Zynga Courts IPO Investors With Hybrid Cloud Strategy
Zynga launches games on Amazon to keep startup costs down, then brings them into its private Z cloud.
Zynga has grown in four years from an online game startup that was losing millions to a powerhouse that is expected to be able to raise $1 billion in an initial public offering. Zynga's rapid rise would have been impossible without its partnership with Facebook and its hybrid cloud strategy.
At the same time, that hybrid operation remains a risk to its business, one that investors would do well to heed.
Zynga's prospectus, part of a cross-country tour by Zynga executives that starts Monday, aims to focus attention on the pending IPO. It notes that it offers "a new business model and a short operating history," which makes it difficult to judge its prospects. At the same time, investors are likely to flock to its stock because it's been able to attract 227 million active monthly users, or more than the next eight online competitors combined.
Most of those users play for free. That means Zynga is committed to serve a petabyte of content to its 54 million active daily users, who will collectively be online for two billion minutes, then collect 15 terabytes of data for analysis, with only a modest guarantee that all this activity will lead to sufficient revenue. Zynga makes virtual goods that players purchase in games like Cityville and Farmville; by some accounts, 4% do so.
At the same Zynga knows it must continue to build an expanding set of game users to retain its value as a company. "Because the opportunity for social interactions increases as the number of players increases, we believe that maintaining and growing our overall number of players, including the number who may not purchase virtual goods, is important to our success," its prospectus states.
To do that, Zynga has to develop and launch new games, knowing that many will succeed but some will fail. Allen Leinwand, Zynga's CTO of infrastructure engineering, told InformationWeek that his firm had launched Mafia Wars and Farmville on its own infrastructure, but in November 2010, it initiated Cityville on Amazon Web Services' Elastic Compute Cloud. Any game has a hard-to-predict growth curve. It can grow very slowly for months, then suddenly become popular, he said.
To be prepared for the sudden demand of millions of players requires a huge infrastructure investment by a gaming company. Farmville was a capacity planning challenge, growing slowly at first then bursting to 43 million players in 100 days. After that experience, Zynga decided to launch in the public cloud, with its ability to expand capacity on demand, then add data center space as demand for the new game levels out. Zynga doesn't build data centers. Rather it leases space from builders of wholesale data centers, puts its servers in them, and manages them to cope with predictable traffic.
In an appearance Nov. 30 at CloudBeat, an event organized by VentureBeat, an online publication for venture capitalists, Leinwand told attendees: "We were able to scale Cityville very fast (to 61 million active monthly users in 50 days on Amazon's infrastructure). We have the ability to move operations between the Amazon public cloud and the Z cloud, our private cloud."
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InformationWeek Tech Digest, Nov. 10, 2014Just 30% of respondents to our new survey say their companies are very or extremely effective at identifying critical data and analyzing it to make decisions, down from 42% in 2013. What gives?