Toward the end of 2010, I worked with several people who were knee deep in making Zynga games work on the Yahoo games platform. They talked with the Zynga folks daily, and reported that they were skilled, hard-working, and professional. I myself had a handful of exchanges with a couple of Zynga folks and was similarly impressed.
At the time I was struck by the seeming dichotomy of bright, energetic people working for an organization that was so obviously sleazy. CEO Mark Pincus made no secret of the fact that he "did every horrible thing in the book to, just to get revenues right away." This included spamming, making the company's software difficult to remove, and deliberately misleading users.
The games themselves are, in the words of Ian Bogost "ongoing, never-ending affairs that must extract time and money from players in the most efficient way possible." These are deeply cynical time-wasters that use knowledge of human psychology against ourselves. They are all essentially the same pursuit, framed in different pixels. They all deliver the same Pavlovian rewards; click the button and get a biscuit.
That said, Pincus pulled down $39M in funding from Union Square Ventures, Kliner Perkins Caufield and Byers, and others. Zynga's IPO in late 2011 valued the company at around $7B. That's seven billion dollars. The VCs knew they had a winner. Morgan Stanley and Goldman Sachs, the firms that managed the IPO, knew they had a winner. Apparently a lot of people who invested in Zynga knew they had a winner.
But the definition of "winner" depends on your role in this little drama. Morgan Stanley and Goldman Sachs hauled in about $15M in fees. The VCs quickly announced they would be cashing out at least some of their investment. That leaves investors who came late to the party holding the bag. Ostensibly this also leaves a lot of those hardworking Zynga employees wondering if they'll be getting a slice of that big cash pie Pincus is enjoying.
This is what Silicon Valley (yes, Zynga is in San Francisco, but these days distinctions between the two in this context are becoming irrelevant) has become. Smart, hardworking people join startups that are explicitly designed to use Pavlovian techniques in order to separate people from their money as fast as possible. Ostensibly they hold their noses and work for a company like Zynga because they smell the potential for an IPO and a cash-out.
VCs smell the opportunity for a quick payback, even though they know full well that Zynga is almost wholly reliant on Facebook and is incapable of presenting viable barriers to entry against competitors. They fund the company, knowing that its founder is not honest, knowing that it deliberately lies to its customers, and knowing that it offers essentially a single product, wrapped in cloaks of varying hues.
The IPO underwriters don't care if the stock flies or dies. They make big chunks of money either way. So they pimp the stock, push the IPO hard, and count the money filling their coffers.
This is the way startups are done in the Valley now. The idea of selling a product to end users, rather than selling user information to advertisers, is dead. The idea of aiming to build a company that will be around in a decade or two is dead. These days you build it fast so you can build up hype. You enlist the aid of VCs who know that velocity equals victory. You either get snapped up quickly by a bigger fish or you take the fastest possible path to an IPO. Then you cash in your chips. The rest is immaterial; whether the company lives or dies doesn't matter to the small group of people who have made a killing.
In Silicon Valley you often hear that its strength is its resilience, its ability to adapt. But after the Dot Com implosion, instead of becoming more focused on the long term, instead of funding companies that understand the basics of generating profits in a sustained fashion, VCs have continued to fund Hindenburgs like Zynga, and investment banks have jumped in with both feet to underwrite their public offerings.
"This is how things are done" is the excuse you usually hear when an industry is about to be wiped out by a disruptive innovator. The Valley prides itself on giving birth to those innovators. But if it keeps gambling with its future and starts producing more Zynga and less Netflix, Silicon Valley may find itself on the receiving end of disruptive innovation, as some other more sane region takes up the mantle of tech leadership.
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