personnel through acquisitions, and as competition with several other game companies increases, we may incur significant expenses in continuing this practice. It is a lesser known fact that many popular Google applications like Orkut, Picasa and the like were acquired through early M&As. 
  7. Letter from founder in IPO document:- Actually this is more like what Amazon did! But since Google tomtoms its principle especially 'Do No Evil', I thought there was a similarity there.
Still, one should not stretch the analogy too far. Google has survived multiple crisises and competitors, which Zynga brokeven only in FY10, and has yet to survive  extreme competition. But one must admire the essential freemium similarity in the business model. 

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