Tech companies have recently ratcheted up their offensive use of intellectual property, especially in the mobile space — but not so much in social networking.

Just in case patent wars happen to be contagious, it seems worth evaluating which social networking players are best-equipped.

I wrote on Wednesday about a Silicon Valley entrepreneur who is hopeful that Google may pursue some of the patents and patent applications he filed on behalf of a company he started that Google later acquired.

Also on Wednesday, on the occasion of Facebook filing to go public, two patent researchers from Envision IP posted a good summary of the distribution of social networking patents among tech companies.

Here’s a breakdown:

Facebook: Facebook told prospective investors that it has “56 issued patents and 503 filed patent applications in the United States and 33 corresponding patents and 149 filed patent applications in foreign countries relating to social networking, web technologies and infrastructure, and related technologies.”

(Here’s a list of some of the granted patents, direct from the USPTO.)

This Facebook news feed patent lists Mark Zuckerberg as the first inventor.

Facebook’s patents cover inventions created at the company, like its news feed and some privacy features, as well as some additional intellectual property it acquired.

The biggest patent acquisition deal Facebook has done was with MOL Global, for the Friendster patent portfolio of seven patents and 11 patent applications in May 2010. That cost $40 million — something insiders considered a steal, given the risk of the patents falling into someone else’s hands.

The Friendster patents cover topics like making connections on a social network, friend-of-a-friend connections through a social graph, and social media sharing.

At Facebook’s most recent internal valuation, the stock alone spent on the Friendster patent deal is now worth more than $100 million.

(Personal side note: The Friendster patents are something I’ve now written about for years. I broke the news, for Red Herring, on Friendster being awarded a patent on social networking in 2006, then reported on Facebook acquiring them at GigaOM.)

Google: Though Google hasn’t been a major social networking provider for all that long, it has 25 U.S. patents and 40 pending U.S. patent applications on the topic, by Envision IP’s count.

Google has aggressively hunted intellectual property about social networking. As I referenced earlier, it got a patent portfolio through its acquisition of the Dealmap (previously Fatdoor). That includes patents and patent applications on things like regions of influence within users of a network.

Image from the core Dodgeball patent

Last year, Google also acquired some patents from the shut-down social search engine Wowd, including one on user-driven ranking of Web pages. In an interesting twist that resulted from a three-way split of Wowd’s assets, Google currently licenses those patents to Facebook. Backstory here.

Back in 2005, Google also bought Dodgeball, the mobile social application created by Dennis Crowley, which predated Foursquare. And it turns out that because of Dodgeball, Google is assigned what looks to be a broadly worded patent on “location-based software for mobile devices” that describes messaging between two users who are in close physical proximity to each other.

The Six Degrees patent: Back in 2003, Reid Hoffman and Mark Pincus paid $700,000 in an auction for a seminal patent from the failed social network Six Degrees, in part to keep it away from Friendster’s control. Hoffman recently told me that he and Pincus bought the patent as individuals, and then assigned it to their companies, LinkedIn and Tribe.net.

Apple, Yahoo, Microsoft, IBM: Envision IP notes that Apple has 35 U.S. patents and 76 U.S. patent applications that seem to be about social networking and collaboration, many of them focused on mobile. Yahoo has an armory of patents on all sorts of general Web technologies, while Microsoft and IBM have about 80 patents on file sharing, messaging and infrastructure that could be used for social networks.

LinkedIn and Twitter: LinkedIn has one patent, on evaluating user reputations within a social network. Twitter doesn’t seem to have applied for a single patent (at least, not prior to 18 months ago, since that’s the period after which patent applications are published).

What are the other pockets of social networking intellectual property out there, at other companies and around the world? I’m sure I’ve missed some, so please add to this list in the comments.

The company has confirmed to All Things D that it is actively investigating several opportunities, and is in talks with several partners about gambling on the Internet.

A Zynga spokesperson provided this statement to AllThingsD:

“We build games and experiences that our players want and love. Zynga Poker is the world’s largest online poker game with more than 7 million people playing every day and over 30 million each month. We know from listening to our players that there’s an interest in the real money gambling market. We’re in active conversations with potential partners to better understand and explore this new opportunity.”

As with any new entrant in the space, Zynga will have to fulfill several requirements, meaning any major rollout is still months away.

The San Francisco-based social games maker will have to wade through a maze of state, national and international regulations. It will have to secure the correct licenses, and it also needs the right technology to make betting over the Internet secure.

For either of these last two requirements, a partnership or acquisition of an online gambling organization or other technology would make the most sense, instead of starting from scratch.

However, the effort could easily pay off.

Zynga was one of the first online gaming companies on Facebook, and continues to dominate the platform today. If it is able to get its toe in the door, just as the laws change in the U.S., it could be a leader yet again.

Back in October, Zynga first started showing broad interest in the casino category.

Zynga founder and CEO Mark Pincus announced at a press event that the company was going to launch Zynga Casino, which would serve as a single destination on Facebook to build off its strong brand in poker.

Its first new game, which has not launched yet, will be bingo.

Until now, the company’s efforts have been limited to building social and mobile games that are given away for free and monetized through the sale of virtual goods.

Getting users to make bets and part with real money could prove difficult, even for a company that has so many dedicated fans.

One thing Zynga has going for it is that social games are frequently compared to gambling because of their addictive nature — both lure consumers into spending a few more dollars to continue playing.

The casino genre has also been quietly racking up big numbers on Facebook.

Besides Zynga Poker, which is the most popular poker game on Facebook, and one of the company’s longest standing titles, there are many other sleeping giants. Sean Ryan, Facebook’s director of game partnerships, has even called them “unbelievable monsters.”

Said Ryan: “It turns out that people are completely okay winning virtual currency that they can never cash out.”

If players actually have the chance to win money, who knows the size of the opportunity?

A Facebook spokesperson said the company does not necessarily see a future for gambling on the social network. “We don’t have any plans to get into real-money gambling,” she said.

It’s unclear if that eliminates others from experimenting. In the meantime, it hasn’t stopped game makers from exploring the category or the concept.

Last week, Seattle-based Double Down Interactive, which was named by Facebook as one of the most popular game makers of 2011, was acquired by video poker giant International Game Technology for $500 million. It has 4.7 million monthly active users playing a variety of games, including blackjack, slots, video poker and roulette.

The deal closely followed Caesars Entertainment’s purchase of Playtika, an Israeli game company known for its Facebook title Slotomania. Caesars bought the company in two stages, the first of which was rumored to be purchased for up to $90 million.

Caesars, which filed to go public in November, declined to comment because it is currently in its quiet period.

However, some of its plans were revealed in a document filed with the Securities & Exchange Commission. It said its Caesars and World Series of Poker brands are dedicated to online gaming, and will take advantage of real-money gaming as it becomes legalized. Right now, Caesars Entertainment offers games “for fun” in jurisdictions where online gambling is not yet legal, but has identified the legalization of online poker in the U.S. as “the largest opportunity in online gaming in the near term.”

Still, the biggest hurdle is the law.

Internationally, several countries have permitted gambling for some time, and those areas represent the most immediate opportunities.

But there are signs of the U.S. beginning to open up, too. On the day before Christmas, the Department of Justice gave the online gambling community an early present, according to a blog post written by Nelson Rose, a professor and lawyer.

“President Barack Obama’s administration has just declared, perhaps unintentionally, that almost every form of intra-state Internet gambling is legal under federal law, and so may be games played interstate and even internationally,” Rose wrote.

Essentially, what the Justice Department did was to issue a new interpretation of the Wire Act of 1961. Under the new ruling, it interprets the act as only outlawing bets on sporting events — not all events and contests, according to an article in the San Francisco Chronicle.

With that clarification in place, it will now be up to every state to pass legislation outlining operating procedures. So far, Nevada and the District of Columbia have moved quickly to enact laws. To get other state laws passed could be a lengthy process, especially during an election year.

In the meantime, launching games only in Nevada and D.C. doesn’t represent the big opportunity everyone was hoping for.

To be competitive against Caesars and IGT, Zynga may have to partner or acquire companies that already have the licenses in place or the necessary expertise.

Some of the more obvious candidates include Bwin, which operates PartyGaming.com and is traded on the London Stock Exchange; Betfair, and other operators, like Bodog, Bet365 and 888.com. Many are based in the U.K. and handle a variety of casino games and sporting contests there.

The entrance into a new market, such as gambling, would take substantial resources, and Zynga has them thanks to its public offering. In December, it raised $1 billion, making it the largest Internet IPO since Google.

So, will Zynga be the next “unbelievable monster?” Clearly, it is willing to try.

Early last year, his San Francisco company, which makes social games such as “FarmVille” that are played on Facebook, was on track for one of the hottest initial public offerings of 2011. But when Zynga finally went public last month, its stock price dropped 5% on the first day of trading and has since consistently traded below its $10 offering price.

Read the rest of this post on the original site »

Last year, Zynga hired Electronic Arts’ COO John Schappert, who now holds the same title at the social games company. It also picked up EA Play’s EVP Jeff Karp, who is now Chief Marketing and Revenue Officer.

Most recently, Cottle was overseeing EA Mobile, Playfish, Pogo, Hasbro and PopCap, and had been one of the key driving forces behind transforming the company from primarily a packaged goods company to a digital company.

At Zynga, Cottle will serve as EVP of business and corporate development in charge of new global partnerships, acquisitions and other development roles.

In a letter sent to employees today, Electronic Arts CEO John Riccitiello downplayed the departure of Cottle, and said it was going to fold EA Interactive into the entire organization now that “everyone and everything is digital.”

Four years ago, when it originally set up EA Interactive, it was to oversee mobile, social and Pogo, he explained. But today, those initiatives are part of every group within the company.

“It’s abundantly clear that the digital transformation is not confined to one group,” he wrote. “Therefore, we have decided to begin 2012 by folding EAi into the organizations noted below. This reflects our new reality: everyone and everything is digital.”

Executives now leading the charge include EA Labels President Frank Gibeau, COO Peter Moore, CTO Rajat Taneja and EVP of digital Kristian Segerstrale.

Riccitiello provided further evidence of EA’s digital transformation by announcing that the company had achieved more than $1 billion in digital revenues in 2011.

The loss of another high-profile executive to Zynga represents a signficant blow to the company, which has been clear about its attempt to challenge Zynga’s dominance in social gaming. Last year, it paid $750 million to acquire PopCap to become the second-largest social game maker on Facebook.

Cottle, who was at EA for the past five years, previously worked at Palm, where he held the position of COO, and at the Walt Disney Company, where he was he was an SVP and chief marketing officer.

“It’s rare that you find someone who possesses a deep operational background and also has the vision to see where your business and your industry are headed,” said Zynga’s CEO Mark Pincus in a release. “His skill set, combined with his deep understanding of the games, technology and entertainment spaces will help us accelerate our mission of connecting the world through games.”

Last week, the Facebook game company sold 100 million shares at $10 apiece to raise $1 billion.

On its first day of trading, the stock fell 5 percent, and its losses are even deeper today. In early morning trading, the stock was down nearly 8 percent, or 73 cents, to trade at $8.77 a share. UPDATE: The stock ended up falling 48 cents, or 5 percent, to close at $9.02 a share.

No anti-wither serum exists in the real world to revive a stock price the way virtual crops can be revitalized in FarmVille, one of the game-maker’s hit titles.

Zynga is not the only recent Internet darling to take a nosedive.

It took a while longer, but about a month after Groupon went public, its stock tumbled and was trading for less than half its first-day high of $30 a share. Groupon has since rebounded, but it is also trading lower today, at $22.47 a share.

Zynga has not see those wild fluctuations yet.

Still, the losses do add up — at least on paper. Both the company’s public valuation and some of its largest shareholders’ shares are quickly dwindling in value.

The company is now trading at a valuation of $6.1 billion, down from its IPO valuation of $10 billion. Other big game companies, like Electronic Arts, are now more valuable, albeit only slightly higher.

Investors like Morgan Stanley are seeing their stakes drift further and further underwater.

Earlier this year, Morgan Stanley, which was also one of the Zynga’s underwriters in its IPO, purchased 5.3 million shares at $14 apiece, for a total of $75 million. Four other investors, which were unnamed, also contributed to the round totaling $490 million, according to the document.

Morgan Stanley’s stake is now worth only $46.5 million.

The dip is also hurting Zynga founder and CEO Mark Pincus’s stake, which is now worth less than $1 billion, or roughly $982.5 million.

One thing the company can look forward to is its first-quarter earnings, which will come out early next year and should be bolstered by a strong fourth-quarter performance. In the quarter, Zynga launched new games, including CastleVille, on Facebook, as well as some standalone titles for iPhone; the fourth quarter is typically strong because players have a little more free time to play — and pay — during the holidays.

The company sold 100 million shares at $10 a share to raise $1 billion in capital.

After pricing the stock at $10 a share late last night, it jumped in early morning trading to as much as $11.50 a share. But shortly after, Zynga’s shares tumbled, trading as low as $9.

To close below the company’s starting price on its first day of trading is not typical.

Only five out of 22 U.S. Internet IPOs this year closed below their issue price, according to the WSJ, which quoted information from Dealogic.

The lower debut will put pressure on the company to climb higher over the next several months, especially for the sake of employees and investors, who were likely hoping for a big pop.

Earlier this year, the company sold shares to investors for $14, which is roughly 30 percent higher than the $10 price. Employees, who were hired more recently, are rumored to have been issued stock options at even higher prices.

But generally, if Zynga doesn’t do well, it could hurt other social media companies, like Facebook, which is looking to go public next year. Facebook derives a big portion of its revenues from games.

It could also negatively impact the valuation of other social game companies — private or public — that use Zynga as a barometer.

Electronic Arts has invested heavily in social games, making the decision earlier this year to purchase PopCap Games for upwards of $1 billion. It has committed to transitioning much of its revenues from physical console game sales to digital over the next several years.

Electronic Arts’ stock fell 72 cents, or 3.4 percent, in after-hours trading to $20.20 a share.

At $9.50 a share, Zynga’s valuation falls to $6.6 billion, and the shares owned by founder and CEO Mark Pincus slump to $1 billion. At this morning’s opening price of $11 a share, the company was worth as much as $7.6 billion, and Pincus’s stake was worth $1.2 billion.

Still, Zynga is the largest game developer on Facebook by far, registering 50 million daily active users. That’s four times greater than its next biggest competitor, Electronic Arts, and it has many more game launches planned in the not too distant future.

The company celebrated its listing today by hosting the Nasdaq at its San Francisco headquarters, where Pincus rang the opening bell this morning.

Zynga is set to begin trading tomorrow morning, having achieved a $1 billion initial public offering.

This evening, the San Francisco company confirmed that it priced at the high end of its range by selling 100 million shares at $10 apiece. Shareholders also granted the underwriters a 30-day option to purchase up to 15 million additional shares if there is more demand. That will bring the total to $1.15 billion; however, Zynga will not receive any of the proceeds from those additional shares.

Zynga had been seeking to sell 100 million shares at between $8.50 to $10 each. By hitting the high end, it easily becomes the largest Internet IPO in the U.S. since Google in 2004. The company will now be worth around $7 billion, which is in line with other publicly held game companies, such as Electronic Arts.

But tomorrow will be the true gauge, once the company starts trading freely on the Nasdaq under the ticker symbol ZNGA. It is looked at as favorable if the stock jumps right out of the gate; if trading is more modest, it could signal that Zynga was priced fairly.

What is particularly stunning is the global appetite for game companies. Earlier this week, Tokyo-based Nexon went public on the local stock exchange, also raising $1 billion at the same valuation of $7 billion.

Investors and employees in particular will be banking on Zynga’s price to pop tomorrow. Earlier this year, the company sold shares to investors for $14, roughly 30 percent higher than the $10 price. Some employees’ stock options are rumored to be issued at even higher prices.

The worst-case scenario is that the stock falls. In November, Groupon shares jumped by 40 percent on the first day of trading, increasing to as much as $30 from the intial $20 pricing. But by the end of the day, the share price settled down at $26, and in subsequent weeks, fell to as low as $15.

Nexon’s stock fell modestly in next-day trading; however, that was largely blamed on a weak economy.

The social games leader, known for FarmVille and other franchises like Words With Friends, may have decided to price its offering modestly to avoid scenarios like that.

Already, it is choosing to do things a bit differently. Zynga won’t be flying to New York to ring the opening bell, as is customary.

Instead, the company’s founder and CEO, Mark Pincus, will ring the bell remotely from its brand-new San Francisco headquarters, where the Nasdaq has set up a temporary bell. Pincus will be joined by the company’s management team, board member Bing Gordon and Pincus’ wife, Alison Pincus.

Mark didn’t get where he is by being a softie.

– Roger Dickey, early Zynga employee and creator of Mafia Wars, referring to Mark Pincus

The San Francisco social games company is looking to raise as much as $1.15 billion, which would make it the largest IPO from a U.S. Internet company since Google raised $1.7 billion in 2004.

Shares will likely be sold on Thursday, with the company trading under the ticker ZNGA for the first time on Friday. In the meantime, the company is trying to jockey for the best price and the most shares sold.

At a luncheon yesterday with potential investors, CEO Mark Pincus made one of his boldest predictions yet when it comes to how well its games will monetize.

Currently, Zynga has about 227 million monthly active users who play games for free on Facebook, such as FarmVille, CityVille, Zynga Poker and Mafia Wars. But only a small fraction — around 3 percent — pay for additional features, such as decorative items for a farm or new clothes for an avatar.

“We could see that doubling,” said Pincus, according to Reuters.

Doubling? That’s sure to whet investors’ appetites.

But it’s hard to know how the company will accomplish that.

To be sure, Zynga is about to enter one of its biggest growth periods yet and anticipates launching several new games over the next few months.

On one level, more games will likely translate to more players. But will it translate to more players willing to pay?

That seems like a leap of faith.

However, based on documents filed with the Securities & Exchange Commission, we have gleaned that some of Zynga’s growth prospects are guaranteed thanks to the company’s close – albeit complicated – relationship with Facebook.

As one of the conditions of its partnerships, Facebook is obligated to help Zynga meet certain growth targets. In return, Zynga has committed to offering Facebook a number of exclusive game titles.

The specific details of the relationship were redacted in the document, so it’s not clear how aggressive those growth targets are over the five-year life of the contract.

Zynga also has close ties with Google, which has recently launched its own games network. Zynga has already launched several titles there, including CityVille. Following the offering, Google will own 3.8 percent of the company.

Also during yesterday’s lunch, Zynga’s executives were grilled about player retention and churn rates and its growth prospects for mobile.

Among several responses, Pincus joked about how Alec Baldwin was recently kicked off a flight after getting caught playing Words With Friends while still at the gate.

It seemed investors were not as interested in hearing about recent negative reports that Pincus’s hard-charging personality has made it an unfavorable working environment or that some employees were asked to give up their stock options.

Plus, it’s a crowd that Pincus should be comfortable speaking in front of. This will be the second company the Wharton and Harvard Business School grad has taken public.

The company will continue to have meetings today and into next week. So far, reports indicate that the conversations are going well.

Zynga has apparently already received enough orders to cover all the shares being sold in its initial public offering, reports BusinessWeek, which talked to two people with knowledge of the situation. Zynga plans to sell 100 million shares for $8.50 to $10 apiece, which would value the company at as much as $7 billion.

Earlier this morning, Zynga announced it would price its stock between $8.50 and $10 a share when it goes public later this month.

That’s at the high end of the range that values the four-year-old company at as much as $7 billion. But that’s much lower than than what some investors paid as recently as February, according to documents filed with the Securities & Exchange Commission.

In fact, some of its investors are already underwater.

One of those investors is Morgan Stanley, which is also one of the company’s underwriters in its IPO. In February, 11 mutual funds associated with Morgan Stanley purchased 5.3 million shares at $14 apiece for a total of $75 million. Four other investors, which were unnamed, also contributed to the round totaling $490 million, according to the document.

At $14 a share, the company’s value in February totaled nearly $10 billion, or roughly 43 percent greater than today’s high-end of the range.

Zynga justified the higher stock price back in February, stating that the U.S. economy had improved and that the public markets were being receptive to Internet stocks, including generous valuations for privately held companies such as Facebook and Groupon.

Furthermore, in March, the company used that valuation as a guide to purchase shares back from five of its early investors and its CEO Mark Pincus at $13.96 a share.

While the market conditions have likely changed since then, it’s important to note that things are still in flux. If the company drums up enough demand for the 115 million shares being sold over the next two weeks, the price could move even higher.

As Kara Swisher previously reported, Pincus will not sell any shares in the offering, and no other executives at Zynga have plans to sell stock, either.

But a number of the company’s early investors will be cashing in. Institutional Venture Partners, Avalon Ventures and Foundry Venture Capital will sell 2.5 million shares apiece for up to $25 million each. Union Square Ventures will sell 2.2 million for roughly $22 million.  Google and Silver Lake Partners will also both sell 1.7 million shares for a proceed of $17 million each.

Google was originally not listed as an investor when Zynga filed documents with the SEC to go public, but it showed up in subsequent filings. Google, which was rumored to have invested as much as $100 million in Zynga, has an interest in social gaming because of its Google+ network. Following the offering, it will continue to own 21 million shares, or about 3.8 percent of the company.

One notable shareholder that won’t be selling shares is venture capital firm Kleiner Perkins Caufield & Byers, an early investor in the company. Its partner Bing Gordon, who personally owns a 10.7 percent stake in the company, also does not plan to sell any shares.

The four-year-old social games company revealed this morning that it is seeking to raise $850 million to $1.15 billion in its initial public offering.

In a presentation posted online, Pincus explains why Zynga’s approach to developing games such as FarmVille, CityVille, Poker, Empires & Allies and Words With Friends is a massive opportunity moving forward.

In the video, the executive, who can normally be found in jeans and a T-shirt, is wearing a suit jacket with a button-down shirt; he doesn’t bother with a tie.

From the 30-minute presentation, here are Pincus’s Top 5 reasons why investors should be excited about Zynga:

1. The idea of play is a core Internet activity and fastest-growing on mobile. Zynga is to play what Google is to search, Amazon is to shop and Facebook is to share.
2. Zynga is the leader in play.
3. The company’s platform can scale as it grows.
4. It’s a profitable business model.
5. Zynga has made an unmatched investment in the space.

Even though Pincus looks a little stiff, this is the topic he’s most comfortable discussing. Not to mention that this process should be somewhat familiar to the Wharton and Harvard Business School grad, who took his service- and support-automation software company Support.com public 11 years ago.

The company filed documents with the Securities & Exchange Commission this morning, indicating that it intends to raise between $850 million and $1.15 billion in its public offering.

At the high end of the range, that would translate to roughly $150 million more than it had previously estimated it could raise.

The company is seeking to sell 100 million shares at $8.50 to $10 a share and will reserve 15 million additional shares for extra demand. It expects to trade on the Nasdaq under the ticker ZNGA.

Under the best circumstances, the company will be valued at nearly $7 billion based on 699.3 million shares outstanding. That falls below some of the rumored expectations that have been floating around over the past few weeks.

Still, at that value, it will come close to the public valuation of Electronic Arts, which hovers around $7.8 billion, but falls short of other game publishers, like Activision, which has a value of  $14 billion.

Zynga has made its riches off selling virtual goods in social games on Facebook. Some of its most recognizable titles include FarmVille, CityVille, Poker and Words With Friends.

Virtual goods often allow players to continue to play the game and level-up faster, such as an energy boost. They also can be decorative in nature, like an outfit for an avatar or seeds to plant on a farm. Of the roughly 230 million monthly active users, very few players ever bother making a purchase.

Since the beginning, the company has a very close relationship with Facebook, which has been contentious at times, especially since the platform started collecting a 30 percent tax on all virtual goods sold. More recently, the company has tried to expand to other platforms, including the launch of several games on mobile and Google+. It also has its own online game network in production.

The company’s IPO will be one of the largest tech offerings in recent memory.

In early November, Groupon raised $700 million including overallotments. It had originally sought to raise $750 million. Other recent tech IPOs include Angie’s List, Pandora and LinkedIn.

But some critics think Zynga is rushing its offering before a broad financial collapse. If it waited until reporting fourth-quarter results, it could paint a stronger growth story as it completes the busy holiday period.

The San Francisco company, which was founded in 2007, was named after Founder and CEO Mark Pincus’s dog named Zinga.

In 2010, Zynga recorded a profit of $27.9 million on revenues of $597.5 million. In the first nine months of 2011, it broke even on revenues of $828.9 million.

While its revenues continue to grow, the number of daily active users that play its games has fallen two quarters in a row and some critics question whether the company can keep up its aggressive growth.

In recent weeks, Pincus has come under harsh criticism for his heavy-handed leadership approach. But to his credit, he has overseen rapid growth, including the acquisition of dozens of smaller game studios. Today, his company has 2,500 employees.

At the mid-range of its expectations, Zynga will bring home proceeds of $889.4 million after selling shareholders take their winnings.

The primary purpose of the sale is to increase its visibility in the marketplace and create a market for its stock. Proceeds will go towards working capital, but also $83.6 million will be spent to satisfy tax withholding obligations related to stock of current and former employees. Additionally, it plans to use a portion of the proceeds for charitable causes through its Zynga.org initiative.

As part of the sale, the company will have three classes of shares. Class A stock will have one vote per share; Class B stock will have seven votes; and Class C will have 70 votes.

Pincus owns some Class B shares, and all of the company’s Class C shares. Following the offering, he will control 36.2 percent of the company’s voting power.

As Kara Swisher previously reported Pincus will not sell any shares in the offering.

No other executives have plans to sell stock, either. But a number of the company’s early investors will sell stock, including Institutional Venture Partners, Union Square Ventures, Foundry Venture Capital and Avalon Ventures. Other interesting names that made the list include Google, which will sell 1.7 million shares.

The company’s largest institutional holder, venture capital firm Kleiner Perkins Caufield & Byers, which owns 11 percent of the shares, will not sell any of its stock in the offering either.

According to sources close to the situation, neither CEO Mark Pincus nor one of its principal venture shareholders, Kleiner Perkins, will be selling any shares in its upcoming initial public offering.

While big investors often divest stock in IPOs, not all do. It is a carefully watched number by investors, who are always wary of insiders who unload a lot of shares in an offering.

But such activity by the fast-growing San Francisco online gaming company will be watched carefully since Pincus has recently been painted in a number of press reports as the greedy Mr. Potter of Silicon Valley.

Among the allegations is that he runs a poisonously tough culture that tracks its employees’ output and performance via elaborate data models that require extraordinary amounts of work, along with nefarious list-making of who’s naughty and who’s not.

That big-brother behavior has reportedly included taking away high-ranking jobs and the sweet stock options that go along with them from those execs found wanting.

While there is no doubt Pincus is a hard-charging personality, his defenders note that it’s due to a belief that life at Zynga is a meritocracy and that his practices are not any more heavy-handed than those at other firms.

Indeed, Pincus has a lot of competition in the tough-guy tech CEO category from longtime legends such as Microsoft’s Bill Gates, who set the gold standard for mean, as well as Amazon’s Jeff Bezos and now Google CEO Larry Page.

Pincus does not even rate in this pantheon, which is more typical of tech companies than anyone would care to admit or, to be fair, care to care about. With big benefits, vast wealth and much latitude, many in tech don’t mind the grueling work schedules.

After all, it’s not exactly ditch-digging, now is it?

In any case, sources said the coverage has hit Zynga staff hard, as well as Pincus, who has not responded due to the IPO’s quiet period. That’s in contrast to Groupon, the daily-deals site whose own rough process was rife with highly negative stories about the company’s prospects.

While those media accounts were more aimed at the business itself and less personal, Groupon CEO Andrew Mason vociferously defended the company in a controversial letter that was then leaked and published (to me and by me!).

Pincus will doubtlessly have a lot to say to investors who ask about the company’s culture and its possible negative impact on attrition, as some stories have charged.

His decision not to sell, sources said, was inspired by Zynga investor and close friend Reid Hoffman, who has sold very little of the stock of LinkedIn, where he serves as chairman.

The action all begins next week, according to multiple reports, when Zynga takes its show on the road in preparation for an IPO that is expected to value the company at $15 to $20 billion and will take place before the new year.

It will debut under the ZNGA ticker on the Nasdaq market.

While some have been worried about Zynga’s future growth, its past performance has been a lot stronger than other Internet offerings. In the first nine months of the year, the company posted $828.9 million in revenue, double the amount from a year ago, with net income of $30.7 million.

Pincus’s holding onto shares will be seen as a plus, of course, although he has sold a large amount of stock in Zynga’s history.

According to its S-1 filing:

“From our inception in October 2007 to date, Mr. Pincus, our Chief Executive Officer, Chief Product Officer and the Chairman of our Board of Directors, has purchased an aggregate of 149,197,328 shares of our common stock. To date, Mr. Pincus has sold an aggregate of 43,629,310 shares of our common stock at prices ranging from $0.42 to $13.96.”

Pincus now holds 91.4 million of Class B shares, 16 percent of the total, as well as 20.5 million of Class C shares, 38 percent of that group. Kleiner holds 65.2 million shares, or 11.2 percent, of Class B shares.

Other big Zynga owners, who might or might not sell at the IPO, include Institutional Venture Partners, Union Square Ventures, Foundry Venture Capital and Avalon Ventures.

In a new filing with the Securities and Exchange Commission concerning its upcoming IPO, Zynga is expected to unveil two key management and board changes at the online gaming phenom:

Chief Business Officer Owen Van Natta — who came to the San Francisco-based start-up several years ago to help CEO Mark Pincus grow it and develop it — will step down from his job and become a strategic adviser focusing on major partnerships. He’ll still remain board member at Zynga, but will give up millions of pre-IPO shares by moving out of his operational role.

And director and venture investor Brad Feld will leave the the board, which VCs sometime do as companies move to a public offering and add members with more specific business experience.

In his place, longtime entrepreneur and investor Sunil Paul, who founded a company called FreeLoader with Pincus many moons ago, will join the board.

Zynga confirmed the changes to me in a statement by Pincus:

“Owen is a valuable business partner. He’s made great contributions to Zynga and continues to be an important part of our team.”

Sources said the changes related to Van Natta around are not part of a recent controversy around a Wall Street Journal story about clawing back of some share options grants of early Zynga employees who had become less involved in the company. While the company cannot actually take back already vested shares owned by those staffers, the article has put a lot of scrutiny on Zynga and raised questions about how to cope with the kind of hyper-growth some Internet firms experience.

That’s certainly been the kind of rocket ride Zynga has been on, as it has grown from a small social gaming company on Facebook to a high-profile public company.

Zynga is in the final stages of its IPO process, answering questions from the SEC that are typical. If all goes well, Zynga execs are expected to go on a road show after the Thanksgiving and go public by the end of the year at a market valuation of close to $20 billion.

That was different from when Van Natta officially got to Zynga in the spring of last year — after a rocky experience running the doomed Myspace. At the time, he told me at the time that planned to be focused on scaling the business and did not consider himself a long-term operating executive.

Since then, he has helped Pincus hire a series of experienced gaming execs, including a chief operating officer, a chief marketing officer and others.

Zynga was Van Natta’s third high-profile Web company in recent years. He was a top early exec for Mark Zuckerberg at Facebook until early 2008, and in 2009 he took over News Corp.’s (NWS) MySpace, a job that lasted less than a year.

Early in his career, Van Natta was also was a top strategy, marketing and deal exec for Amazon, which bought an early social networking start-up called PlanetAll that he worked at.

It will now be interesting to see what Van Natta does next, but it is unlikely he will take a permanent position. He is a longtime angel investor in Silicon Valley, including in hot start-ups such as Asana and still holds a significant stake in Facebook.

But, in moving out of his job at Zynga, he will be giving up many millions of shares of a rich trove he was given when he arrived at the company. That said, Van Natta already owns millions of accelerated vested shares and will get another large grant as a board member.

Translation: Don’t cry for Mr. Van Natta, Silicon Valley — he made $42 million last year from Zynga shares alone.

But as Zynga grew into a multibillion-dollar company with hot games like “FarmVille” and “Mafia Wars,” Mr. Pincus appears to have developed giver’s remorse.

Early last year, as Mr. Pincus began preparing to take Zynga public, he and several other executives decided the company had doled out too many stock rights to certain people in its early days, say people familiar with the matter. The executives chose an unusual solution: They began demanding that certain employees surrender some shares or be fired.

Those shares matter as Zynga approaches an initial public offering, expected this year, that could value it at close to $20 billion and make holders of large blocks of stock wealthy.

Read the rest of this post on the original site »

Zillow already has dibs on Z; evidently ZNGA was the next best thing in Zynga’s eyes. I hope they at least considered BUBL.

Because the company plans to raise $1 billion for its upcoming IPO, that will give it an implied valuation of some $20 billion. To put that in perspective, it’s about the size of Activision’s and Electronic Arts’s valuations combined. That seems a heady number for a company whose business model is essentially fad-driven. But, as Zynga notes, it does control many of the most popular and successful online social games, and gaming has grown to become the second most popular online activity in the U.S. by time spent, surpassing even email.

Yesterday, it hinted that it will share its plans for leveraging Facebook’s new HTML5 mobile platform, but that there are other surprises to come. The event is titled “Unleashed,” so expect a lot of talk about where the company is headed with mobile in general.

Stay tuned at 10 am PT to hear the latest from the mega-successful social games company, which is currently seeking to raise $1 billion in an initial public offering.

9:57 am: Just showed up, expect the show to kick off any minute.

The press conference is taking place in Zynga’s new headquarters. In the atrium, there’s a big stage set up, and the press gallery is sitting in a bunch of retro chairs. Feels a little bit like an MTV talk show.

Zynga invited my dog, Fletch, to come play at the event, but he doesn’t have a travel budget, so he had to stay home in Seattle.

Pretty fitting that Zynga’s office, a.k.a. “the dog house,” has a hot dog stand. As you may know, the company was named after the dog, Zinga, owned by founder Mark Pincus.

10:10 am: The event may be starting. We are watching an infomercial on how Zynga was able to contribute to Haiti relief after the earthquake.

10:25 am: Ok, while we waited to get things started I was able to go get a Blue Bottle cup of coffee that takes five minutes to drip into the cup. What a perk!

Someone is getting excited. Just heard my first barking dog.

10:35 am: Here we go. There’s a montage of games from Poker to CityVille and Adventure World, Words With Friends and FarmVille. You’ve probably played one of them.

10:37 am: Founder and CEO Mark Pincus has taken the stage.

This is the first media event of any kind we have done in our new building, he says.

He jokes that they are about games, and we should feel comfortable being loud today.

He said they are launching 10 new products today, all of which have been in development for a year. Today we will meet the people and faces behind the innovation.

Pincus: There are 1,700 Zynga employees in this building alone, and at some point they will come out and say hi to us.

Pincus: He wants to know how he can get “you guys” to play games. We are all busy, and how can he get us all to play.

For us, it’s a platform. We aren’t the company that will make the next hit game, we are trying to do something broader than that. We want this experience to make up a platform for play.

10:44 am: Pincus says they spend a lot of time on the “FTUE,” or the “first time user experience.”

We want to give you a five to 15 minute experience that feels like a meal, we don’t try to ask you to change your day. Just like a good show, and I’ve been addicted to “Breaking Bad,” if you do like our games, we hope to give you enough depth for you to invest three, six months or a year.

We are going to show off Zynga Direct, whether on the Web or mobile, we are going to build a whole sandbox around the games and not just in the games. Facebook is here today and we are excited to be their launch partner for their platform announced yesterday. We’ll be showing off three HTML5 games that will be part of that.

When we unveil the pieces of Zynga Direct, we hope that you see that it is the deepest Facebook Connect experience on the Web today.

10:48 am: We are showing you CastleVille today, which is the next Ville game in our franchise. That game has been in development for more than a year, and it has beautiful art. It has new ways to collaborate and get ahead by partnering with other players in the game.

We are going to show you a new casual games category today in the hidden objects genre.

David Ko, Zynga’s chief mobile officer, will be showing a number of mobile titles launching in the next few weeks.

10:51 am: Pincus is now handing over the stage to Cadir Lee, CTO, who is in charge of building out so much of the technology in the back-end.

10:52 am: Lee: The first thing I want to talk about is our gaming engine, which has been built from scratch on Adobe’s Flash 11.

We have our own private cloud called “Z Cloud,” which is focused on being able to play our games all of the time no matter if it’s Christmas Eve. We’ve been known to deploy a 1,000 servers in one week in order to support a new game.

This isn’t the sexy stuff, but Zynga’s cloud and gaming engine technology is key. Often, the company is considered an analytics-driven company, rather than a gaming company. Lee is touching on some of this now.

Lee: We’ve long been known as an analytics company, which shows how our players engage. How do we match people up, so that you can have a social experience with a person across the street or around the world. How do we connect you with the right person at the right time.

Roy Sehgal, VP and GM, is now on stage to unveil a new genre, called “hidden objects.” It’s one that Disney’s Playdom has developed through a game called Gardens of Time.

Zynga says its first game is called Hidden Chronicles.

The concept behind hidden objects is finding clues hidden in a room, sort of like looking for Waldo. They are right in front of you, but difficult to find.

Up until Playdom’s release, critics didn’t believe that the popular PC download category could be made into a social game.

Sehgal: It’s going to be social. It’s going to be extremely easy to learn, but hard to master.

10:58 am: You can play with your friends to see who can find the most hidden objects, or provide hints to your friends.

This game is extremely interactive. No matter how many times you play an individual scene, it will be fresh. I believe it will be one of the most beautiful games you will play.

On the screen, Sehgal is showing various scenes that take place on a train, underwater or in the outdoors. The art is rich and historic-looking.

11:00 am: Now there’s a demo of the new Mafia Wars 2, which just launched yesterday, and is promising to be a much richer experience than the original version that came out three-plus years ago.

Since it’s already out, feel free to check it out on Facebook. No need to read a description here.

11:06 am: Mafia Wars 2 is also now live on Google+, which is the company’s second game on the platform after Poker. Remember, Google has a substantial stake in Zynga.

11:07 am: There’s an update to Zynga’s Poker game next. It was launched in July 2007, and after four years, we are still the largest and most social Poker game.

Zynga is unveiling Zynga Casino, including Zynga Bingo.

Casino games has been identified as one of the leading categories on Facebook with others experiencing lots of success, including DoubleDown Casino.

Zynga Bingo will be launching soon.

11:10 am: Bill Jackson, Creative Director, is now on stage. He’s from the company’s Dallas studios, and he says they developed the latest in the Ville franchise, called CastleVille.

The other Villes in the franchise are FarmVille, FrontierVille, CityVille and now CastleVille.

Jackson: It’s a new level of social, and offers the best of all the Ville games have to offer.

The game has a whole new cast of characters, who look like they are from Shrek, complete with rugged heros and refined ladies who fall in love.

Jackson: CastleVille takes storytelling to a whole new level, and in a personal way. Your journey through the game is different based on who you are.

Zynga is bringing massively mutliplayer role-playing games to the mass market.

CastleVille will have music from an entire orchestra that was recorded in Seattle. Jackson says this is the first time this has been done in a social game, although it is common in console games.

11:18 am: The peanut gallery has been asked to turn around to see all of the Zynga employees — or at least half of them — that have gathered around the balconies of the atrium.

Pincus: We just wanted you to see a few more faces.

Pincus is now introducing John Schappert, who recently joined Zynga as COO from Electronic Arts. He has taken over running all of our games, leaving Pincus to be more entrepreneurial.

11:22 am: Schappert: We are building every kind of play for everyone, everywhere.

We are building on iOS, Facebook, Android, Google+ and Tencent in China.

Helping us deliver on play anytime, anywhere, is David Ko, chief mobile officer.

Ko has an update on Zynga’s mobile plans, which have not been as aggressive as others have been in the space so far.

Ko: We’ve always felt that we need to be the best content creators out there, regardless of what platform.

It’s my pleasure to not talk to you about one or two new games, but five new games launching shortly. It is around Facebook’s HTML5 platform announced yesterday.

The first two are Words With Friends and Poker, and the third is FarmVille. All three games will be available tomorrow.

Another new game is Mafia ShakeDown. You’ll be able to request missions and have the opportunity to be the next “Don.” This game will be coming soon, so stay tuned.

The last game is called DreamZoo, which is Zynga’s first game in the zoo genre.

In a short video, Zynga shows off DreamZoo. You can collect animal varieties and feed and clean your animals.

11:29 am: Schappert is back on stage. He says they have over 60 million daily active users, and they play games over two million minutes everyday.

He is unveiling something called Project Z, which is a Facebook Connect enabled platform. It allows you to play in an environment that’s tailored just for games.

In a sneak peak, a video says players are able to chat, share and form instant communities worldwide.

Schappert: It’s a social gaming playground. You can start a game on Project Z and then continue on Facebook and vice versa. It’s not launching today, but people can start creating a gamer tag starting worldwide today.

11:32 am: Pincus is back on stage to wrap up the presentation:

We really want to build a platform for play. We haven’t changed our vision since starting. We want to be the biggest macro bet on social gaming. We believe in social gaming. We believe that everyone around the world will embrace play, so everything we are doing is an attempt to bring that to life.

We know it’s early and it’s primitive, we know so much of game play and social-ness is early, and over the next few years it’s going to be so much more. It’s going to be mobile. There’s going to be a World of Warcraft feeling, but something you can understand in five minutes.

11:35 am: OK, that’s it folks. Formal presentation is over.

In summary, before today, there were a few niches that Zynga had not yet entered. That left opportunities for competitors to do well on Facebook. With Zynga’s 10 announcements today, including a number of new mobile and social games, the gaps have narrowed significantly.

Zynga has expanded into new genres, like hidden objects and more broadly into casino, and has five new games on mobile. It is also launching its all-new standalone online game network separate from Facebook that goes direct to consumers.

If Zynga was looking for a big bang before its IPO, this might have been it.

Thanks for reading — more coverage and analysis coming shortly.

Do you think Zynga’s Mark Pincus would put a cat on his head for a national magazine shoot? Or LinkedIn’s Jeff Weiner? Or, perish the thought, Mark Zuckerberg of Facebook?

But the wacky stylings of Groupon CEO and co-founder Andrew Mason seem to demand it.

Thus, straight-faced, he appears in a very long article, titled “Letter From Chicago: Groupon Therapy,” in this month’s Vanity Fair magazine with a very fat tabby cat clawing onto his noggin.

There’s also a shot of Mason in the equally kooky “Michael’s Room” at Groupon HQ and the expected plethora of ironic hipster anecdotes, such as the opening one about Mason almost giving a spotted pony to New York City Mayor Michael Bloomberg on a visit.

According to the piece:

“He had originally planned to give the mayor a puppy, but decided that a pony would be even more memorable. ‘I mean, it’s such a heavy thing to gift someone,’ he said, laughing. ‘I thought it would be funny to give it to somebody as busy as the mayor.’”

Buuuuurnnn!

Otherwise, it runs through all the whistlestops of the basic Groupon story — about its aggressively non-corporate nature, the pros and cons of using the social buying service, the insidious copycat competitors, the famously rejected $6 billion Google acquisition offer and, finally, the splashy upcoming IPO.

Also, as usual, the fretful worries about Groupon’s staying power, as evidenced by the Emma Stone-tastic cover tagline:

“Is Groupon This Year’s Facebook? (or Next Year’s Pets.com?)”

How about let’s be a little more creative and say neither.

Moving along, of course, plenty about the lovable Yogi Bear of a CEO, Mason, who apparently plays the accordion (who knew?), but who one close friend insisted was also highly disciplined and serious.

Of course he is, but not for lack of trying to seem not so much that way.

As he is quoted in Vanity Fair telling a group of new Groupon employees at an orientation session: “As we get bigger, instead of being like most companies, conforming and becoming more normal, we want to become weirder.”

With that cat on his head, this month at least: Mission accomplished, Andrew!

You can also check out more Mason funster times in this video of a very entertaining interview I did with him at the ninth D: All Things Digital conference recently:

(Photo credit: Martin Schoeller, exclusively for Vanity Fair.)

]]> http://allthingsd.com/20110705/yes-that-is-a-cat-on-the-head-of-a-soon-to-be-public-company-ceo-and-of-course-its-groupons-andrew-mason/feed/ 0 http://allthingsd.com/20110703/revenge-is-a-dish-best-served-via-an-ipo-the-delicious-irony-of-myspace-zynga-and-owen-van-natta/ http://allthingsd.com/20110703/revenge-is-a-dish-best-served-via-an-ipo-the-delicious-irony-of-myspace-zynga-and-owen-van-natta/#comments Sun, 03 Jul 2011 16:00:43 +0000 Kara Swisher http://allthingsd.com/?p=94043

How’s this for irony:

It was less than a year and a half ago that Owen Van Natta was ousted from his job as CEO of Myspace.

But last week — just as the failed social networking site sold for a paltry $35 million — Van Natta could have bought it himself for a fraction of his stake in Zynga, the social gaming phenom that just filed for its IPO and where he’s a top exec and shareholder.

As the San Francisco-based Zynga’s chief business officer, he was listed second after CEO and founder Mark Pincus on its S-1 on the list of top management and also serves on its board.

The filing also showed that Van Natta got about $43 million in total compensation in 2010.

That was due to part of his large Zynga holdings, including about three million shares he owns outright via restricted stock units that Zynga calls ZSUs, as well as 6.75 million more in options priced at a low $6.43 each.

All told, he has a 1.6 percent stake in the company. That could be worth upwards of $325 million if Zynga garners an expected $20 billion valuation. And it could be even more if its public offering pops higher as other recent Internet outings have done.

And that’s why when Van Natta arrives at the fancy and exclusive Allen & Company mogul fest in Sun Valley this week, he might want to thank News Corp. digital head Jon Miller — the man who fired him from Myspace.

After the Myspace debacle in February of 2010, according to its filing, it appears that Van Natta bounced back quickly to enter into a consulting agreement with Zynga in mid-April via his Luminor Group.

By August, he was hired on full time by Pincus and also became a director.

One reason for getting that plum post, Zynga said, was Van Natta’s experience as a longtime Internet exec at Amazon and, more importantly, Facebook.

He left the social networking giant in mid-2007 — where he had served as COO and, later, chief revenue officer — after relations with its CEO and co-founder Mark Zuckerberg became somewhat tense.

But that’s water under the bridge now; and, in fact, the filing was full of information about the close relationship with Facebook, which is a critical one for Zynga.

And, of course, for Van Natta, who gets my award for best Silicon Valley recovery of 2011.

Had he stepped up and bought Myspace from his large Zynga proceeds, though, he would have gotten my lifetime achievement award for pure moxie.

]]> http://allthingsd.com/20110703/revenge-is-a-dish-best-served-via-an-ipo-the-delicious-irony-of-myspace-zynga-and-owen-van-natta/feed/ 0 http://allthingsd.com/20110701/the-zynga-ipo-who-owns-what-who-makes-what/ http://allthingsd.com/20110701/the-zynga-ipo-who-owns-what-who-makes-what/#comments Fri, 01 Jul 2011 20:10:52 +0000 Arik Hesseldahl http://allthingsd.com/?p=93857 Having teased the markets and numerous reporters for several days, online gaming company Zynga finally dropped its S-1 filing with the U.S. Securities and Exchange Commission just as the nation was getting ready for the long July 4 holiday weekend.

The plan is to raise as much as $1 billion at an implied valuation of $10 billion, though The Wall Street Journal, citing people close to the situation, says the offering could raise as much as $2 billion and value the company at $20 billion. The company didn’t give a price range but said it had 562.5 million shares of Class B common stock as of March 31, plus an additional 20.5 million shares of class C stock.

The big number that everyone is going to focus on is the value of the $43 million compensation package going to executive VP and former Myspace CEO Owen Van Natta. That includes nearly $29 million in options and more than $14 million in stock awards. His base salary is $77,000 a year and he earned a $48,000 bonus is 2010.

Behind Van Natta was Steve Chiang, co-president of games, whose total compensation was north of $28 million, including $25.7 million in stock and a $2.9 million bonus. The bonus included more than $600,000 in a relocation bonus, the filing says.

Another big earner is CFO David Wehner, whose package is worth $18 million, $16 million coming from stock awards and $1.8 million paid in a bonus. Half a million of that was a retention bonus.

So who owns what? Founder and CEO Mark Pincus owns a big piece of the action. The filing shows he owns 91.4 million shares, or about 16 percent, of the Class B stock, and 20.5 million shares of the Class C stock. Both classes of stock are convertible into Class A common shares. Assuming the Journal’s sources are right and Zynga is worth $20 billion, then Pincus’s stake should be worth $3.2 billion on the Class B shares alone. (I’m not sure exactly how the Class C shares work into the calculation, but Pincus is the only one who has any, except for a block of 5.3 million shares that were sold to a bunch of mutual funds let by Morgan Stanley.)

Pincus, incidentally, is not only founder and CEO, but also Zynga’s landlord. The filing shows that the company leases office space he owns and paid him $500,000 in 2009 and $400,000 in 2010. The lease puts the current rent on the office space at $28,000 a month. Zynga also reimbursed Pincus $25,000 in 2009 and $120,000 in 2010 for the use of his personal plane, on occasions where he uses it for business travel.

Venture Capital firm Kleiner Perkins holds 11 percent, or slightly more than 64 million, of the Class B common shares. That works out to a stake worth $2.2 billion, assuming the $20 billion valuation.

Other venture funds with a piece of Zynga: Institutional Venture Partners, which owns 34.3 million shares, or 6.1 percent of the equity, worth $1.2 billion. Foundry Venture Capital and Avalon Ventures also have 6.1 percent of equity, or another $1.2 billion each. Union Square Ventures has a stake worth 5.5 percent, or $1.1 billion. And Russia’s DST Limited has a stake at 5.8 percent, worth $1.16 billion.

The filing says that Zynga has raised $845 million in three rounds of funding, though the filing makes it look like some rounds were closed in smaller increments. Other funds and individuals known to have invested — but not listed as major shareholders in the filing — include Andreessen Horowitz, the Pilot Group, Tiger Global Management, and Peter Thiel, head of Clarium Capital, according to its Web site.

Reid Hoffman, the former LinkedIn CEO who’s also a Zynga director, has 3.1 million shares, which amounts to less than 1 percent of the equity, though elsewhere in the filing, the value of stock awards as a director is valued at $9.5 million, assuming a grant price of $6.435 per share on the date of the grant.

Related posts

• The Zynga IPO: Who Owns What, Who Makes What
• Zynga Has Raised $845 Million in Capital, But No Mention of Google as an Investor
• The Zynga-Facebook Codependency Becomes More Clear
• Here’s the Zynga S-1 to Play With (Get It?!?)
• Zynga Finally Files for IPO to Raise $1 Billion
• Day 3: Zynga Holds Tech Reporters Hostage in Endless IPO Watch
• What to Expect When You’re Expecting a Zynga IPO (Insider Selling, Natch!)
• A Sneak Peek at Zynga’s IPO: How to Turn Virtual Goods Into Real Money
• Exclusive: Zynga About to File for IPO
• Zynga Full Coverage

]]> http://allthingsd.com/20110701/the-zynga-ipo-who-owns-what-who-makes-what/feed/ 0 http://allthingsd.com/20110701/zynga-finally-files-for-ipo-to-raise-1-billion/ http://allthingsd.com/20110701/zynga-finally-files-for-ipo-to-raise-1-billion/#comments Fri, 01 Jul 2011 16:13:25 +0000 Tricia Duryee http://allthingsd.com/?p=92889 Zynga, a four-year-old company which has made its riches off selling virtual goods in social games, has filed to raise $1 billion in an IPO.

The IPO may potentially rank among the largest of the year, especially among tech companies. For instance, Yandex, which is considered the Google of Russia, secured $1.4 billion last month.

Zynga said it will use the cash for general corporate purposes, including game development, marketing activities and capital expenditures. It also may continue to make acquisitions. In an interesting twist, it also said it will use a portion of the proceeds to contribute to charitable causes through Zynga.org.

The company’s underwriters include Morgan Stanley, Merrill Lynch, Barclay’s Capital, Allen & Co. and Goldman Sachs. (One item sadly missing from the filing — a list of investors.)

In particular, what’s interesting about Zynga’s offering is that it will represent the first publicly held company that makes its revenues mostly from the sale of virtual goods, like an energy boost or a virtual collectible garden gnome.

The company said it operates in 166 countries and sells 38,000 virtual items every second. It has 60 million daily active users and 232 million monthly active users. Astoundingly, people play two billion minutes of play a day and have four billion neighbor connections.

The San Francisco-based company, which was founded by Mark Pincus in 2007, was named after his late American Bulldog, Zinga. It got an early start from launching Texas Hold’em Poker on Facebook, and today dominates the four largest applications on the social network.

Some of its hit titles include CityVille, Empires & Allies, FarmVille and Mafia Wars.

The game-maker has grown extremely quickly, acquiring more than one company every month for the past year. Today, it has 2,000 employees (some of whom, as my colleague Arik Hesseldahl notes, are about to become very wealthy).

In 2010, the company’s revenues totaled $597.5 million, compared to $121.5 million in 2009. In the first three months of 2011, it’s revenues already totaled $235.4 million.

In 2010, profits totaled $27.9 million, reversing a 2009 loss of $52.8 million. In the first three months of the year, the company broke even.

That’s how the company accounts for its revenues by the law, but Zynga has come up with its own methods in dealing with its financials as one of the first virtual good companies to go public, a subject I’ve written a lot about.

From 2008 to 2010, it said so-called bookings increased from $35.9 million to $838.9 million, and that its adjusted EBITDA increased from $4.5 million to $392.7 million.

It says bookings is defined as the total amount of revenue from the sale of virtual goods during the same period the purchase was made by the player. Under GAAP accounting, it typically spreads revenues over a 12-month period, which it believes is the average life of a virtual good.

Much of its success has been tied to the ability to create games that are attractive to a large userbase. Many of its early players were women who were looking for a way to unplug after a long day of changing diapers, or while a young baby was napping. Zynga and other social game makers are largely credited with expanding the number of people who play games beyond the traditional gamers, who play on the Xbox or PlayStation.

However, because of this social element of playing games with friends, Zynga’s success so far has been closely tied to Facebook. Over the years, the two have shared a hot-and-cold relationship. A year ago, Zynga entered into a five-year partnership with the social network, in which it agreed to expand its use of Facebook Credits in games.

The benefit of Facebook Credits is that there is a common currency across all games, which makes it easier to conduct microtransactions. The downside is that Facebook takes a 30 percent cut, representing a big chunk of a company’s revenues.

In the filing, Zynga revealed a huge piece of its business comes from games on Facebook. As of December 31, 2010, and March 31, 2011, 69 percent and 82 percent of its accounts receivable were amounts owed to it by Facebook, respectively.

The company’s dependency on Facebook is just one of its risks. Revealed in the filing is that Zynga does not have any special terms with Facebook. In other words, it must share three cents of every 10-cent credit that is sold to a user, like every other game company.

Another risk is that Zynga also relies on a small percentage of its players for nearly all of its revenues, meaning that many players play for free and avoid having to ever buy any virtual goods. It did not disclose that percentage.

As for growth, one blemish on the company’s record is that the number of daily active users has fallen to 62 million in March from 67 million in the same period a year earlier.

However, many other companies have seen a drop in that same time period, and is likely correlated to Facebook’s crackdown on allowing game companies to post an unlimited number of messages to a users’ wall promoting a particular game.

Related posts

• The Zynga IPO: Who Owns What, Who Makes What
• Zynga Has Raised $845 Million in Capital, But No Mention of Google as an Investor
• The Zynga-Facebook Codependency Becomes More Clear
• Here’s the Zynga S-1 to Play With (Get It?!?)
• Zynga Finally Files for IPO to Raise $1 Billion
• Day 3: Zynga Holds Tech Reporters Hostage in Endless IPO Watch
• What to Expect When You’re Expecting a Zynga IPO (Insider Selling, Natch!)
• A Sneak Peek at Zynga’s IPO: How to Turn Virtual Goods Into Real Money
• Exclusive: Zynga About to File for IPO
• Zynga Full Coverage

]]> http://allthingsd.com/20110701/zynga-finally-files-for-ipo-to-raise-1-billion/feed/ 0 http://allthingsd.com/20110629/what-to-expect-when-youre-expecting-a-zynga-ipo-insider-selling-natch/ http://allthingsd.com/20110629/what-to-expect-when-youre-expecting-a-zynga-ipo-insider-selling-natch/#comments Wed, 29 Jun 2011 15:07:46 +0000 Kara Swisher http://allthingsd.com/?p=92568

So exactly how fecund is “FarmVille”?

If reports hold, we’ll all find out today what the yield is from the online gaming phenom Zynga, which will finally be filing its regulatory documents sometime today.

The S-1 for a public offering valued at up to $20 billion, which will contain all kinds of juicy information about the San Francisco-based start-up’s business, is likely to come out after the markets close. Zynga is expected to raise $2 billion in the offering.

Before everyone gets to see what’s in it, there’s a lot that investors should be looking out for, based on recent IPO filings by similar companies, such as Groupon.

Digging Up New Accounting Ground

As Tricia Duryee pointed out, Zynga will be the “first major U.S. company supported primarily by the sale of virtual goods” to file.

That’s what will likely make the Zynga filing very interesting, from an accounting point of view.

How Zynga handles its accounting is sure to be much scrutinized, especially since Groupon attracted all kinds of ugly from its unusual treatment of its financial results.

To defocus from its money-losing under GAAP acounting, the Chicago-based social buying service used the more attractive “Adjusted CSOI,” which is defined as adjusted consolidated segment operating income.

My definition: Sketchy!

Zynga’s finances are expected to look better, reportedly generating about $400 million in profit last year on about $850 million in revenue.

It will be important to pay attention to the breakdown of those revenues and about what period of time the company accounts for them.

As Duryee wrote, Zynga has several choices:

Game-based model: The company recognizes revenue over the life of the game.

User-based model: Revenue is recognized over the estimated life a user plays the game.

Item-based model: Revenue is recognized based on the implied or explicit life span of the item — in other words, how long it would last in the real world. Examples of more durable goods are virtual vehicles, furniture or weapons. Revenue from these would be recognized for as long as the player stays active in the game. Revenues from a more consumable item, like a virtual cup of coffee or a jolt of energy, would be recognized almost immediately.

And there are still other factors to take into consideration, such as whether the goods were paid for with virtual currency or real cash, and how much information a company has for establishing the averages.

In the Revenue Weeds

Another interesting thing to study will be the revenue breakdown for Zynga, especially as it relates to its biggest platform provider, Facebook.

Such as: How many in-game items are purchased directly on Facebook versus through gift cards purchased in the store? How big (or small) is Zynga’s advertising business? What about mobile games? Will the profitability of individual games be called out, with details about their performance?

And, of all its various distribution platforms for its games, where does it get the most mojo?

That’s important, since Zynga will be seen as a proxy for Facebook’s business. Thus, a lot of investors might find some nuggets of information, since the pair are so tightly intertwined as businesses.

Facebook, of course, has been famously trying not to IPO, so any indication of the social networking site’s business will be carefully studied.

Reaping the Insider Rewards

Lastly, it’ll be important to see who is selling what and when among current Zynga investors.

Groupon ran into a buzz saw of criticism from the giant payouts its founders took out of the company from its massive venture funding rounds.

As Peter Kafka wrote:

Groupon raised a total of $946 million in two funding rounds last winter. It kept $136 million of it to help run the money-losing company. The remaining $810 million was paid out, via stock purchases, to CEO Andrew Mason and some of his backers, including Eric Lefkofsky, and, notably, the Samwer brothers, who sold their CityDeal company to Groupon in 2010 … Of note: This wasn’t the first time Groupon had raised money and taken cash off the table. In April 2010, the company raised $130 million, and handed $120 million to many of the same people.

My definition: Even sketchier!

Along with its founder and CEO Mark Pincus, Zynga investors are the pantheon of venture players, including Digital Sky Technologies, Kleiner Perkins, Union Square Ventures and angel investors LinkedIn founder Reid Hoffman and Peter Thiel.

How much Pincus and others inside the company have taken out and are selling should be one of the first places new investors should look.

Because with the hyped valuations that many of these Web 2.0 companies are getting, who’s zooming who should be a key sign to pay mind to.

]]> http://allthingsd.com/20110629/what-to-expect-when-youre-expecting-a-zynga-ipo-insider-selling-natch/feed/ 0 http://allthingsd.com/20110531/zynga-launches-its-most-complex-game-yet-and-its-not-a-ville/ http://allthingsd.com/20110531/zynga-launches-its-most-complex-game-yet-and-its-not-a-ville/#comments Tue, 31 May 2011 23:59:14 +0000 Tricia Duryee http://allthingsd.com/?p=79792 It’s a little bit like Risk meets The Settlers of Catan.

And, it’s a lot like CityVille.

Empires & Allies is Zynga’s latest social game, which officially launches tomorrow.

As the dominant social games company over the past two years, this is Zynga’s biggest endeavor yet.

And the timing couldn’t be better.

After a five-month hiatus from releasing a new game, the drought is ending as the company gets closer to filing for an initial public offering.

The game is the first title produced by Zynga’s Los Angeles studio, developed by former Electronics Arts employee Amer Ajami. After less than a year in development, Ajami said the goal was to make the game more complex than before by adding combat, without sacrificing the appeal for a very large audience.

Walking that tightrope is why Zynga believes it has a massive opportunity in front of it.

It can’t just build games for “gamers” to be big. Rather, it wants to be the “play” of the Internet, much like Amazon is the “shop” of the Internet. At least that’s the way Zynga CEO Mark Pincus explains it.

Zynga’s initial games, such as Poker, Mafia Wars and FarmVille, filled that niche nicely.

Available to Facebook’s dominant audience, the games were enjoyed by a nontraditional demographic, comprised of mothers, females and children. It also could appeal to the hardcore gamer demographic, characterized as males between the ages of 18 and 34.

Much of the game will be familiar to players of other Zynga games, while some things will be new.

The general storyline: Players must rebuild a destroyed island nation by beefing up army units and recruiting friends to battle villains. The quest ends when the final villain is beaten.

Much like older titles, players must build huts, cottages and houses to collect rent to fund expanding empires. They also must collect resources to build battleships and other items.

What’s different is the combat element.

Players must create resources, like cannons and fighter planes and battleships, to fight villains. If you outlast a villain during battle, you win–but you can also lose.

Losing is entirely new. So is the ability to do evil. Instead of visiting a friend’s islands to do altruistic things–like helping collect rent–you can now also launch an invasion.

“The question of losing is a little new to a Zynga game, but if you track the progression of releases, you’ll note that with each successive release, they increase in complexity and depth,” Ajami said. “This is the natural successor to that line of progression.”

Even though it sounds a bit ominous, it’s all pretty harmless–much like how Wile E. Coyote is constantly risking his life to catch Road Runner. There’s a family-friendly feeling with bubbly and cute characters and bright colors.

“We didn’t set out to make a game that was dark and gloomy,” he said. “It provides mass appeal with characters that are fun to look at. Even though it has combat, it doesn’t have to be a niche audience or look a certain way. It has broad appeal.”

There’s also a component of strategy.

Similar to The Settlers of Catan, which is one of Pincus’ favorite games, players must have enough resources, like oil, in order to build ships and other materials. Players can either swap with friends in order to complete certain missions, or buy the resources with cash.

Zynga is not the only one recognizing that social games must evolve as players mature.

There are other companies focused on making even more hardcore social games. Just last week, Kabam raised $85 million in capital and Finland-based Supercell raised $12 million.

No doubt Empires & Allies will do well. With roughly 30 million people playing FarmVille and CityVille, Zynga has an impressive marketing machine that allows one game to feed another.

It also won’t hurt that it will be the largest international release for a game yet. Starting tomorrow, it will be available in a dozen languages, including English, French, Italian, German, Spanish, Portuguese, Indonesian, Turkish and Traditional Chinese–and for the first time, Malay, Korean and Norwegian.

Ajami said despite the inclination to compare how well Empires & Allies does with CityVille, which hit 14 million players after 30 days, that’s not the goal.

“We don’t really target any of our previous games to beat them,” he said. “But we were really impressed with CityVille’s growth, and have high expectations of all our games.”

Just to be clear, while there’s an end to this game, it’s only the end of the first chapter–meaning this fairy tale could go on and on in perpetuity. “There’s not an end….We are already working on chapter two and beyond,” Ajami promised.

]]> http://allthingsd.com/20110531/zynga-launches-its-most-complex-game-yet-and-its-not-a-ville/feed/ 0 http://allthingsd.com/20110524/exclusive-zynga-about-to-file-for-ipo/ http://allthingsd.com/20110524/exclusive-zynga-about-to-file-for-ipo/#comments Tue, 24 May 2011 22:32:43 +0000 Kara Swisher http://allthingsd.com/?p=77680

Zynga is poised to file for its initial public offering, according to sources close to the situation.

The filing with the Securities and Exchange Commission could come as early as this week, or next week at the latest.

The move is not entirely unexpected, given how well the recent IPOs of several Internet companies have done recently, including business networking site LinkedIn last week and Russian search giant Yandex today.

Their strong performances show the huge investor appetite for fast-growing and high-profile Web 2.0 firms. Wall Street is also prepping for eventual public offerings from social buying site Groupon and, the big fish, Facebook.

Zynga’s valuation in its last round of funding was $10 billion, but it is likely to price itself higher in an offering.

After all, LinkedIn now has a market valuation of $9 billion, double its pre-IPO price.

Whatever the price, a Zynga IPO is a major coup, especially given how quickly it has morphed into one of the most important forces in online gaming, largely via distribution on the Facebook platform.

The company claims that it has 250 million people actively playing its games every month. Its largest game currently is CityVille, which attracts 90 million monthly users, reports AppData. Its original Poker game still manages to attract 35 million monthly users.

Its early titles, such as FarmVille and Mafia Wars, first vaulted the San Francisco-based company into consumer prominence, and it has recently struck a number of high-profile branding deals with Lady Gaga and the makers of the upcoming animated movie “Kung Fu Panda 2,” among others.

That’s also meant a solid business. Zynga reportedly generated about $400 million in profit last year on about $850 million in revenue, although sources said the filing will reveal much more robust numbers.

The company has also grown its work force quickly. Last year, Zynga hired more than 800 people and today has more than 1,500 full-time employees in 13 offices, spanning six countries.

Recently, at the opening of its new Seattle office, its founder and CEO Mark Pincus–who has tried to hit the start-up jackpot many times before–said he had Amazon-sized ambitions for Zynga, referring to that city’s online retail giant.

Depending on how the offering goes, he might want to think bigger.

Sources said Goldman Sachs will be among the lead bankers in the Zynga offering.

Zynga declined to comment on its IPO plans.

]]> http://allthingsd.com/20110524/exclusive-zynga-about-to-file-for-ipo/feed/ 0 http://allthingsd.com/20110413/zyngas-mark-pincus-amazon-built-shop-we-want-to-build-play/ http://allthingsd.com/20110413/zyngas-mark-pincus-amazon-built-shop-we-want-to-build-play/#comments Wed, 13 Apr 2011 22:52:32 +0000 Tricia Duryee http://emoney.allthingsd.com/?p=4455 Zynga CEO Mark Pincus outlined the company’s social-gaming ambitions last night in a rare appearance to celebrate the grand opening of the San Francisco company’s offices in Seattle.

The new offices–still void of any computers, desks or chairs–were decked out with red ambient lighting, a DJ was spinning records and guests snacked on a mix of Seattle and San Francisco food. Sourdough and shrimp!

Pincus addressed the 200 or so attendees in front of an exposed brick wall typical of buildings found in the Pioneer Square neighborhood, and he did his best to woo potential engineers with the offer of a great company culture. He also took the liberty of comparing Zynga to one of Seattle’s biggest success stories: Amazon.com.

First was the employee pitch. Like Zynga’s other 1,500 employees in more than 13 offices worldwide, Seattle engineers and product managers will have a lot of autonomy in a corporate culture Pincus likened to a confederation of entrepreneurs who get to act as their own CEO.

Additionally, he compared the company’s ambitions to Amazon’s.

The analogy was easy to make given his proximity to the retail giant, but also because one of Amazon’s first VPs of engineering, Neil Roseman, will be the Zynga VP in charge of building the Seattle office.

However, it was mostly Zynga’s bigger goal that he was referring to.

“Amazon built shop….We want to build play. If we do our jobs right, playing games with your friends will be simple,” he said.

With popular Facebook titles such as FarmVille, CityVille, Zynga Poker and Mafia Wars, Pincus said, roughly 250 million people play Zynga games on a monthly basis. In all, they generate five terabytes of information a day, up from one terabyte a day five months ago. The number of social connections the players have made has soared to eight million from three million in the same time period.

In an interview after his general remarks, Pincus contended that talking about play instead of games changes the social stigma. “If you spent part of your day playing games, people might think you’ve wasted your time. But if you said you spent your day playing, people are envious,” he said, noting of the old saying, “It’s all work and no play. Not, all work and no games.”

The idea goes beyond Amazon’s association with shopping. Google has an association with search, Facebook with share, and YouTube with watch. “[Play is] one of the verbs I’d bet on,” he said.

So, how big is playing?

Pincus estimates that it’s massive.

There will be four billion devices that will be connected to each other through social networks, and half of them will engage in play. “We are very optimistic with where play will go in the future.”

However, as the industry matures, there’s a natural contradiction taking place. The simplicity of Zynga’s games made it easy for a wide audience to play (not just core gamers). But as those players develop and sharpen their gaming skills, Zynga and other social-game makers will be challenged to create more complex quests to keep them entertained. By introducing more difficulty, it will inherently narrow the company’s audience.

“Yes, that’s a challenge,” Pincus said. “But great games are Shakespearean. They should be all things, to all people.”

He argues that one game should be enjoyable for his niece, nephew and himself simultaneously. But that has been the challenge for the game industry. Companies end up catering to the audience that is the most vocal and spends the most money. That’s why the console game business trends toward hardcore gamers.

“It becomes harder and harder,” he said.

However, there are exceptions. Nintendo developed something that no one knew they needed or wanted, and, he said, Apple’s Steve Jobs constantly comes up with products people want, as opposed to giving them what they asked for.

“No one was screaming for the Wii,” he said, but now you see grandmothers Wii bowling with their granddaughters.

]]> http://allthingsd.com/20110413/zyngas-mark-pincus-amazon-built-shop-we-want-to-build-play/feed/ 0