Sometime in the next few weeks, Zynga — the San Francisco maker of addictive online games including “FarmVille” and “Mafia Wars” — will go public in what’s expected to be the biggest Internet IPO since Google’s (GOOG).
Pundits say its market value could hit $20 billion right out of the gate. But can a company that sells imaginary cows really be worth more than Sony?
Maybe so, says Jeff Tseng, president of San Francisco-based Kontagent, which helps online game makers better understand how users interact with their offerings. He argues that Zynga is “really an analytics company, not a gaming company.”
The 230 million people who play Zynga’s games each month don’t just hand over real dollars to buy digital muskets, tractors and other furnishings for their virtual worlds. They also provide the company with reams of data about their online activities.
Citing the so-called quiet period ahead of its IPO, Zynga declined to comment for this report. But in filings with the Securities and Exchange Commission, Zynga says it harvests more than 15 terabytes of data from its users — enough to fill the hard drives of 45 laptop computers — every single day. The company then threshes the data to test new features, target advertising and decide which customers are likely to spend the most.
“Just as Walmart is known for being very sophisticated with the way they merchandise their shelves, putting items that are most likely to be sold close to the checkout lanes, so has Zynga developed very sophisticated algorithms,” said Justin Smith, founder of Inside Network. The Palo Alto-based market research firm focuses on social media and mobile applications.
That “secret sauce,” as observers term Zynga’s algorithms, helps the company woo users back once they grow bored with a game, lure them to try out new titles and coax them into sharing games with friends. “Those are functions of thousands of little things that are buried in billions of points of data,” said Dwight Merriman, who helped pioneer online advertising in 1995 as a co-founder of Doubleclick.