I guess this is a pretty good example of the difference between a business built based on "innovation" vs "extraction". With innovation, you consistently make new and exciting products and your customers are really happy. With an extraction-based model, you corner out the market, and then you impose access fees, taxes, etc on the users.
Instead of going with innovation, Zynga decided to go with extraction, and they are now paying a heavy price. Farmville, Cityville, etc, are all essentially just the same game. They add clicks and beeps to get middle-aged housewives to pay $5/month for virtual items and I guess it's simply not sustainable.
As a side note, I've been to Zynga's headquarters in SF. The offices are beautiful, and spacious. My friend pointed out a human-sized statue of the Zynga's dog that was repainted for something like $10-20k because apparently the CEO didn't like the color. You can walk around and see a lot of dot-com waste everywhere. We went to one of the snack areas, and there were opened bags of organic chips just laying around. Apparently, they have an office-supply vending machine filled with $100 wireless keyboards, mice, etc, that people just take whenever they want.
As an (unhappy) investor, it certainly looks like there is a lot of room to cut the fat at that company, so maybe they can slash their costs relative to their revenues and turn it back into a viable business.
The story about the office reminds me of one of the smartest people I have ever worked with, an investment banker.
His job was to research, audit and credit check companies in developing economies. He told me how within a few minutes of walking to the lobby of a company headquarters he could with some accuracy judge how the business was operated.
Lavish spending on insignificant things was a sign that there were inefficiencies or problems elsewhere. for eg. in one case a Russian investment fund had a large 3-level high marble lobby with a large bronze statue of the founder. Turned out that they were hundreds of millions in debt rather than wildly profitable as they had mis-priced assets.
The other anecdote he shared was that there seemed to be a high correlation between businesses that hired young, attractive secretaries in short skits and accounting fraud.
You're simply wrong. Earlier this year I did the full tour of Sand Hill Road and ultimately raised an A round led by Andreessen Horowitz, considered by many entrepreneurs to be the "top" fund today (whatever that means). The top funds tend to have strikingly competent and professional admins. I don't know who you've pitched, but I don't see any particular evidence of your claim about youth and beauty.
That's not why I'm downvoting you though. I'm downvoting you because you used the phrase "past her best" to refer to women that you don't find attractive. The time when that kind of language was acceptable in our industry has long passed (actually it was never acceptable, only tolerated.) This is a topic that is frequently discussed on HN, and as a HN reader of over a year, you have no excuse for not being on notice.
All of the VCs I've talked to had very well-dressed and professional appearing support staff who were also highly competent. (I was curious if it was a job for people who wanted to go into other VC roles later, or a professional support track, or what, because they seemed to get much better quality staff than most other kinds of businesses. Maybe they just pay well?)
PE and "family offices" is the only place I've seen "almost exclusively young, attractive, inexperienced" support staff who were probably selected for reasons other than professional competence (attractiveness or nepotism).
> saying that if the admin is unattractive then it's not a good VC.
That's now what he said though. He just mentioned his observation that not so good VCs have less good-looking admins. Correlation != causation yada yada.
I agree about Zynga having the wrong model, but I do not think the things you mentioned are wasteful (other than repainting the dog). I do not know why people always assume that treating your employees well is some type of waste.
Think about this -- how much does a competent IT person cost per hour? How much does an engineer cost per hour? Some engineers cost up to $100 per hour once you add all the incentives and incidental costs.
Now what happens when an engineer has a broken keyboard in an old fashioned "frugal" company? He has to call tech support and he has to wait and he gets the perfect excuse not to do work. Tech support will not show up immediately, because this is a "frugal" company, so they do not have people in tech support just sitting around waiting for someone to get a broken keyboard. Oh no, they are frugal and have their support people's schedules full, which means that $100 an hour engineer gets to wait a couple of hours till the support person comes.
But in "wasteful" Zynga, that same engineer can go and replace his own keyboard for 5 minutes. That office supply vebding machine seems like a brilliant idea to me. Of course it is a vending machine, so it presumably keeps track of who takes what, so nobody can just take a bunch of stuff and resell it on the street.
The thing about the organic chips is a great idea too. It takes so much longer for anybody to go somewhere and buy something. And if a programmer goes out of the office he loses context, which means it may take him another hour to soak up the context of everything he was doing. Oh and if you eat unhealthy food or drink sugary drinks you can easily spend an entire afternoon in food/sugar coma. Of course one should not waste food regardless of how much they paid for this, but that can be solved by social measures.
I do not know why investors get their hearts warmed up by the suffering of their companies' employees but this is usually very counterproductive.
Google is very successful and is famous for their perks. Outsiders make fun of them, but Google management knows better. The better the perks, the more likely your valuable employees will stay in the office, avoid distractions and get more work done.
I don't know what sort of pattern you're envisioning, but I (and most of the programmers I know) work in bursts. Sure, I can appear to be busy doing the 9-to-5 thing, but a lot of that is being done sort of absently/mechanically. When the light bulb goes on, when the problem that's been running in a background process while I've been absently doing the ritual crap that needs doing is finally solved (or at least a method of solving it emerges), my mode changes. That can happen at any time of the day (or at no time on some days). Just getting that flash into tangible form (let's forget about getting it polished for the moment) takes time and doesn't easily tolerate interruption. And it isn't something that happens at will. It's time to drop this whole mumbo-jumbo "developers are just like factory workers" thing. There may be elements of engineering in what we do, but unless we're working on solved problems, we're creatives with a technical bent.
MOST good engineers in the bay area cost upwards of $100/hr to employ.
I'd estimate the median to be somewhere in the range of $110-120k. So, $55-60/hr for salary alone. Now add employment taxes (even higher in SF city limits) and benefits and equity.
The "fat" is the visible part but the reality is that Zynga's share price won't move until they can show investors, and the market, that they've evolved past their current library of games. As an investor, I don't care about the pennies on the dollar represented by the vending machine and the organic chips. I want to see them evolve (and have that evolution translate to the bottom line) and until they do, you won't see a meaningful upward move in their share price. The waste you've identified is a red herring.
As a (happy) short seller of ZNGA who covered after hours Thursday, I think it should have been painfully obvious from day 1 that the business was unsustainable in its current incarnation, and that every avenue of growth (e.g. internet gambling) would be stifled by competition (e.g. MGM, LVS)
You end up paying extra to buy put options (because of the implied time component -- "theta"). To see the phenomenon, look at the in-the-money put prices and compare them to the current value (if they were exercised today).
If the borrow costs are incredibly low, its much cheaper to hold onto a short position for a month or two than it is to buy long-dated puts.
The other advantage is that its easier to take profits sooner. The bid/ask spread is much larger on the options than on the equity.
Finally, notice how the options have .50 cent increments. When dealing with the equity directly, you can capture as small as a cent profit.
Yes that is true in some sense, but with options its far more likely that your money will disappear (the options will expire worthless) than with shorts (the price would have to double for that to happen)
OK. Let's try the math and see what happens. (I don't ever speculate on stocks and don't even have a margin account, so let's see how this goes wrong for me.)
We'll say I think ZNGA will be $1.25 on 11/17, which is rather ambitious but let's go with it since their games are so spammy.
So, I sell 1000 shares of ZNGA for $2420. Right now, I can close my position by buying the shares back for $2450, so I'm already down about $50 because of commission and ask/bid spread. (My brokerage charges $8.95 for trades, but you can get them cheaper than that, so you might only be down $30 if you can trade for free.) Let's imagine the stock stays flat until 11/17: the scenario remains the same except I've paid interest on the stock I borrowed (probably about $30). So the result is a loss of $80. The stock has been flat since their last earning's announcement, so this seems the most likely scenario.
Except, they have an earnings announcement on 10/26, and at their last earnings announcement, their stock lost almost 50% of its value. So if that happens again, their stock could drop to $1.25. In that case, you'd be short only $1250, for a profit of about $1135 after interest and commissions. That's fine, but you have to admit that this is highly speculative.
Let's imagine that they issue a healthy earnings report (they fired the office equipment thieves), and their shares go up to $3.00. (Remember, they were at almost $5 before their last earnings report a quarter ago.) Now you are down about $570.
So realistically speaking, you stand to make $1000 for $500 of risk. Now let's consider what the options route would buy us. There are many routes so let's explore buying in-the-money puts, out-of-the-money puts, and at-the-money puts. (We'll avoid selling uncovered calls because I am lazy and my brokerage wouldn't let me anyway.)
A $2.50 strike 11/17 expiration put is $30 per contract ($300 for 10 contracts or 1000 shares) and has $50 of intrinsic value (for the 1000 shares). So if ZNGA stays flat until expiration, you can sell the put for those $50 (minus $20 in commission). If the stock goes up, you lose all $310 (but only have to pay the commission once, what a deal!) If the stock goes down to $1.25, however, you have $1.25 per share of intrinsic value at expiration (less before expiration because delta != 1), making this best-case upside worth $1230 after commissions. That's better than the upside for the short sell, since you're paying the option seller interest at a lower rate than you'd be paying your brokerage interest. Absolute worst case downside: -$310, stock stays flat: -$270, best case upside: ~$2200, expected case: $1230. That ends up better than the short sell if you're sure about the timeframe. If you're not sure you could sell somewhere in the middle but you'd not get $1 for every $1 ZNGA lost because delta is probably not 1 yet.
If we buy an in-the-money $3.00 option, it costs $670, but both the delta and intrinsic value are higher. If the stock stays flat, we can sell for $500 and only lose $190 (commissions included). If the stock goes down to our target price of $1.25 at expiration, we can sell the option for $1750 and make $1060. Worst case: -$670, flat case: -$190, best case: ~$300, expected case: $1060. We limited our profits, in this case, for less risk if the stock stays flat. (Our total risk is higher, though.)
Finally, what if we buy a dirt-cheap out-of-the money option? The $1.50 strike put is $70 for 10 contracts and commission is $10. If the stock stays flat or goes up, the option expires worthless and we are out $80. If the stock hits $1.25 at expiration, then we get $250 of intrinsic value at the end for $160 in profit. Those options are cheap for a reason. (But hey, if you buy 100 contracts for $700, you could make $1780, which is not too bad. But that's more risk than I think we have on the short stock strategy.)
Anyway, what I've learned from all this is that I think ZNGA is down about as far as it will go and it's just going to die a slow death from here. YMMV but I'm not buying any options or selling any of its stock short :)
Puts are excellent when you have a very concrete timeframe and price target. However, when you lack both, the short is a better trade.
Aside: In your example, if you buy the puts for 30 cents per share, you are paying 24 cents in theta. Now, if you plan on selling before then, you don't pay the full penalty. However, If you plan on holding till expiration, your breakeven is 2.20 (just to get back the premium you paid). Now, if the equity fell to 2.20 and you shorted directly, you'd do far better than breakeven.
The people buying 2.50 weekly options that expired last Saturday would have lost all of their money. They may have been correct in their general directional prediction, but the contracts expired worthless.
I did not have a timeframe and I only had a rough price target. All I knew was that it was going to have to fall hard (2.40 price target) at one point before earnings. I could have bought long-dated puts, but at that time they were far more expensive and even the $3.00 puts were more than .60 cents per share (which would mean I'd just barely show a profit).
As another stark example of the quirks of pricing, check out the Oct20 AAPL puts. Many of the deep out of the money puts lost MTM value because its become less likely that the price will fall far enough. So especially if you come into the trade early, you end up paying quite a bit in theta.
Try the math with GOOG instead of ZNGA, and you'll find that shorting the stock outright is a lot more cost efficient than buying puts.
The only way you make money with puts on stocks like GOOG or AAPL with huge premium is if you hit a home run, ie. a massive move on the part of the stock. Sure, theoretically there is "unbounded" risk, but in reality, that's impossible, unless you're a fool. Overnight gap ups and gap downs mayb occur, and a good trader will account for this.
Vending machine is a bad idea because it destigmatizes requesting equipment.
If you knew you could just go to a vending machine and get equipment, what would stop you from just requesting extra for your personal use? Since any new equipment comes out of my personal returns, I don't get a new keyboard just because the keyboard doesnt feel like it did out of the box -- I clean it.
If you knew that you could request a new keyboard every time you spilled coffee on your keyboard, what would keep you from carelessly placing drinks on your desk? I know that my desk was paid for with my money, so I'm very careful with regards to stuff like coasters and tall cups.
If you have to look a person in the face, you feel a greater sense of accountability (as if that person knows you requested it) and you will be less likely to frivolously request stuff.
De-stigmatizes? Why would there be any stigma against making company requests to a department that you don't report to?
Look the person in the face? If you're in any company over a hundred employees, you email IT to ask for your equipment and it appears. There is no face to face.
In small companies like mine, we just have a cabinet. You walk over and take out what you need. We don't worry about people reselling equipment because we don't hire thieves.
"We don't worry about people reselling equipment because we don't hire thieves."
It's very hard to scale that. It's easy when you have 5 or 10 people, all of whose incentives are aligned, but its much harder when you have many more.
My point, though, gets back to a general sense of wastefulness. In my experience, people who are wasteful in one area tend to be wasteful or not particularly rigorous elsewhere.
As I understand it, the vending machines were actually introduced as a way to track employee consumption of equipment[1] (at Facebook anyways). They were a response to an open kiosk where you could swing by and pick up hardware at will without any externally-enforced tracking of what you've taken. Assuming you use your own badge to dispense equipment, the vending machines are able to track your equipment usage. This allows IT departments to respond to consumption problems as needed, rather than putting a process in place that keeps you from being productive when your keyboard dies & the requisition personnel have gone home for the day.
I work at a small company--we don't have vending machines or IT departments. Instead, each employee has a company credit card and we submit receipts for our IT purchases. I'll admit that, knowing I can buy new stuff as needed, I'm less careful about my equipment. However, I also know that someone's looking at the receipts I submit & that knowledge has kept me from being wasteful. I'd imagine that the vending machine tracking motivates similarly.
"However, I also know that someone's looking at the receipts I submit & that knowledge has kept me from being wasteful. I'd imagine that the vending machine tracking motivates similarly."
Now, if they presented a bill to each employee with each item they've taken, then I'd agree that the vending machine tracking is similar.
I think your point is unlikely to be accurate. The person that, by their presence in the transaction, is stigmatizing frivolous requests costs money too. Probably a lot more money than whatever minor percentage increase in equipment requests also happen. (Also if their system is anything like Google's, all requests are tracked by your employee badge, so abuse is easily caught).
You are also conveniently forgetting the cost of somebody who did accidentally spill coffee on their keyboard. Every hour they cannot work because there isn't a functioning input device to accept their keystrokes is just productivity being wasted. Obviously I don't think the fact that Zynga has these vending machines makes them a great company, but I can certainly say that having them doesn't make Zynga a bad company.
"The person that, by their presence in the transaction, is stigmatizing frivolous requests costs money too."
That person also keeps up with the latest technologies and, ideally, would be able to advise on the appropriate type of keyboard or mouse or whatever.
"You are also conveniently forgetting the cost of somebody who did accidentally spill coffee on their keyboard."
If the spilt coffee results in keyboard damage, no qualm there. I'm referring to cases where you have a slight drop and decide to get a new keyboard rather than wiping it.
" I can certainly say that having them doesn't make Zynga a bad company."
I don't think the vending machine by itself impugns a company but it certainly matches a sense of wastefulness from other anecdotes.
First, having vending machines for hardware doesn't mean that an IT department doesn't have any say on what gets ordered to go inside.
And really, is there any measurable amount of theft by employees who get a drop of coffee on their keyboard, and either just throw it away and get a new one, or go home and sell it? And would this in any way cost more than what the company saves by streamlining the basic IT hardware procurement that goes with any large company?
Quite far-fetched scenarios you're tossing out at this point.
It's not the cost of the particular item that matters, and I think you miss the overall point.
You may think it's trivial, but the same behaviors are reflected in software development (wastefulness of resources) and from what I've seen there's a strong correlation between wastefulness in life and wastefulness in work output.
And you may think it's trivial, but treating employees like inmates in a prison harms productivity. (Gee, my left sift key still works, but right shift is broken, do I want to argue with my manager about whose fault is was and make he and I both go through the paperwork for justifying a purchase over my standard allocation? I mean, if I waste his time with his, that costs money at his high salary, and won't ensure me to him...")
Is computer equipment really where companies are spending money? A $100 keyboard is nothing compared to a $95 million write-off on a failed company you bought.
(We have self-service supply cabinets at Google for things like laptop chargers or cables. The sign on the cabinet says "don't be evil" and I think most people treat it that way.
A recent change is that laptop chargers no longer come in boxes, so you can just return yours to the bin if you don't need it anymore and it will look the same as the "new" ones. Clever!)
It's not a loss center per se, but profligate treatment of company resources, to an extent, reflects poorly on other aspects of the business.
The best programmers I have had the pleasure of working with maintained a very orderly desk and were very disciplined with use of resources in real life. Interestingly enough, you could gleam that from the style of their codes.
Strictly regulating items whose cost is not significant to the company's bottom line is also a profligate treatment of company resources i.e. employees, it's just less visible.
This whole conversation sounds like one gigantic bundle of cognitive bias to me. People will naturally notice the companies that strictly ration their equipment and are also frugal where it counts, and the companies that give equipment away freely and also spend tens of thousands of dollars on statue repainting, while not noticing the companies that waste money that matters while also maintaining a tight regimen of equipment oversight, or the companies that are frugal where it matters but don't try to strictly control the dispensing of trivial office equipment.
Which is entirely different from the conclusion that "tight ship" when it comes to office supplies and similar is actually related to a company's overall success.
I had the great honor of working with Brian Kernighan (I would personally consider him one of the greatest programmers that the world has seen) and was taken aback by his organization skills. My conclusion is clearly based on my experiences.
Keyboards and mice? That's what you're concerned about? That's a rounding error compared to the cost of engineering time and product development.
I don't abuse my equipment. But if I spilled something on my MBP, oh well, accidents happen. IT will replace it, probably with a Retina. There isn't any "stigma" about requesting equipment. Nor should there be. Your penny-pinching concerns seem a) quaint and b) short-sighted.
"Your penny-pinching concerns seem a) quaint and b) short-sighted."
I'm not concerned about the cost of keyboards and mice, but I think it's endemic of wastefulness. In some sense, it's akin to the Van Halen brown M&Ms sentiment
Now you must be trolling. Look up the M&M story on snopes, and comeback when you have realized that you got the story completely backwards. Office staff "Running a tight (cheap) ship" against the wishes of the professionals kills people in the rock concert businesses.
Sir, I recommend you actually read it, because that is my exact point.
In the M&Ms case, it was to ensure the contracts were read. There were dangerous things going on, and attention to detail is very important. It's not that the bowl itself matters, but if a trivial detail like that is overlooked then it's not known what else is overlooked.
Likewise, you are a programmer. If you are careless in resource usage in some parts of your life, it's likely that you will be careless in your coding.
The analogy is apt, and i highly recommend you read that site you mentioned because it clearly explains the overarching philosophy.
> Likewise, you are a programmer. If you are careless in resource usage in some parts of your life, it's likely that you will be careless in your coding.
> The analogy is apt,
No man, I'm sorry, that analogy is shit. The fact that I don't think twice about getting new / upgraded / better equipment means that I care about not having my ability inhibited by something as absurdly cheap compared to my salary as peripherals and a new macbook.
I think you really are looking at the Van Halen analogy backwards: If you, the employer, are reluctant to spend a few more bucks to ensure your investment in my time is as enjoyable as possible, then what other corners are you willing to cut?
Well, a company that doesn't follow up on reports of outright employee theft - or has the kind of culture where this thing is tolerated by other, non-stealing employees one bit - has serious problems.
Seems like it might actually be better to let employees run free, and just keep a mild watch out. That way, any employees with unethical/stupid tendencies to do things like steal office equipment and resell it will make themselves known rapidly, rather than potentially festering and worming their way into a position of trust before betraying it on a much larger scale.
I'm not saying you make it easy so you can catch thieves and avoid having your stuff stolen. I'm saying you make it easy because, I figure, less ethical people are more likely to steal, so it lets you weed out bad people in general.
Not much of a story to tell, I bought ZNGA shares, and am unhappily suffering LOL.
I figured they are getting close to book value, and they couldn't drop much further (always the worst reason to buy a stock). And I thought that given they have real revenues, that someone might be willing to step in and buy them for their customers. Maybe YHOO or AOL, or even FB. Now, with their revenues dropping, it could be that NO ONE wants to buy them for fear of overpaying (like they did with OMGPOP), so I could be up the creek on this one.
Investors can't rely on seeing their share of the current book value if a company fails. That would be a good lower bound on companies' market cap if they generally wound down and sold their assets in an orderly way, but few companies do that. Most continue operating until they literally can't and then the bankruptcy receiver has to dump all their assets in a fire sale. Sorry.
Fundamentally, Zynga's business model and products did not line up with the interests of either its host platform (Facebook) or its end users. Its revenue model was also, at its core, coercive and failed to provide real value to its customers.
All of the points listed in the article, while accurate, are IMO only symptoms/manifestations of this very core failing. This is also the general case that we can learn from - short of having a government-granted monopoly, if you fail to provide real value to your customers, you will fail.
There is an interesting parallel to the Zynga model and before you think I'm being too extreme, consider my opinion nihilistic in the sense that I don't believe Zynga is or has ever been Evil.
Zynga was a casino. The games offered no real value to their consumers but neither do casinos. The only reason why you continue to play and pay for in game purchases is to get back the high of doing something well; you want to feel the rush of winning.
Their main fault wasn't that they did this, it was that they couldn't do it well enough. Addiction's downside is that gains are subjected to the law of diminishing returns. Basically, that your happiness is logarithmic. In a casino, they've overcome this logarithmic challenge naturally, by allowing you to put in an infinite amount of money. The gains are still logarithmic, hence why people can go from gambling $20 to losing their house in short order but Zynga could never figure out how to replicate this in their casino.
I think this wont be the last time we see this model in gaming, but the next business will first need to solve this problem: if you make money through addiction simulated behavior, how do you overcome the log returns associated with it?
I spent a number of years of my youth in Las Vegas and I think that between this 'Casino' comment and potalicious' comment you've captured a lot what looks like the core issue to me.
Slot machines (especially electronic ones) are fascinating in their ability to have their payout 'tuned'. And slots typically pay out 98 - 99% of the money they take in. But what is also true is that there is a sharp 'knee' in the curve between where people sit and play slot machines for hours, and where they leave immediately after they lose their money.
The weird not immediately obvious thing, is that slots that let you 'win' a lot encourage play. When someone is sitting there and 'winning' and up 50% on their night, and then lose back to being 50% down will keep playing to 'get back' to that winning state. But people who just win enough to slow their exhaustion of cash stop when they run out. They never had a time when they felt like they were 'ahead' they just watched their cash get smaller and smaller.
New Casino owners who would get scared about big slot payouts would worry, "What if everyone takes their winnings and just leaves?" which is a legitimate worry, but you have to believe the statistics are legit and the payout is 98%, not 100+%. As it turns out those winners brag which brings in more people. And as Steve Wynn once said, "Slots make money on the quantity of the players not the quality." Meaning that the more money that goes through them the more his cut of the output.
Zynga appears focused early on revenue generation per player but not as function of all players it seemed, rather as a function of single players. By tuning the production of individuals through gameplay tweaks the over all experience is compromised such that they recognize they are being exploited and that takes away the 'fun' part of playing. At some level everyone knows they are funding Zynga (or a Casino) but they do it willingly because its 'fun'. A very fine line be 'fun' and 'not fun' when the value goes down.
If Zynga could recruit Pichette away from Google it would probably help their bottom line tremendously.
Great discussion. It's really hard to get an objective discussion about Zynga around these parts.
Looking from personal experience with casinos, my gut instinct tells me they are definitely dangerous, but the one thing that tempts me to play is the cool factor around them. You think Zynga would do well to try and create an aura of coolness and sophistication around their upcoming games?
Are you aware that slot machines are netorkd and more like lottery tickets than dice? It would be impossible for a slot machine network to lose more than the tiny outlay if its first few payouts ever were jackpots.
I am sure it sounds like nitpicking, but arguments that hinge on an idea of real value are inescapably about a moral judgement of some kind.
It hardly matters whether you are cursing the rise of manufacturing in contrast to agriculture, or complaining about the growing portion of wealth and prosperity coming from the service sector.
Does the distinction draw a line between Zynga and other games, or between games and other entertainment. Where do professional sports fit in the hierarchy of products with virtue? How about art?
I think GP is getting somewhere with the idea about innovation and extraction, and maintaining focus on the utility players derive as an imperative before any extraction can be done. However, it is very easy to get off track venturing into vague notions about real or fake value. If users enjoy playing the games then theentertainment is offering value no more imaginary than any other.
Real value is whatever your customers are looking for. In this case, presumably, fun entertainment.
Zynga was more concerned with setting up an addiction loop and reaching into your wallet than building anything that lived up to its value proposition: creating fun entertainment.
It even fails the main value proposition as a casino - the winnings aren't worth anything.
But how is zynga less fun than a slot machine? Zynga isn't locking people in, they just tap into their brains. Which is what "fun" does. To say it is worth less than a high stakes pac man tournamnt is a moral judgment and gets into touchy questions of free will
> Addiction's downside is that gains are subjected to the law of diminishing returns.
100% nailed it. They stopped being able to develop hits that could keep up with the diminishing returns they were seeing on their old games.
I always thought that had Zynga just focused on keeping their slot machines shiny, accessible and easy to use, they wouldnt be in this mess. Instead they decided to reinvent the slot machine every year or so. It worked for a while but there's only so much you can do before you have to start outright copying. In other words, fight diminishing returns by continually improving the game rather than continually building new games.
The slot machine is constantly inventing and deploying new games as well, both in play style and art assets. You are fooling yourself if you think Zybga isn't staff with scholars of the slot machine industrym
I don't think the public has anything to do with Zynga's failure. They've been losing mindshare and players since well before the IPO, and Facebook likewise has been closing the door on spammy app behavior since well before the IPO as well.
I got semi addicted to Mafia Wars for about a week back in the day when newsfeed spamming was more wide open. I quickly realized that the game had no payoff and the company had no respect for its users. It felt scammy and dirty. When I later learned more about Pincus' loose ethics it started making more sense. Unfortunately Pincus is a very rich man which will encourage future assholes.
It wasn't the copying, it was the culture of AB split testing everything that killed them. AB (or multi-variate) testing can help improve an already successful product, but I'm not convinced it can build a good game from scratch (or from copy). A culture of design by AB split testing killed any chance they had at creating another breakthrough game.
Sending out emails to select users about possible future games, and counting click throughs as votes, with the idea of building the game with the most votes is probably doomed to failure. They double-downed on that strategy, brought in a bunch of MBA types (not evil people, but not great game designers either) to statistically manage game development. It can't be too surprising that great games aren't built that way, and a game company without great games can't survive forever.
With a lot of them, though, the problem was that $100s of millions were being spent. MMO games--even niche ones--have guaranteed revenue; the problem has always been making a profit after incurring such high initial development costs. You fix this by making games for cheap--Korea is pushing cheap MMOs out by the dozens, and they're all turning tidy profits.
I feel so bad for my friends who work at Zynga. They all talk about how the company isn't as bad as everyone makes it seem, and stock clawbacks are reasonable, and Pincus gets a bad rap. And then on Facebook, they all gleefully announce the release of Farmville 2.
Is that really the conversation you want to have whenever you talk about your livelihood? And do you want to be the only one spamming me about Farmville, because your company makes you, and because I have everyone else who ever did that turned off?
I may get downmodded here since I'm drawing upon vague memory only, I had the impression that Zynga from an employment perspective was run more or less like a slave ship. Surely developers working under a terrible management environment has some impact on a company's ability to recognize and quickly adapt to market changes ?
I think a fundamental assumption in this article is flawed: "The most popular games are still pretty simple, but mid-core games like strategy simulator War Commander are gaining steam. Some people who used to be content clicking FarmVille crops have moved on to more complicated games."
So called "mid core" games on Facebook are generally male focused war/strategy titles. Most Farmville/Cityville, etc. players are women. They haven't "moved on" to more complicated games. They've just grown tired of the same formula.
Well, Zynga and co. did this to themselves. They spammed the walls to no end, so Facebook just had to axe them. If they didn't overabuse the game posts so much, people wouldn't be so pissed and they wouldn't shut the channell down completely.
More "philosophically" speaking - I am just thinking if this is not a case of preffering short term profits - "Send as much spam as possible!" - which, however, hurts in the long term (now the game posts are essentially useless).
The best part is, they can't even oust Pincus to try something new, can they? He has a controlling share.
Be cool if Fred Wilson, or another one of the early investors, would make an appearance to explain why the hell they thought dumping this on the public was a smart and/or credible thing to do:
"Look at the list of the Zynga insiders who cashed out this quarter to the tune of $516 million, it’s chock full of A-list investors like Fred Wilson, Reid Hoffman and Silver Lake Partners. So the narrative right now is “The insiders dumped that stock at the exact right time.” I want to flip that and say “The VC’s have sent you a term sheet for an investment.” Consider the rationale for fiduciaries like Fred Wilson, who turned a $5 million investment in Zynga into almost $400 million."
All they have to do is decide to become a real game company and they have a shot at a turnaround. They've got the money, people, and resources to do it. What they (probably) lack is the conviction it would take to focus on the long-term. It'd involve firing most of their staff and massively scaling back the entire company for the foreseeable future.
I think there is some karmic balancing going on here.
Zynga was great at marketing but I doubt that anyone that matters at Zynga has ever had an original thought about game play. If they can't buy the company that has the game idea they simply rip them off by copying game play almost down to the last detail.
I really despise their spammy apps, but Zynga has a billion dollars in the bank by making facebook games. The fact they did so well in the first place is nothing short of amazing.
Failure is such a strong word. I'm curious how many successful startups even came close to this.
If success is measured by money in the bank, let us celebrate the wonders of our criminal class! El Chapo - now there's a CEO success if I've seen one ;-)
There are many ways of quantifying success. But regardless if you're a gangster or a shrewd business man, if your business made you (and your shareholders) filthy rich, it's not that far fetched for it to be considered it successful.
I think it is shift in focus that is the root cause of this issue. There are plenty of avenues for online gambling as well as real ones, where they extract money out of the wallet.
However, the question is in exchange for what? As long as the focus is on the entertainment quotient I think these businesses do just fine. The moment the focus of business shifts to just extract every possible dollar out of its users, people get smarter & just leave. This is probably what is happening with Zynga.
Someone please make a web app that shows men how much Pincus and Wilson and co stole from me via selling this junk IPO to my mutual fund / 401k / pension against my will.
Instead of going with innovation, Zynga decided to go with extraction, and they are now paying a heavy price. Farmville, Cityville, etc, are all essentially just the same game. They add clicks and beeps to get middle-aged housewives to pay $5/month for virtual items and I guess it's simply not sustainable.
As a side note, I've been to Zynga's headquarters in SF. The offices are beautiful, and spacious. My friend pointed out a human-sized statue of the Zynga's dog that was repainted for something like $10-20k because apparently the CEO didn't like the color. You can walk around and see a lot of dot-com waste everywhere. We went to one of the snack areas, and there were opened bags of organic chips just laying around. Apparently, they have an office-supply vending machine filled with $100 wireless keyboards, mice, etc, that people just take whenever they want.
As an (unhappy) investor, it certainly looks like there is a lot of room to cut the fat at that company, so maybe they can slash their costs relative to their revenues and turn it back into a viable business.