Last night Dave McClure interviewed serial entrepreneur Mark Pincus, who has run the social game development firm Zynga for the past two years, growing it to over 300 full-time employees and an estimated $50 to 100 million in revenue.
After speaking briefly about his past entrepreneurial experiences, which started in the 1990s with Pointcast competitor Freeloader and most notably includes the early social network Tribe, Mark dove into the inspiration behind Zynga and social games in general. He described how his experience with Tribe taught him that he was more interested in building extensions, or plugins, for social networks than the social networking containers themselves. So when Facebook prepared to open up to 3rd party applications in 2007, he jumped at the chance to become that network’s premier social games provider, even though many people – including Facebook’s own Dave Morin – doubted the viability of social games at the time.
Aside from believing that games were simply the “coolest thing” for people to do together on social networks, Mark believed they fit two particular insights. First, since Tribe had suffered from user engagement, with its most engaged members actually costing the site much more than they gave back, Mark was looking to build a product that aligned engagement with monetization. Gamers tend to spend more money the more they play, so Zynga was established with the idea that it could make money from the early days and enjoy even greater revenue as engagement increased.
Mark also realized from his own gaming addictions that people were willing to spend money to beat others in competition. Gamers who don’t have the skill to beat their online opponents without assistance are often eager to pay for advantages, or power-ups, that make it possible for them to win faster and save time. Zynga was therefore predicated on the notion that virtual goods should impact gameplay, not just add extra value around the edges.
So far these insights have paid off, with Zynga exploding in growth over the past year from about 60 employees to over 300. This has been a managerial challenge for the company, and it has required the institutionalization of corporate processes that were vital if irksome to many employees. He described how startups need to introduce delegation at around 50 employees and really start to bend under the weight of 200+ employees. For Zynga, this required painful changes to how things are run, but Mark says these changes have laid the foundation for another doubling in the company’s size.
Mark’s most intriguing remarks of the night were about how he predicts online distribution and monetization to change over the next 5-10 years. He believes that we’re moving towards an app economy where most internet services with be distributed over platforms. These apps will derive most of their revenue from digital goods and services, not advertising. Basically, users will begin paying for things online at a much higher volume, and developers will use metrics and game mechanics (even with non-games) to maximize engagement and profitability. A corollary to this trend will be making all consumer services more fun, since enjoyment encourage users to pay for more virtual goods and upgrades.
This paid goods vision of the web hinges on the availability of better and more pervasive payment systems. However, Mark thinks it’s still to-be-determined how the payments market will play out, and he anticipates that there will be many players at many different levels of the ecosystem. Because of his optimism for online payments and the app economy in general, he encourages all of the big players (Google, Microsoft, Yahoo, etc) to get more involved as platforms or risk losing out on the more private corners of the web.