Crash and burn coming

If Zynga stock was public, I’d short it:

Since launching its first Internet game in 2007, Zynga has grown rapidly. The company’s true earnings are unknown to outsiders, but industry observers estimate that its annual revenue could now be $500 million or more. In May, social-media analyst Lou Kerner estimated Zynga’s total price tag at $4 billion, based on corporate filings for a stock issuance.

In light of Zynga’s phenomenal rise, one former senior employee recalls arriving at the company eager to discover what new business practices were driving its success in a market where other popular Web 2.0 ventures struggled to make money. What was Zynga’s secret? Not long after starting work, he got an answer. It came directly from Zynga founder and CEO Mark Pincus at a meeting. And it wasn’t what he expected.

“I don’t fucking want innovation,” the ex-employee recalls Pincus saying. “You’re not smarter than your competitor. Just copy what they do and do it until you get their numbers.”

There’s a company like this every generation or two in the game industry. Back in the day, the self-styled “assholes with the money” were GT Interactive. Everyone, especially the people at GT, thought they were going to dominate the industry, but they didn’t even last as long as Origin Systems, much less Electronic Arts. While you can make a lot of money in the short term with a pure copy-and-churn-it-out approach, it never translates into success in the medium term. Once you grow to a certain point, you have to figure out how to make something that people want to play on your own, and that’s not something a group of employees accustomed to operating on an evil and short-sighted ethos are ever able to do.

But speaking of games, happy 25th birthday, Jumpman!


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