Nexon, a Korean online games company, just priced its IPO on the Tokoy stock exchange at a valuation around $7.2 billion, making it the biggest IPO of the year.
But that’s not even what’s most interesting about it.
What’s even more interesting is that it basically invented the business model that made Zynga a huge company. (Read our explainer on Zynga’s business here.)
Nexon was the first company to do online, free-to-play games and monetize them using “virtual goods.”
The companies are similar in many ways: similar business model; similar size in terms of revenues and valuation; similarly-timed IPO. And yet, in some key ways, they couldn’t be more different:
Nexon is wildly profitable, with a whopping $260 million in profits on $853 million in revenues for the nine months ended September 30, 2011. Zynga is currently not actually profitable, although it has accounting profits because of weird accounting stuff you can read all about here.
Nexon is older, founded in 1994 and pioneering the virtual goods business model in 1999; it was a slow ramp-up to today. Zynga was founded in 2008 and burst into the scene like a rocketship.
The games are also different, though that is changing: Nexon’s games are much more aimed at hardcore gamers, with lots of depth and complexity. Zynga is the King of casual gaming.
The companies serve different geographies. Nexon does 69% of its business in Asia, though it does an increasing amount in the US. Zynga is dominant in the US and big in Europe, but has its eyes set on Asia.
Given their similar business models and dissimilar profitability, here’s some of the things we can say about both companies and the space:
The main reason that Nexon is profitable and Zynga isn’t appears to be that Zynga is completely dependent on Facebook for distribution and has to give Facebook 30% of its revenue. When Zynga users buy virtual goods on the Facebook platform, they have to pay for them using Facebook credits. Facebook keeps 30% of this spending.