In late September a sizzling San Francisco Web gaming company called Zynga took the cloak off its latest creation: an online game that lets people open virtual restaurants on their Facebook pages. Competitors vie for points by tending to pseudo-stoves and cranking out orders of cheeseburgers and chunky fruit salads for animated customers.
It's no joke. Within a week 4 million people daily were grilling and chopping in Zynga's Café World. By late October 21 million foodies had played the game. Most critically for Zynga, a good number of them (Zynga won't say how many) were forking over real cash to decorate their virtual restaurants and buy provisions.
This formula has worked many times over for Zynga and its founder, Mark Pincus, a floppy-haired Internet entrepreneur who named the company after his now-deceased bulldog. Zynga created the current top three most popular games on social networking sites like Facebook and MySpace, according to media tracker Developer Analytics. They include the wildly popular FarmVille, a venue for city slickers to nurture virtual crops and livestock, and Mafia Wars, an outlet for buying guns and ordering hits on enemies.
"I have a farm fantasy--don't you?" asks Pincus, 43, who is himself an urbanite. He says most of Zynga's users are like him--not hard-core gamers.
Zynga's games are bringing in real money, unlike many of the earlier businesses launched on Facebook. By selling virtual goods--a blue barn for $5.40 or a garden gnome for $2.40, say, to spiff up a virtual farm--instead of online ads, Zynga should rack up revenues this year of at least $100 million and turn a profit, says Pincus, though he won't disclose how much. The San Francisco company, founded in 2007, employs 530 people, including contractors.
Zynga's social games have by far the largest number of active users, ahead of competitors like Playfish and SlashKey. It has raised $39 million from investors such as Kleiner Perkins Caufield & Byers, Union Square Ventures and Foundry Group and could be a candidate to go public next year.
Yet competitors accuse Zynga of plagiarism. Before FarmVille there was a SlashKey game called Farm Town and one called Happy Farm from a Chinese company, among others. Café World followed the popular Restaurant City, made by rival Playfish. Playfish board member Benjamin Holmes calls Café World a "fairly pixel-by-pixel copy" of his firm's game. Pincus says there are multiple games in every genre, from farms to pet care, and Zynga relies on its own research and tactical formulas to create its hits.
Zynga, meanwhile, has filed some 20 copyright- or trademark-infringement lawsuits against competitors in federal court since April, prompting charges from rivals that it is trying to tie up smaller companies in litigation to drain their resources. Zynga says it's simply defending its assets and is mainly going after tiny companies selling Zynga's in-game poker currency on the black market.
Reid Hoffman, a Zynga board member and cofounder of social networking site LinkedIn, says many of the lawsuits address serious issues like hacking into Zynga's computer systems to steal code. One suit alleges that rival Playdom solicited confidential information from Zynga employees it was recruiting. Zynga accused Playdom of stealing its internal "playbook" containing the company's "secret sauce" for creating new games.
Playdom, in a statement, says the suit "comes as no surprise given Zynga's penchant for litigation." Playdom has "no interest in Zynga's 'playbook' or 'secret sauce.'"
Outside the courtroom, Pincus sees his star rising. A former management consultant and venture capitalist with a Harvard M.B.A., Pincus made plenty of money with past ventures but never created a blockbuster company. That's his goal with Zynga, which he discusses in the same breath as
Pincus got his first taste of entrepreneurial success in 1996. He sold Freeloader, a company that automatically pulled content from the Web onto users' hard drives, for $38 million to online news-service company Individual Inc. Later he started
After that he founded Tribe, an early social network where people could meet and chat online. But in 2003, pre-YouTube and Flickr, there wasn't enough to engage people on the site. The company failed.
The rapid growth of Facebook, now with 300 million active users, gave Pincus his big idea. "You have this cocktail party--you've brought everyone together" on Facebook, he says. "But there's nothing to do." Games played with friends are one way to fill users' time.
In early 2007 Pincus learned Facebook would soon open its site to software developers such as gamemakers. He and a small team quickly got to work on a Facebook card game that would eventually become Texas Hold'Em Poker. It was the first Facebook poker game that people could play with their online friends; gamblers could even see their friends' pictures as they played hands. Players spend real money to buy chips--it costs $5 for $75,000 in chips and $50 for $5 million worth--but they can never cash out.
Zynga also gave players another way to stay in the game: Instead of using a credit card to buy chips, gamblers could accept some sort of offer from a marketer. They might install an application on their computer from TripAdvisor, or sign up for
As it built other games, like FarmVille and Café World, Zynga relied on strategies Pincus calls "golden mechanics," like the concept of "harvest." In FarmVille players must check on their crops periodically as they grow and then return for the harvest. That means more opportunities to spend money in the game, whether it's on virtual sheep or scarecrows. There is also a sort of harvest in Café World, where aspiring restaurateurs can't leave plates of food on the counter. They have to be picked up and served to customers before they spoil.
Pincus is closely involved in game development and wins plaudits from his board for picking the right genres to target, such as virtual farming. He also kills new games that don't meet his standards, angering employees. Pincus quashed one sword-fighting game called Guild of Heroes after the company had spent some $2 million developing it. "A couple people left the company over it," Pincus recalls.
Zynga's size and its breadth of games also creates a classic network effect, helping it better market new titles. Novice users of Café World might see a teaser for Mafia Wars when they first log in, inviting them to try the mob game. Zynga also plows profits back into advertising on Facebook. Zynga gamers often broadcast their exploits to their Facebook friends; friends might receive a notice when someone starts playing FarmVille or moves to a new level on Mafia Wars.
Zynga's dependence on Facebook as the main platform for its games has a flip side. The socializing site, which has struggled to find a solid revenue model itself, could decide to impose a tax on outside game companies and demand a cut of their revenues. Then there's the broader question of whether Zynga can maintain its dominance in a business where a couple of guys, for only tens of thousands of dollars, can develop a hit game.
"The barrier to entry is low, and you can copy relatively fast," says David Chao, a partner with DCM, a Silicon Valley venture firm that backed Facebook game-and-application company RockYou. That may be one reason Zynga is filing so many lawsuits to defend its turf, Chao suggests.
Pincus says he's not trying to stifle competition. But he must keep coming up with winning games as rivals go after the same pot of Facebook gold Zynga is pursuing. That's something you can bet on.