Zynga IPO: Like Facebook, but sharper

The social game empire's focus on making players pay to click should pay off handsomely as it goes public.

Rafe Needleman Former Editor at Large
Rafe Needleman reviews mobile apps and products for fun, and picks startups apart when he gets bored. He has evaluated thousands of new companies, most of which have since gone out of business.
Rafe Needleman
2 min read

Zynga is half of the big IPO we've been waiting for. The other half, if course, is Facebook. But Zynga is likely the cleaner story for investors. Expected to file its public offering papers tomorrow, we can prepare to see in them some heartening information: Most likely, we'll see a company that's raking in money from a broad base of consumers, based on a scalable and maintainable base of technology.

Screenshot by Don Reisinger/CNET

Zynga is a beautiful, shark-like machine. Its focus is on getting consumers to pay for online interactions, and it does that well. The company builds cartoony world-building games. They're fun to click on. The first click is free, as they say. But to really succeed at these games, you need to pay--either by buying credits for in-game resources, or by enlisting your friends. Or both.

The games are good enough that people voluntarily pay for their little pixelated adrenaline rushes time and again. Then they push the service on their friends--not really because they want to share the fun, but rather out of self-interest.The more friends you have in your world, the more success you have.

Zynga's community is built on the back of Facebook's social network. Zynga would not be (I think) the cash-generating monster it is without the Facebook graph. But to pay into Zynga games, you need to buy Facebook credits, and Facebook keeps a portion of all credit sales for itself (reportedly, 30 percent). That joins the success of these companies together.

There are no gaming companies close to Zynga in reach or in excellence of execution, and there are no social networks close to Facebook. The two companies are, at the moment, different sides of the same beast.

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But they are not the same company. Zynga is a purer play, a more focused cash generator. It doesn't need to maintain the social network, it doesn't have the same need to focus on privacy, it doesn't have to build non-revenue-generating ancillary services like an out-of-band messaging platform or an API. All it has to do is keep building games.

Facebook is a more diversified social company that benefits from the success of Zynga, and emergent Zynga-alikes, but it's got to do more to keep people engaged on the site, and to keep the social network robust, and to keep users from shifting their attention to competing services, which there will eventually be (maybe Google+, maybe something after that). Zynga, for its part, can graft itself onto almost any robust social network.

The social services Zynga and Facebook (and the recently public LinkedIn) appear to be better short-term businesses than the real-world commerce service Groupon, which is expensively buying its way in to markets and taking large losses in the process.