Zynga Poker

Zynga has finally hit the big time, if you define big time as a perfectly timed IPO. For a company that was founded only in 2007 on by copying a poker site, they have come a long way.

Or have they?

When Mark Pincus started the company in 2007, he took a big gamble by betting on Facebook, as the future of online gaming. Facebook at that time was far from being the dominant player that it is today.

He started with Zinga Poker, a poorly-coded clone of popular poker sites. He didn’t find his hit until he launched Farmville, a clone of Farmtown.

You will not the word clone being used a lot. It is an internal Zynga doctrine, not a derogatory term. See video where it is clearly stated that no game is produced by Zynga unless it is a “clone” of a successful game by another company.

Cloning a successful game and throwing Zynga’s marketing muscle behind the “new” title is a valid technique. The suspect part comes when hundreds of thousands players complain of being misled into purchasing virtual goods in the new game, a.k.a. Scamville (Source: Techcrunch).

That’s not all. According to Grumpy Old Accounts, Zynga have been massaging their accounting practices more than once in the months they prepared for an IPO. When selling virtiual goods, Zynga have split their sales in two arbitrary categories: durable virtual goods and instantly consumed. Instantly consumed items (like an energy boost) are accounted for immediately as revenue. Durable items (such as a tractor in Farmville) are spread over a long period (e.g. 12 months).

By re-factoring this “long” period and the definition of “durable”, Zynga can easily adjust their revenues to present investors with a rosy picture of incredible future growth. They can also hide their profit margin from Facebook, who take a 30% cut currently.

So back to the poker table. Zynga’s poker strategy has been successful so far. Through bluffs and some really strong card dealt by fate (if you consider Russian oligarchs to be fate), they have managed to win their first tournament and a huge jackpot.

The question remains whether their $6 billion valuation is sustainable. After all, their first IPO filing stated a price in the $15-20 billion range, which is the combined valuations of Electronic Arts and Activision-Blizzard, the two biggest companies in gaming.

Zynga Poker IPO: Infographic (click to enlarge)

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