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Zynga’s FarmVille features virtual-goods updates at least twice a week. (Among the most recent were a Fourth of July decorative water fountain and a Charro gnome, part of a limited edition Mexico-themed collection.) The company also cultivates scarcity to drive up the value of items. In February 2010, Zynga introduced an Unwither Ring in FarmVille, which guarantees a player’s crops will never wilt and die from neglect. The item cost 250 in farm cash, or around $50, and has been offered only a few times for limited periods since it was first introduced. Mafia Wars, one of Zynga’s first hits, is built around what game designers call “sinks”—parts of the game, such as player-vs.-player gun fights, that motivate users to sink money into additional energy points and weapons to increase their chances to win. “You might as well target whales because targeting everyone else is too difficult,” says Alex St. John, president of online gaming network Hi5. As for those who play without spending, there’s probably nothing that will coax them to open their wallets. And despite the popularity of social games on Facebook, St. John says the process of buying Facebook Credits, which users purchase to convert into currency for specific games, is too confusing for everyone but the most committed players.
As investors scrutinize Zynga’s numbers in the weeks ahead, they’ll have a lot to consider: whether the company is too dependent on Facebook, whether it can keep minting hits such as FarmVille, CityVille, and its new strategy-and-combat game Empires & Allies, and particularly, whether it can keep reeling in whales. Tseng from Tagged thinks the virtual goods model is brilliantly efficient, because it allows everyone to pay what they want to pay. Casual users play for free; hard-core addicts pay through the nose. Either way, it costs virtually nothing to create and sell a virtual good. “Every player has their own price,” he says. “Really that is the beauty of the virtual currency model.”
Some of its most enthusiastic players, though, wonder if Zynga is asking too much of its whales. Ibgui, who proudly shows off pictures of her horse and gnome collections, frets that Zynga has started releasing too many items too quickly and at inflated prices. “They are pushing it,” she says. “It makes them come across as money-hungry.” Then there are players such as Christine Marie Wilson, a retired paramedic from Houston who for months played FarmVille nearly “every spare minute” and bought Zynga gift cards at Wal-Mart at every opportunity. Earlier this year she quit the game entirely, after recognizing that it had become an addiction that she was concealing even from her family. “I was like a gambler,” she says. “I hid it pretty well from them.”
The bottom line: Zynga, which quintupled sales last year and filed for an IPO in July, has a casino-like reliance on its biggest customers.
MacMillan is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco. Stone is a senior writer for Bloomberg Businessweek.
