Zynga worries about the price of success

The FarmVille creator's IPO documents show it's concerned about creating 'disparities in wealth among our employees'. Although that might be the least of its worries...

by Emma Haslett
Last Updated: 15 Sep 2011
Zynga’s employees might be used to throwing (virtual) sheep at each other, but the games developer, which filed for an IPO on Friday, has warned that things might be about to get a lot less good-natured. The FarmVille creator is aiming to raise $1bn (£621m) in a listing which could value it at $20bn. But under the risk factors section of its prospectus, it warned that ‘we expect that this offering will create disparities in wealth among our employees, which may harm our culture and relations among employees’. It is hard to concentrate when your co-workers are waving wads of tenners at you, we always find…

Obviously, this is by no means an unusual situation: in any IPO, some employees will stand to gain a lot more than others. But it does highlight a potential issue with the various tech companies (including Facebook) supposedly planning to IPO over the next few months: a big financial windfall could create resentment between those who were present from the start, and those who were recruited during the business’s fast-growth phase (two-thirds of Zynga’s 1,858 employees have been there less than a year) and will thus be entitled to a lot less than their peers.

However, employee relations might not be its biggest problem. ‘If we are unable to maintain a good relationship with Facebook, our business will suffer’, it also pointed out in the prospectus. That’s rather an understatement. Zynga relied on the social network to generate most of its $90.6bn revenues last year, with the majority of its 60m daily active users (who collectively accumulate an impressive 2bn minutes a day ploughing virtual fields) accessing its games via Facebook.

So what could possibly go wrong? For a start, there’s that relationship – which threatened to break down last year when the two companies became locked into a ‘Cuban missile crisis’ over payment systems. And because of its dependence on the companies, Zynga’s fate largely depends on Facebook’s popularity. Or, as Zynga puts it, ‘if Facebook loses market position… we would need to identify alternative channels’. In other words, if Facebook goes the way of MySpace, it’s in bother.

Zynga’s model itself isn’t without risk: it points out that, because its games rely on a ‘freemium’ model where only a small number of players shell out real money for virtual farming equipment, ‘we rely on a small percentage of our players for nearly all our revenue’. Then again, that seems to have worked out pretty well so far. And just hink how many sheep its staff will be able to afford to throw after the IPO…

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