The musings of a former London PE guy turned Silicon Valley technophile
It’s never the first company to market that wins; it’s the first company to product-market fit. This was evident through Zynga’s success versus other gaming companies. All startups inevitably go through pivots (change in direction). I wrote this paper with Alex Gurevich over at Javelin Partners.
Zynga – Zynga is a social games developer on the web. Zynga’s mission is to connect people with their friends through games. Every day millions of people interact with their friends and express their unique personalities through their games, which range from harvesting crops to slicing apples to playing poker. Zynga was founded in July 2007 by Mark Pincus. Top games include CityVille, FarmVille, Zynga Poker, and Mafia Wars.
PlayFirst – PlayFirst is a publisher of emotionally engaging interactive entertainment. The company’s mission is to deliver delightful play for everybody, everyday. By creating engaging story worlds that capture the imagination, PlayFirst teams publish quality gaming experiences across popular platforms. The company was founded in 2004 by industry veterans. PlayFirst’s biggest commercial success has been its award-winning Diner Dash series, which has been downloaded by more than 550 million people around the world. The company’s game portfolio also includes other titles, such as Wedding Dash, Cooking Dash, Chocolatier, and Dream Chronicles.
Zynga: A Runaway Hit in a Crowded Space
With a valuation of close to $10 billion, annual revenues of about $1 billion, and with over 50+ million daily active users, Zynga by all measures has been a runaway hit. Top-tier Silicon Valley investors have poured in over $500 million to fuel the company’s growth over the last four years. We wanted to examine Zynga’s rocket ship success versus other gaming companies, notably PlayFirst, who had some commercial success through their game Diner Dash (550 million downloads). Through our conversations with key executives at each company and speaking to investors, we examine Zynga and PlayFirst’s specific approaches which drove them to very different levels of success. Zynga is the unambiguous winner due to three factors:
Focus on Metrics
Zynga’s success can be primarily linked to their religious dedication to metrics and analytics. This has been engrained in the DNA from day one by their founder Mark Pincus. According to Vish Makhijani, “in the beginning of the app economy around 2008, there were many social game companies focusing on virality as their key metric of success and many of them reached notoriety and large user bases. The problem was though that they had very high decay rates. User would install apps, play it once, and then never visit the app again. Mark quickly realized that the way to build a large active user base was not just to focus on virality but primarily on retention. Retention was also something that we had more control over [unlike virality].” Furthermore, many of the early competitor games were lacking the content quality, which attributed to these high decay rates. To combat this, Zynga hired top quality game designers and focused on delivering excellent game play quality, which contributed to higher retention. The next step of increasing retention was to focus on the engagement numbers and rolling out the games in a more methodical, gradual way. Once the metrics on engagement were up to par, they would turn on various viral channels to increase the installed base, and repeat the process to ensure that engagement levels remained the same. Every new title released would get a similar treatment.
We have seen the importance of a dedication to metrics in the early customer development process. For instance, Facebook, by having access to their own large user base, was able to gradually role out products by first validating them with a smaller subset of users as was the case with the News Feed. Backed up by the data from these early trails and the knowledge that, in fact, engagement was increased with the presence of a News Feed, allowed them to preserve in the face of harsh criticism and initial user backlash. Likewise, in an enterprise setting, TellMe relied on quantitative, as well as qualitative data, to refine their sales process to ensure that the sales team was pursuing accounts that would really move the needle (i.e. through their Rifle project). Zynga’s chief differentiator, in a highly competitive landscape, was a similar resolution to track the metrics that mattered most to their particular business. By contrast, other Zynga competitors such as RockYou, initially focused on viral growth and grabbing as many users as possible by launching very simple casual gaming applications.
A metrics driven culture was missing at PlayFirst. The company focused on developing and perfecting games that the team was passionate about. This often meant that it took longer to launch any particular game, and there was not a lot of data to help mold and shape those games. According to Mari Baker “we focus on a widespread analysis of our games – it can take some time for our games to launch…games really come to life if someone really advocates for it. Passionate people behind a game usually push games forward internally.” While metrics are important at PlayFirst, one can argue that passion for a game drives the launch of a game. This is the opposite at Zynga where retention metrics are the key indicators of success.
Broad Applicability of Game Design – Product-Market Fit
Instead of focusing on niche gaming categories, such as first person shooters, RPGs, or games that focus on a particular demographic, Zynga made the conscious effort to focus their game development efforts on broadly appealing games. The primary motivator here was to cover as much of the casual gaming audience as possible and not be limited to any particular sub-group. According to Vish, “we wanted to appeal to the mass market, whereas other game development studios tend to be a little bit niche. This has allowed us to appeal to a very large audience, which encapsulates both genders [as opposed to some of our competitors].” This also fits well with their gradual and metrics driven roll-out strategy. By having a wide audience to target, they can obtain large installed bases at every step of the customer discover process. Understanding, their casual users, Zynga also focused on making their games very easy to understand and very fast to start playing. This helped with their engagement and retention metrics, as well as deliver on their promise of broad base appeal.
PlayFirst initially aimed their PC browser based games to untapped markets. “We saw a market that wasn’t being addressed. The ‘stay-at-home’ Mom didn’t have much to do in the house after she dropped off her kids so we aimed it at this market,” said Baker, CEO of PlayFirst. Per Christensen, arguably, PlayFirst was trying to create a new market disruption by creating a product catering market segment that is not being served by existing incumbents in the industry (e.g. games for stay-at-home Mom’s). In this effort, PlayFirst succeeded. It’s first hit, Diner Dash, has had over 550 million downloads which the company then followed up with a series of “everyday simulation” hit games that would resonate with their key audience such as Wedding Dash, Cooking Dash, and Chocolatier. However as the market began to evolve, PlayFirst found it pigeonholed in the games it was known for. PlayFirst continued to focus on its core competency and failed to expand the scope of games offered. “The team DNA made it really tough to change strategy as the team focused on what they were good at it,” said Janice Roberts, investor and Board member at PlayFirst (more on team DNA later). PlayFirst’s laser focus on a small demographic launched the company to success but the lack of appeal to a broader market as Zynga did, put a ceiling on the company’s growth.
The dilemma faced by Zynga and PlayFirst of whether to strive for a product-market fit with a horizontal market or a vertical market, is the classic problem that was encountered by Documentum. Jeff Miller and Documentum made a strong bet, that in order to cross the Chasm, his company needed to manically focus on one particular vertical. While this worked well in the enterprise model, in the consumer driven world of casual gaming it appears that the horizontal market approach taken by Zynga has won out. PlayFirst, by focusing on one vertical of casual gamers, has effectively shut itself off from the rest of the casual gaming market, whereas Zynga has broad base appeal, including attracting the same users that PlayFirst has specifically targeted.
Customer Discovery Process
Although the time and cost to get to a minimally viable product has grown slightly for Zynga over time, it is still a fraction of what that time and cost is for traditional gaming studios such as Activision and EA. According to Vish, the company very much believes in the customer discovery process advocated by Steve Blank, and strives to be better at it with each new product launched.
Rapid iteration is central to their approach. Their goal is to launch as many games as they can, and to fail cheap and fast. The elements that allow them to achieve this rapid iteration and customer feedback process are: team metric-driven DNA, their distribution platform (Facebook), and focus on modularity around systems and scaling.
“We like to build high-quality games which takes us anywhere from 4 months to two years,” said Baker. PlayFirst generally ensures that games are fully-functional before they are released. Their initial distribution platform, PC browser, did not provide an opportunity for iteration. Players would download the games, play them, and not often provide feedback to PlayFirst. PlayFirst has a three-prong approach to launching new games:
Although, this has worked for PlayFirst to a certain extent, they currently do not “own” their own customer discovery process. According to Blank, they do not adopt the lean startup principles. PlayFirst does not fail fast and cheap – rather, currently, follows greatest hits of other games. When asked if PlayFirst would ever release a game that is only based on a minimum viable product, i.e. something that was only arbitrarily, 40% finished, “we’d prefer not to do this. We really want to build a high-quality experience for the user and would want to release a game that we feel is fully functional,” said Baker. “Being one of the best matters and we just don’t want to crank stuff out.” This is a philosophical difference with Zynga who’s team DNA adopts the fail fast and cheap principle and iterates on a much faster basis.
“Our big mistake was not moving fast enough. The team DNA was so entrenched in the way we were doing things before, we didn’t pivot when we needed to,” said Roberts. The team should have not only pivoted in the offering of broader games but also should have pivoted when there were new distribution platforms. With the introduction on Facebook, PlayFirst acknowledged that this was a potentially powerful platform. The company started to offer games on the Facebook platform but pulled out of this strategy in late 2008 when the traction was not as expected. “There’s a difference between strategy and tactics and our strategy to pull out of Facebook was a big mistake,” said Baker. “We should have continued down that path with our strategy.” According to Roberts, the team wasn’t situated or flexible enough to try new platforms at that time. The management team felt comfortable in their niche, their platform and failed to really innovate and embrace the changes happening in the industry. This is in contrast to some of the cases we learned in class such at the Hulu case. Jason Kilar not only adopted the change in platforms and technology, but embraced it which has been one of the key success factors to Hulu. In fact, it was because of the innovations in technology (e.g. broadband) that Hulu was created. This can also be said with Reed Hastings of Netflix with the adoption of streaming, iPads, etc. offering a delightful experience to the consumer. The PlayFirst team was not able to cross the chasm (Moore) to the early majority, but the big question remains if the team in place really wanted to. Reading between the lines in our interviews, it could be argued that the initial founding team did not have the “DNA” to turn the company into a massive hit and hence the replacement of the CEO in 2009.
Zynga: Positioned To Be One Of the Biggest Homeruns of this Decade
While PlayFirst had a slight headstart, on Zynga, it is clear that Zynga is the dominant player in this space in terms of revenue and active and engaged user base. PlayFirst had the opportunity to become the dominant player that Zynga is today but failed to reach the early majority due to a flawed customer discovery process, a too narrow definition of their market, which led to a misalignment of the product-market fit, and their inability to engage their users, thereby identifying the appropriate metrics of success.
Zynga is rumored to plan for an IPO in 2012 and is grouped in with other prominent tech successes of this era like Facebook, Groupon, and Twitter. It has surpassed many formidable competitors in the casual social gaming space due to the company’s: