Posted by: Douglas Macmillan on November 10, 2009
Mark Pincus has become the poster boy for the booming business of social online games. His company, Zynga, brings in more than $100 million in annual revenues, and owns the most popular Facebook app of the year, FarmVille. Zynga is even considered by analysts and observers to be a candidate to go public next year.
So what does Pincus make of video game stalwart Electronic Arts recently scooping up Playfish, one of Zynga’s top rivals, in a deal that’s worth up to $400 million? He says EA paid a justifiably high price to enter the social gaming space. “The founders got a really good cashout, and EA got to catch up to a business that they had kind of missed the start of,” Pincus says.
Zynga may benefit indirectly from the marriage, since EA marketing savvy could bring more attention to the social gaming space, he says.
Pincus isn’t worried about Playfish’s newfound access to more capital making it a stronger competitor. But he admits that EA’s popular game brands including The Sims and Madden have a lot of potential in the social gaming space. “There’s a good chance for them to try to leverage EA’s major brands and take Sims and other [games] into the market,” he says. This could be a “risk” for Zynga and others that don’t have a stable of recognizable game franchises to draw on, Pincus says.
EA never talked to Zynga about the possibility of an acquisition, according to Pincus. "They apparently didn’t want to buy us," he says. "They might have realized that we weren’t interested in being acquired." Or, EA might have assumed the price tag would have been too high to bother. If Playfish was worth $400 million with 60 million active users, analysts estimate Zynga, with 186 million users, may already be worth over $1 billion.
Pincus shrugs off speculation that Zynga is coming due for an IPO. "Why would we sell it or why would we take it public if neither of those options accelerated our business plan?" he asks. Even though a public offering would give Zynga cash to make deals of its own, Pincus thinks the constant scrutiny of Wall Street would threaten the company's innovative, entrepreneurial structure. That echoes the sentiment he conveyed last month, when I interviewed him for a BusinessWeek cover story on The App Economy.
Recently, Zynga has been brought to task for promotional offers made inside its games, offers which account for less than 20% of revenues. As the blog TechCrunch reported Oct. 31, many of these offers reward users for signing up for unwanted contracts and subscriptions. Since then, Pincus has pledged to put each offer in Zynga games under more scrutiny, and remove those that appear to be "misleading," he says. "We have to try to police them."
Policing is hardly what the company was doing before. Pincus claims he personally never knew about the more seedy offers in FarmVille and other games, since he spends most of his time building products, not revenues. "We have one person who deals with offer networks and it’s not even a full time job," he admits. Still, the entrepreneur adds that his ignorance of the matter is "not an excuse."
He’s certainly paying attention now. And with EA’s marketing muscle behind Playfish, he’ll need to keep closer tabs on the competition too.