The Troubling Rise of Facebook's Top Game Company

The meteoric and controversial rise of the company whose games you play on Facebook

By Belinda Luscombe Monday, Nov. 30, 2009

    • Zynga founder Mark Pincus, with elements from some of the 15 social-networking games that the company has created

    (2 of 2)

    Zynga's tactic of gaming Facebook's architecture was critical to its takeoff. It flooded Facebook with ads. It exploited the social network's distribution engine to pepper players' friends with updates and invitations. To release games quickly, it used a roll-up strategy, buying YoVille , licensing Texas HoldEm (which it renamed zyngapoker ) and imitating rivals. Playfish's Restaurant City was around before Cafe World , and FishVille is reminiscent of Crowdstar's Happy Aquarium . Even FarmVille rips off Happy Farm , a hugely popular online game in China (richly ironic, given China's disregard for intellectual property). Once it had collected a vast user base, Zynga could lure customers to new games.

    To do all this, the company needed money and had to prove to investors that offering free games on Facebook was a sound proposition. Zynga attracted $39 million in start-up money and got a second wave of $15 million this month. Ads and virtual goods bring in most of the revenue. But because people who play free games on the Internet like the free part, Zynga needed a third income stream — product come-ons.

    These offers are like ads, except that when you click on them, you're agreeing to try and then buy a company's service in exchange for game points. Sign up for a Netflix subscription, get two months free plus 100,000 points. Some players cancel as soon as they have the points. Other deals, like those that snagged Michelle, are shady. Michelle took a quiz that required her to enter her cell-phone number and a code. At some point during the exchange, there was supposed to be a notification that she was signing up for an SMS subscription at $9.99 a month. Michelle says she never saw it.

    Zynga did not create the sketchy offers, which are outsourced, but neither did it have a handle on them. "We have always policed offers for content," says Pincus. "But there's thousands of offers and hundreds of new ones every week." Facebook and MySpace tightened their guidelines after getting complaints. Then a tech blogger confronted the CEO of a company that creates offers. She answered his accusations unwisely ("S___, double s___ and bulls___"), and it blew up online. Also on the Internet: footage of Pincus speaking at a University of California, Berkeley, event about how he funded his start-up. "I did every horrible thing in the book to just get revenues right away," he said. It's bravado that now makes Pincus wince: "I was selling myself short."

    For the moment, Zynga has removed all offers and says it's going to vet each one before it appears. Whether this is just a speed bump for a company that's growing dizzyingly fast or a huge infrastructural problem is unclear. Reports peg Zynga's revenue at $100 million a year, which the company says is low. If you assume similar economies for Zynga as for Playfish, says Atul Bagga, an analyst with Think Equity, "Zynga could be four times bigger on a run-rate basis."

    Social games have drawn people who would never touch a console game or World of Warcraft — stay-at-home mothers, office workers looking for a five-minute break, families. This is partly because they feel safer playing with their friends and partly because there aren't quite enough other things to do on social networks. But if they start to feel unsafe, the whole house of cards will come crashing down. Michelle is already lost. "I told her never to go to FarmVille again," says her mom. "It's a scam." Or the next killer app.

    The original version of this article misspelled the name of Atul Bagga.

    3. 1
    4. 2
    5. Next Page