Online games company Zynga is planning to raise $1 billion by selling a small portion of its shares in an IPO that is expected to occur before the end of the year. That could make Zynga one of the world’s most valuable video-game companies, just four years after its founding. How did CEO Mark Pincus do it? Somewhat counterintuitively, Zynga mastered the art of making games you don’t mind turning off after just five or 10 minutes.
Because a game like Zynga’s smash hit FarmVille, which lets players grow crops and construct buildings on a virtual farm, is fun to play just a few minutes at a time, users are more likely to come back—again and again and again. “I don’t like it when I find out that people are averaging long session times in any of our games,” Pincus told Technology Review in 2010—before Zynga filed for its IPO and went into the “quiet period” that limits what it can say publicly. “All of the newer games that we bring out are trying to reduce those session times. Because one of the biggest reasons people don’t play games is they say that they don’t have the time.”
The previously unpublished interview, along with an analysis of Zynga’s regulatory filings, helps explain the insight at the core of Zynga’s success. As widely noted, Zynga has gotten big by letting people play FarmVille and other simple games on Facebook for free and then charging for “virtual goods” that help them to advance through a game, such as high-yield seeds for their farm. Many game companies have adopted this so-called freemium business model, but 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.
See the rest of our Business Impact report on The Business of Games.
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. For example, to speed your passage through Pioneer Trail, a Western exploration game, Zynga will sell you 75 horseshoes for $6. “I buy lots of horseshoes,” says Becky Volz, a third-grade teacher in Virginia, who plays several Zynga games with friends on Facebook.
Volz is in many ways the ideal Zynga customer. She’ll often check in for a bit in the morning to make a few clicks that advance her through a game. Then she puts it aside for the day (Facebook is blocked at her school) and resumes in the late afternoon by checking for any messages from fellow players. She’ll do it again before bed. Add up these sessions, and she estimates that she spends three to four hours a day clicking her way through the games. “It is very habit-forming,” she says with a big laugh.
This is precisely Zynga’s aim. “You start spending time playing a game, and you find that you care about it for any host of reasons, if we [design] it well,” Pincus told TR, “and at some point you may see that by spending some money you can save yourself a bunch of time [or] get something that has status or changes your friends’ view of you.”
If this doesn’t sound persuasive to you, Pincus doesn’t mind. In fact, he accepts that most players won’t cough up money. The company has said in its pre-IPO filings that fewer than 5 percent of players ever buy something.
And yet Zynga makes it work because the total number of players is so large: an average of 54 million people every day, the company says. Zynga pulled in $829 million in revenue in the first nine months of 2011, double what it got during the same period a year ago. Nearly all of it comes from virtual goods; advertising in the games accounted for just 5 percent of revenue. Zynga’s net income was $31 million in the first three quarters of this year. That’s tiny compared with what some other video-game companies earn. For example, Activision Blizzard, a maker of games for consoles, PCs, and mobile devices, had nearly $1 billion in net income in the same period. And yet when Zynga begins selling shares to the public, its value is very likely to surpass Activision’s $13.6 billion market capitalization.
The challenge for Zynga will be to keep people coming back for more. Its tally of users has dropped slightly in each of the past two quarters. Most people play its games on Facebook, whose own growth is naturally slowing as the social-networking market becomes saturated. And when those people do buy virtual goods from Zynga, it’s often in the form of Facebook Credits, and Facebook takes a 30 percent cut of those transactions. Zynga is responding with games for mobile devices that don’t require going through Facebook—although that could make it harder to incorporate some of the social elements that made Zynga big in the first place.
Those elements, Pincus told TR, are crucial to the company’s plans to give people “a five-minute break from their day” that is entertaining and social. He said, “I think we’re at the beginning of a new medium of entertainment, just like the beginning of TV in the ’50s.”
Erica Naone contributed reporting to this story.
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