The Zynga Influence

-Zynga Logo-To describe Zynga as a powerful influence on the Facebook developer platform would be an understatement. The company has achieved levels never thought possible. Farmville, the company’s leading application has reached levels that no other developer has ever come close to. In other words, the company is in a league of its own. With over 126 million monthly active users, the company accounts for the sum total of the next three largest developers: Playfish, RockYou, and Causes. So how did the company get to be so large?

The Art Of Chess

If Facebook application development was a chess game, Mark Pincus, the CEO behind Zynga, might as well be considered the Bobby Fischer of the space. He’s been playing the game before it even started. His first major success, Freeloader, was the first web-based consumer push information service which was acquired seven months later for $38 million. He then launched SupportSoft, a company which provides online tech support and was eventually rebranded as Support.com.

Following SupportSoft, Pincus launched Tribe Networks, and while it may have not been the greatest success, one major thing came out of the company: the acquisition of what may be considered a priceless patent.

Facebook’s Kryptonite

In 2003, Pincus and Reid Hoffman acquired the “six degrees patent” which the New York Times described as “the seminal social networking patent” at the time. This took place during the early years of social networking. Sixdegrees.com, possibly the original online social network, owned the patent and the company was eventually purchased by YouthStream for $125 million back in 1998.

As the New York Times wrote at the time, Mark Pincus and Reid Hoffman (founder of LinkedIn and member of the “PayPal Mafia”) were talking to Friendster to try to become co-owners. CNET wrote around the same time that the two were actively snubbing Jonathan Abrams, the founder of Friendster. Whether or not that happened is irrelevant because Friendster is little more than history at this point and Facebook is now the most dominant leader.

While Pincus and Hoffman claim that the “six degrees patent” was acquired for defensive measures, there’s no doubt that it carries with it significant influential powers. The two don’t just have capital in terms of assets though, they also have a large amount of relationship capital. Reid Hoffman is now an investor in Facebook (for a number of reasons). In-Q-Tel, the CIA’s venture firm which also holds a number of social networking patents, happens to be an investor in Facebook as well.

While the patents may not have been the primary foot in the door for both parties, they most definitely enter into some form of consideration. You don’t need to actually threaten people (with lawsuits) to yield influence over their decisions. In the case of Zynga, having the “six degrees patent” could prove to be extremely valuable when dealing with the Facebook execs.

Sucking Up Facebook’s Ad Inventory

Zynga has blown past all competitors and it’s not that surprising considering that they are spending a reported $50 million on Facebook ads annually (and that is most likely growing as they expand). As Zynga helps fund Facebook’s growth they reciprocate the favor. A company’s success on Facebook revolves around three factors: ability to maximize viral channels (to drive new users), the ability to create an effective internal engagement loop within an application, and access to an open communication channel with Facebook’s platform people.

Zynga has all three of these and they have an extremely tight relationship with Facebook through private parties (which are buzzed about heavily) and through committing to large ad buys. In other words they’re helping out each other. As many developers have noticed, Zynga has managed to own entire sets of ads on a single page sometimes. In other words, all “three” advertisements on a single Facebook Page will link to Zynga’s Mafia wars game.

Swallowing Developers

Zynga is an aggressive player in this space … possibly the most aggressive. There is two parts to their strategy. The first is to fund developers that have game ideas, promote them, and for those that are successful, they snatch them up, often at pennies on the dollar. The second is outright acquisition of successful application that they didn’t fund.

Unfortunately this model can be challenging so the result is that if they can’t afford to pay what a developer wants, they’ll go build their own version of an application. Take FarmVille as an example. The application has grown to 48.5 million monthly active users and continues to grow daily. Farm town has had stagnant growth, sitting comfortably at the 6th largest Facebook application.

But what on earth has brought the application to now over 18 million daily users? That’s something many developers are dying to know and while the reported “Zynga Playbook” may help with discovering their secret sauce, there’s much more behind the success. At this point the company is in a league of its own and its well deserved.

The Race To An IPO

Mark Pincus and Zynga are firing on all cylinders and many have reported that the company is looking to beat Facebook to a public offering. While there’s speculation that the company isn’t highly profitable given their large budget being spent on Facebook ads, they are working toward a $1 million a day revenue target.

Right now they’re more than halfway there according to numerous sources and as they move in that direction, they’re hoping to walk into the embrace of a more open IPO market in the coming months. Whoever wins the race (or long slog depending on how you look at it) to IPO, it’s clear that Zynga isn’t just competing with other application developers, they are attempting to take on the biggest social platforms to squeeze as much profit as possible out of a rapidly growing user base.

One interesting statistic: Facebook used to double every 6 months, Zynga is now doubling every 2 to 3 months (in terms of the sum total of users playing their various games).

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