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.
Leinwand noted at CloudBeat that Zynga employs 2,100 game developers "and people do cost money." Zynga is now developing games for multiple geographies "with individual game mechanisms," such as games slated for use in China. To employ the developers needed for all its varied game projects, it needs to keep launch costs down and does so by employing a common underlying engine for most of its games' logic. It also holds off investing in its own compute infrastructure until a new game's track record is established on Amazon's EC2.

Zynga's Z Cloud is "our private copy of Amazon Web Services," which eases the compatibility problem as game traffic moves back and forth between the external and internal cloud, Leinwand said at CloudBeat. He complimented his Z Cloud team's ability to expand capacity, when needed. "Our ability to deploy up to 1,000 servers a day is a reflection of the excellence of the teams we've built," he said.

The hybrid cloud has allowed Zynga to rapidly expand its user base without overinvesting in capital expenses before traffic has materialized. To build out data center capacity for a game that isn't going to succeed would be a costly mistake, Leinwand noted at one point.

Zynga has its own game logic and systems in the Z Cloud, but relies on the Facebook platform for the sharing and social networking aspects of its games. Friends may help a player run their farm in Farmville or build a neighborhood in Cityville, or trade assets built up in their own activity in one of the games. In July 2010, after negotiations with Facebook, Zynga started using Facebook Credits as its purchase mechanism for virtual goods in games. Facebook retains 30% of the revenue.

Zynga is expected to price 100 million shares of its stock somewhere between $8.50 and $10 during the week of Dec. 12, and offer shares for trading at that time. The IPO is expected to raise up to $1 billion and value Zynga as a $9-10 billion company. Zynga says in the prospectus that its future success may hinge on whether it gains players on mobile platforms, such as the iPhone, as well as Facebook. Zynga was founded in April 2007 as Presidio Media.

In the roadshow presentation, founder and CEO Mark Pincus states Zynga "is the only scalable platform for social gaming that delivers powerful network effects."

Zynga's ability to live up to that claim is based on its symbiotic existence with Facebook. It's also based on its ability to utilize the Amazon cloud in a way that other game vendors have not--as a low-risk launchpad for its new ventures. Investors will now have to decide whether companies like Zynga represent a high-risk proposition, given their dependence on other cloud players, or the way of the future.

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