Chris Dixon will indeed be the latest VC to join Andreessen Horowitz, as I had reported earlier was likely, starting in January.

Dixon is a lively and interesting choice for the high-profile Silicon Valley venture capital firm, having been a successful serial entrepreneur, a savvy angel investor and also a voluble tech scene commenter in blogs and on Twitter.

Perhaps most interesting is that Dixon, who is largely based in New York, will move to California to join what Marc Andreessen describes as a “single-office” firm.

In other words, Chris, get ready to be force-fed at Hobee’s!

In all seriousness, Andreessen said in an interview today that his big criteria for picking Dixon was because, “when the next Mark Zuckerberg walks into the room, we want them to say, ‘I want that person.’”

In addition, he noted that Andreessen Horowitz has a “bias for entrepreneurs … and Chris is the real deal when it comes to being an entrepreneur.”

Indeed, Dixon was CEO and co-founder of SiteAdvisor, which was acquired by McAfee, as well as recommendations engine Hunch, which was bought by eBay a year ago.

He is one of the founding members of Founder Collective, an East Coast-based seed-stage venture firm run by entrepreneurs, and is also an active angel investor, including in Skype, Invite Media and OMGPOP. Previously, he programmed financial algorithms at a high-speed options trading firm and has also worked at Bessemer Venture Partners.

Dixon, whose job at Bessemer was junior, said that he became interested in Andreessen Horowitz once he learned more about them after helping the start-ups he had invested in with fundings. He was especially struck by all the added help the firm provided in areas such as recruiting.

While he said his investing as a partner there would be “non-thematic,” he noted that it was likely he would “tilt more toward consumer” investments.

“I am going to try to pick the special bird,” he said, paraphrasing a quote by famed Sequoia Capital VC Mike Moritz. “And not the flock.”

Here is a blog post on the move by Dixon and one by Andreessen, in which he apparently thinks I leak for a living.

According to sources, well-known New York techie Chris Dixon is in the final stages of discussions to become a partner at the high-profile Silicon Valley venture firm Andreessen Horowitz.

While the deal is not yet complete, Dixon seems likely to become the firm’s latest addition. It’s not clear what his area of specialty will be, but it is likely to center on start-ups, given his experience.

Dixon is one the more voluble and energetic tech players on the New York scene, as well as a serial entrepreneur with several prominent exits. He was CEO and co-founder of SiteAdvisor, which was acquired by McAfee, as well as recommendations engine Hunch, which was bought by eBay a year ago.

He is one of the founding members of Founder Collective, an East Coast-based seed-stage venture firm run by entrepreneurs and is also an active angel investor, including in Skype, Invite Media and OMGPOP. Previous to this, he also programmed financial algorithms at a high-speed options trading firm and has also worked at Bessemer Venture Partners.

In his bio on the Founder Collective site, Dixon said: “I think one of the reasons I can be helpful to entrepreneurs is I’ve worked in the trenches on both the startup side and the investor side.”

His selection by Andreessen Horowitz is an interesting one, since it is the first by the firm of a solidly New York-area techie, although it is not clear if Dixon will move to California or not.

He’s also not been afraid to tangle with VCs in his frequent blogging. In one post in July, titled “Shoehorning Startups into the VC Model,” he noted:

“A startup should raise venture capital (or ‘venture-style’ angel/seed funding) only if: 1) the goal is to build a billion-dollar (valuation) company, and 2) raising millions of dollars is absolutely necessary or will significantly accelerate growth. … Unfortunately, many of these startups graft VC-friendly narratives onto their plans and raise too much money. Short term it might seem like a good idea but long term it won’t.”

For Zynga, which has struggled to develop a new hit game recently, the strategy has two aims. Obviously, it wants to generate more ad revenue. But, just as important, it wants to give game developers a reason to work with its CEO and founder, Mark Pincus.

Multiple sources familiar with the company’s plans say the platform is still under development, but some of the components could launch by the end of the year. It may not be available to third-party developers immediately. A Zynga spokesman declined to comment.

Up until now, the social game maker has been slow to adopt advertising, opting instead to rely on the sale of virtual goods for the bulk of its revenue.

The advertising efforts will be a part of its push into third-party publishing and will be used as another way to attract developers looking for a complete package when it comes to bringing games to market. Sources said the initiative is being headed up by the company’s long-time CTO, Cadir Lee, who has also been in charge of other major platform projects, including the build-out of its own cloud network.

Over the past year, Zynga has been slowly ramping up its advertising efforts. Recently, it announced a deal where Words With Friends players were rewarded for using Honda-related words on their game board. Another example: A virtual State Farm blimp that players used in FarmVille to revive crops.

Last quarter, ads generated $41 million for Zynga. That’s up 170 percent year over year, and represents 12 percent of the company’s overall revenue.

The spike in advertising over the past year likely has a lot to do with the acquisition of OMGPOP, which was generating massive amounts of ad inventory at the peak of its hit game Draw Something.

But it’s not enough. Earlier this month, Zynga updated its full-year guidance, saying that revenue will fall below previous expectations for the second time this year. Zynga will report final results for the third quarter on Wednesday.

So, what could a Zynga-built advertising platform look like?

The platform could enable the company to expand beyond brand integrations and sponsorships into more lightweight experiences, including banner ads, interstitials, video pre-rolls and incentivized downloads. While it will span both Facebook and mobile, it will likely focus more on mobile games, since Zynga has repeated over and over again that they don’t bring in as much revenue as its social games.

To bolster its efforts in the space, back in April Zynga hired Julie Shumaker (formerly of RockYou and Electronic Arts) to be the VP of global ad sales. Since then, sources say, Zynga has hired a few more direct ad sales employees, and lists several more job openings on its Web site, including roles for sales managers and directors.

It is not entirely clear why Zynga is choosing to compete with so many ad platforms that already exist today, but according to sources, there are a few benefits that may outweigh the costs.

For starters, it will keep more of the revenue that way, without having to work with a middleman — important for a company that has been forced to give 30 percent of its virtual-goods revenue to Facebook.

Another theory is that Zynga wants to ensure that it owns all of its own data. Zynga has an incredibly large audience — roughly 300 million monthly active users — and a lot of rich information about them in terms of their behaviors and their social graph.

It’s the latest of several options that have been floated, including whether Facebook or others might try to swoop in to buy the company.

Most of these scenarios are moot, given Zynga’s founder and CEO Mark Pincus controls the troubled company, owning more than half of its shares. It is not clear if he would be willing to give up now.

That said, he has do something — the company’s stock hit a new low on Friday, tumbling 12 percent to $2.48 a share. At that price, investors are valuing the business at very little, since Zynga has the equivalent of $2.10 a share in hard assets.

That price could get lower, with Wall Street investors and many others becoming even more relentless in their criticism of Zynga.

There have been many concerns already that began after its once close partner, Facebook, changed the way it operates, with the result that its platform did not perform as well as it once did for Zynga, especially for its once popular Ville-style games.

It’s been made worse as consumers continue their shift to mobile, which Zynga says does not always monetize as well as Facebook.

To add to the pile, Zynga has suffered mass exodus of talent, some for better and some not. Over the past few months, it has lost several high-ranking managers, including its COO John Schappert and Chief Marketing Officer Jeff Karp, who were both brought on board for their experience in gaming. Last week came the departure of Paul and David Bettner, the creators of Zynga’s enormously successful Words With Friends franchise.

There was plenty of other fodder for criticism this past week, after the company also wrote down the acquisition of OMGPOP by as much as $95 million, or about half of the total price.

In a memo issued to employees on Friday, Pincus wrote that he was disappointed and is focused on rectifying the situation.

In the near term, he said it might mean considering “targeted” cost reductions. And in the longer term, he noted that Zynga would have to invest more in mobile and a platform approach that enables it to publish third-party game titles.

Whether he can do that easily with intense shareholder scrutiny is questionable, and ditching the public markets would have its advantages.

To get a sense of where Zynga stands, and whether going private is feasible, I talked to a handful of analysts and experts, all whom had mixed opinions.

Michael Pachter, Wedbush Securities:

At this price, yes, Zynga can go private, but I don’t think that will happen. That would trigger more unrest by shareholders, who would say you sold shares at $10 and now you want to buy them back at $3? It would have the appearance of some sort of scheme.

If he [Pincus] wants to send a signal to investors that they are done making acquisitions — since they obviously didn’t do a very good job at it — they should take some of its war chest and buy back stock. He should also personally buy stock. We need to see that kind of commitment.

Peter Relan, executive chairman of CrowdStar, which pivoted from social to mobile gaming this year:

I have three solutions: Mobile, mobile, mobile. Mobile gaming this year globally is a $2 billion to $3 billion business and is expected to hit $18 billion by 2016. I don’t think there’s a lack of growth in gaming; it’s more product strategy.

Mark is a competitive guy and he’s going to fight like hell to transform the company and take it to the next level.

Arvind Bhatia, analyst, Sterne Agee:

They need to restructure the business significantly and do it very quickly, too. We think that they are considerably overstaffed for the level of revenue that they’ll be generating in the coming years.

They need to right-size and preserve the cash. Going private won’t solve the problem … the question is, where will the cash be in a year from now?

Rich Greenfield, analyst, BTIG:

They will generate zero EBITDA in the back half of 2012 based on their new guidance and earnings in 2013 and beyond are totally unclear — the company’s assets are literally walking out the door — you see the Words With Friends team left.

Why would they want to lever up and go private — sounds petrifying … Zynga clearly has no idea how to model/project their business/earnings, in turn, going private would appear to be a very dangerous move, don’t you think?

They need to make great games that have staying power.

“Bite tongue.”

–Former OMGPOP CEO Dan Porter. Two days ago Zynga announced it would take a charge of up to $95 million related to its March acquisition of Porter’s company; it paid $180 million for the game-maker plus $30 million more in employee retention payments.

The San Francisco company reported preliminary third-quarter results that fell below expectations, and lowered its full-year outlook. In early morning trading, shares were down as much as 19 percent, and are now off about 17 percent, trading around $2.35 a share. That’s getting close to an 80 percent drop since the company went public at $10 a share in December.

At that time, Zynga was a Wall Street darling. It was dominating the Facebook charts, and easily raised $1 billion in an IPO. Now, its Ville-style games are struggling, as users shift their habits to mobile and away from games that emphasize major investments in time and expression, such as farm- and city-building.

Zynga still has a large cash balance, but has failed to use those reserves to make smart acquisitions. For instance, the hasty acquisition of OMGPOP earlier this year was intended to aid the company’s move to mobile, but now it is coming back to haunt it. Yesterday, the company estimated it will have to take an impairment charge between $85 million and $95 million in connection with the acquisition, representing about half of the purchase price.

Michael Pachter, an analyst with Wedbush Equity Research, said Zynga will unveil its cost-reduction plans on Oct. 24, when full earnings are released. On his wish list of expenses to slash was research and development costs, as Zynga begins to publish more third-party titles and transitions away from first-party game development.

Pachter lowered Zynga’s price target to $4 a share from $7, but justified maintaining his “outperform” rating, since the stock is trading close to cash. “We believe there is significant upside, so we concluded that only a price target revision is warranted,” he wrote in a note to investors.

Colin Sebastian of Baird Equity Research was not as kind, downgrading the stock to “neutral,” while lowering his price target to $3 from $6. “While the company’s over-dependence on Facebook and ongoing headwinds in user monetization are no secret, the magnitude of the Q4 miss heightens our platform concerns, and we are moving to the sidelines until there is more tangible evidence of a successful turnaround in the offing,” Baird said.

Facebook’s stock also is trading lower today, on fears that its revenues will drop along with its largest partner. This morning, Facebook’s shares were down about 2.5 percent, trading around $21.38 a share. Electronic Arts, which also has significant investments in social gaming, is also slightly off in morning trading.

Backed by $50 million in capital, Warby Parker has already created a name for itself, selling hip glasses to men and women at the bargain price of $95. After conducting nearly a year of research, Rivet & Sway was born with a slightly different modus operandi: Targeting time-starved women, at a slightly higher price point of $199.

“Warby is an awesome proof point, but it seemed at the time to be focused on twenty-something hipsters,” said Steve Anderson of Baseline Ventures. “That’s a big market, but it’s also a niche market — and from my standpoint, they are killing it right now.”

Anderson believed that if Warby Parker could be successful within one segment of the population, then there was room for another company focused on a slightly older demographic – especially since people’s vision worsens as they age. “The market is plenty big for multiple players, especially when the incumbents aren’t looking at online as a channel,” he said.

The company was officially started a year ago in Seattle, with John Lusk as founder and CEO. Anderson, along with Harrison Metal’s Michael Dearing, invested $1.3 million.

Earlier this week, Lusk invited me to the company’s Pike Place Market offices to hear the Rivet & Sway story. By any definition, the operation can be considered thrifty: Rivet & Sway has only three employees, not including help from a handful of contractors, and it subleases a row of cubes from a real estate company. But you would never know it based on the consumer experience. Having launched commercially only six weeks ago, it’s obvious the company spent a lot of time thinking about all the details.

It works the way you might expect: Women choose three frames from 23 styles (in three colors each), try them on at home, and order one they like with their prescription. The glasses then appear at their home within a week. All for $199.

While it sounds simple, a lot of thought has gone on behind the scenes. Lusk said they determined that 23 styles was a big enough selection to satisfy most people without being overwhelming. And the sample box had to be limited to three frames to make it possible to ship back through the regular Postal Service — anything larger would require a trip to UPS or Federal Express, making it less convenient. The price was also a big consideration. Although it’s higher than Warby Parker’s, he said, research showed that women trusted a higher price. “There must be a problem if you are getting an $800 pair of glasses for $99 — they were thinking, ‘No way,’” he said. “At $150, they just started to get comfortable.”

The higher price also allows the company to provide slightly better service. A stylist will conduct a Skype session with women to help them determine which three frames they should try on at home. While that requires a slightly larger upfront investment, Lusk also believes it will help conversion rates. Unlike other sites, Rivet & Sway has decided against using “virtual try-on” technology, which superimposes a pair of glasses on a picture of your face. “Women said they’d rather try on the frames at home,” he said.

This is Lusk’s second start-up. The first one will be familiar to anyone who has followed the technology world for more than a decade. In 1999, Lusk and his fellow Wharton business school grad Kyle Harrrison headed straight to the Bay Area, armed with $65,000 from friends and a ton of credit card debt, to start MouseDriver, a novelty computer mouse that looked like the head of a golf driver. The two gained notoriety for writing a painfully honest newsletter about the trials and tribulations of starting a company. “People wanted stories that they could relate to; they liked to see that it was hard even for Wharton grads,” he said.

While the company ended up being somewhat of a bust, Harrison and Lusk became poster boys of the dot-com boom, thanks to the newsletters. Lusk went on to write “The MouseDriver Chronicles.” Over the past 13 years, he toured the professional speaking circuit (thanks to the book), worked at Microsoft for four years, and held stints at WhitePages and a couple of other Seattle start-ups. At the age of 41, Lusk is ready to try it again.

Even though he admits he can’t exactly be passionate about the product, since he has 20-20 vision and isn’t in the company’s target market, he does believe in the concept: “We are building a consumer brand that’s solving a need, and disrupting a business that’s making money hand over fist,” he said.

Anderson, who is a Seattle-area native and known for recent exits in Instagram and OMGPOP, said Lusk is a perfect fit: ”He has a strong voice; he had the buying experience out of China; he had a bad experience of a failed start-up, which is a badge of honor in the Valley; and he’s worked at WhitePages and Microsoft. He’s the perfect athlete to build a brand. There’s a lot of sophistication that goes into this: You have to source the product and build a supply chain. He’s the perfect entrepreneur for that.”

Players record a 12-second video using their phone’s forward-facing camera to provide clues about a word they are describing. The video is then sent to a friend, who is filmed guessing what the word is. The game is free, and will be available later today, after it clears Apple’s approval process.

With Draw Something, the challenge was similar, except players were required to illustrate a picture of a person, place or thing. The mobile game was literally an overnight success, and was downloaded more than 50 million times in 50 days, right when Zynga purchased the company for $180 million.

What assisted Draw Something’s rise in the charts was that players, who were so proud of their rendition of “Rihanna” or a “starfish,” posted their illustrations to Twitter and Facebook.

AOL is hoping for a similar viral effect through a partnership with Viddy, a social video service with 40 million users. Players will be able to share their videos directly on Viddy to show off how amusing or creative they are in describing a word.

One small glitch in the plan is that players are already tiring of the game Draw Something. While it’s still attracting 2.2 million gamers every day, that’s down from 14.4 million in April. Zynga also had to lower its full-year projections because of the app’s quick drop in popularity.

But AOL did come up with a solution to an issue that Draw Something drew criticism for in its earlier days. In Draw Something, nothing stopped players from spelling out the word instead of drawing it. Now, to prevent cheating, AOL will periodically listen in — using Nuance’s voice-recognition technology — to see if players are saying the word. If caught, points will be deducted from a player’s score.

Players can play against their Facebook friends or watch prerecorded clues, which might be nice if you don’t look so hot when you roll out of bed in the morning.

Sony Pictures will be the official launch sponsor of Clucks, which was created by AOL’s “mobile-first” division, which is allowed to experiment with new products for mobile.

Earlier this week, Zynga missed analyst estimates and slashed its 2012 guidance. The company’s excuse? It saw softness among its core games, delayed the launch of The Ville and witnessed an extreme dropoff in Draw Something players.

The bad news sent the newly public company’s stock into a tailspin. Today, it continues trading 70 percent below its offering price, at $3.12 a share.

The series of events also sent the company’s executives into a frenzy, trying to come up with the words that would reassure investors that Zynga has not lost the game — at least not yet.

In the interview Wednesday, Schappert, who left Electronic Arts to join Zynga, emphasized the opportunities lying ahead.

• On the immediate horizon, he said, the company will get a boost from big Facebook titles coming later this year, including ChefVille, FarmVille 2 and another unannounced ’Ville game. Another near-term project focuses on branching out from the company’s core female demographic, by making “mid-core” game titles.
• A bit further out, he said, the company has the opportunity to expand beyond Facebook into mobile. While its user base grew 50 percent to 33 million daily active users during the quarter, it has yet to develop games that encourage users to pay to play.
• And in the long term, he said, the company has an opportunity in real-money gaming. While the prospect of gambling tends to get investors excited, it’s still limited for now to Europe. Plans include launching internationally in the first half of 2013, subject to licensing approval. The company is also working on publishing third-party titles for the Web and mobile.

More from Schappert on those subjects and more:

Mid-core gaming: We saw some success around Empires Vs. Allies with player vs. player. It’s a category that intrigues us, absolutely. It’s a different demographic. We’ll make it social, free and accessible, just like we’ve done with Casino and Arcade. This is a category for male-oriented games, and yes, it will be equal [to Casino and Arcade]. It’s a big emphasis. We haven’t announced timing, but we are actively working on games in that genre.

Villes on mobile: Going forward, the emphasis in mobile is on creating games in higher monetizing genres, like Ville-style games. Casino monetizes well, and you see us doing slots on mobile, but there will also be more Ville-style games coming to mobile. … We do know that Ville-style works well on Web and mobile, and we are actively developing Ville-style games on mobile.

Draw Something’s Q2 dropoff: The game is incredibly successful and is close to 90 million installs. It was a very large contributor in the second quarter, and while the DAUs (daily active users) came down, there’s still a strong connection with its players. A third of the players have played in the past month, and it’s still contributing in a meaningful way, but it didn’t hit expectations and revenue projections.

Actually, if truth be told, Buffalo, N.Y., is one of the loveliest places to visit in the summer, especially if you’re lucky enough to be right next to majestic Lake Erie.

And that is where the Z80 Labs will have its grand opening today in the Queen City, home of chicken wings and lots and lots of snow, by launching its first start-up, called AppVue.

While visiting the Western New York city this past weekend, I paid a visit to the new facility, which is in a large airy room on the first floor of the Buffalo News.

What’s most heartening to see, of course, is the definitely more earnest and rawer kind of entrepreneurism on display, of a kind that is often lost in the slick, well-oiled machine of Silicon Valley.

That was the point by well-known venture capitalist Jordan Levy of SoftBank Capital, who has long split his time between New York City and his home in Buffalo. He founded the incubator with SoftBank’s Ron Schreiber.

“It’s easy for entrepreneurs in places like Palo Alto to get going,” the voluble Levy said to me on my visit. “We wanted to find a way to keep really great techies here to create an ecosystem that would be able to jump-start even more and help this city keep jobs.”

The longtime investor (pictured here) had already made scores of wins from fundings of companies such as OMGPOP (sold to Zynga) and Buddy Media (sold to Salesforce.com). But Levy appears particularly proud of Buffalo-based Synacor, where he serves as chairman. It’s a successful cloud platform service for companies that want to put video online.

As the big tech dog in Buffalo, Synacor is playing a big role in Z80 Labs, which will focus primarily on making investments in digital media and mobile Internet companies.

The tech incubator — which will provide office space, support and mentorship to its start-ups — is also getting an assist from a $4 million Innovate NY grant provided by the state.

Such a solid base is just what the founders of AppVue — which “specializes in mobile apps that make trusted recommendations among social media friends and networks” — told me they needed.

Essentially, it’s another new take on app discovery, which is a vexing issue for both app creators and users.

After AppVue won the University at Buffalo’s Henry A. Panasci Jr. Technology Entrepreneurship Competition, besting 19 other companies, its trio of founders — Matthew Epstein, CEO; Andrew Cassetti, EVP of product development; and Chief Architect Nathan Schiffer — told me that, until now, there have been no other options but to leave the area to make it in tech.

“We wanted to stay here, and now we can,” said Epstein. “And we are getting the kind of attention we need to try to make this a real company.”

Let’s hope so. It’s already looking impressive at its start — both Forbes CEO Mike Perlis and New York power VC Fred Wilson will make appearances today for Z80’s debut.

I’d suggest Frank & Teressa’s Anchor Bar on Main Street — where chicken wings were apparently invented, and an arena in which Silicon Valley will never have an upper hand.

photo: NASA

Instagram’s billion-dollar sale astounded many in the U.S., but the fact of the matter is that Japan has already seen multiple billion-dollar companies emerge from the mobile sector, including Gree and Dena. Japan is an obvious leader in the mobile market, with 75 percent of its population consuming mobile media, and networks approaching speeds of 110mbps.

Japan has set numerous precedents in the mobile market, consistently staying ahead of the curve and leading many American companies to look to Eastern trends to see what users want, especially when it comes to social gaming and mobile social networks. The next U.S.-based billion-dollar mobile company will be one that can build on a successful Eastern concept by putting a Western spin on it.

Mobile Gaming
The past few years have seen a massive boom in mobile gaming across the globe. Mobile start-ups such as Omgpop and Rovio have burst onto the scene and companies like Zynga have transitioned into the mobile market, while console-first companies like EA have released mobile products — all of this signifies a huge expansion in the mobile gaming ecosystem. The success of these gaming companies today is, in many ways, the long tail of monetization and delivery strategies created in Asia.

Anyone releasing a game in 2012 knows that, in terms of user acquisition, the freemium model is king. This model keeps moderate users engaged with free features, while also allowing hardcore gamers to customize the gaming experience — fulfilling user needs on both sides of the spectrum while still generating revenue.

Asian gaming companies such as Tencent in China, Gree and Dena in Japan, and Cyworld in Korea are the true trailblazers in monetizing virtual goods and avatars, setting the stage for the rest of the world. Japan’s Gree and Dena, in particular, have revolutionized the way people game, making mobile games not just about killing time, but also about connecting with other like-minded players. Despite Dena and Gree recently moving to end their “gacha” “complete gacha” revenue model, they are still leaders in connecting gaming communities and monetizing users.

After witnessing the success in Japan, start-ups like OpenFeint and Second Life brought the idea of deep social integration to the American gaming world, although with varying degrees of success. Second Life is struggling to maintain its initial momentum, and OpenFeint sold for $104M to Gree after recognizing the huge opportunity in making mobile games social.

Social Networking
Mobile social gaming platforms like Gree and Dena may focus primarily on gaming, but the prevalence of virtual personas and social interaction in the games allow these platforms to double as social networks. Eastern cultures such as Japan have a natural tendency toward introversion, driving the emphasis on the virtual self. Although the West has an inclination toward the real over the virtual self, the interaction between users on these networks still has the same social root.

Another critical component to social networking in the East is mobile structure. Japan showed early on that the future of social networking was mobile, with popular networks like Mixi becoming predominantly mobile back in 2009. Only recently, as Facebook started to shift toward a mobile first strategy, did it finally start to take off with Japanese users.

In the U.S., more mobile-first start-ups are becoming key players in the social space, with companies like Instagram, Path, SocialCam and Viddy drawing substantial attention from users and investors alike. As these new forms of social expression emerge in the mobile market, they bring with them another huge trend of Eastern origin, the virtual persona.

In the early days of the Web, social interaction was primarily anonymous in the U.S.; users selected forum and chat handles that represented what they wanted to share with the outside world. However, as Facebook has become the dominant social graph, some of this anonymity has vanished. Anonymity in Japan’s social networks however, is still extremely prevalent. Studies have shown that 90 percent of social network members use pseudonyms over real names, and only 25 percent of their friends on the networks are close friends offline.

While most Americans do not want a completely virtual persona, many do like having the option to explore connections and express themselves outside the restrictive realm of friends and family in their social graph. Badoo, a European social network that has steadily been increasing its presence in the U.S., just reached 150 million global users by making it easy to meet new people around you. This is also evidenced by the success of dating services like Skout and Grindr that combine location and interests for social discovery.

Examining more traditional social networks, Facebook still leads the engagement race, with users spending six to seven hours a month on the service. But even though Facebook is still at the forefront of user engagement numbers, other social networks that operate on shared interests rather than real life connections are on the rise. Opinion-sharing mobile app Thumb is seeing its users spend 3 hours and 50 minutes a month connecting with others. Similarly, Pinterest is seeing users engage for about an hour and 40 minutes a month on their Web-based virtual pin boards, sharing their interests with other pinners. This type of user engagement is a significant indicator that interest-based interaction is on the rise in the U.S.

Instagram has also shown that mobile apps operating outside the traditional social graph are becoming serious business. By connecting users based on shared interests rather than real-life connections, start-ups like Instagram, Pinterest and Thumb have garnered massive user adoption and engagement.

Instagram is just the first of a new school of billion-dollar mobile companies here in the U.S. By looking to Japan as a model for mobile success, we can expect the next billion-dollar exit to come from the company that creates a mobile experience that allows users to branch outside the confines of their current social graphs, like work, school and neighborhood community, and connect based on the ideas that really matter to them.

Correction: DeNA PR alerted us to the fact that the article originally used the word “gacha” to mean “complete gacha” (aka “kompu gacha”). What does that mean? Joe Medved clarifies: “Gacha is a game mechanic where gamers pay to unlock randomly generated items. Complete gacha is when gamers are spending money in an attempt to collect a set of randomly generated items in order to unlock an even more rare virtual good. The controversy this caused is that many users were spending inordinate amounts of money on many virtual items in an attempt to unlock the rarest items.” Says DeNA’s Tomoyuki Akiyama, “There is a crucial difference between the two… We have no plan to phase out the non-complete gacha mechanic, although we will no longer have the complete gacha mechanic on the Mobage platform as of July 1.”

Joe Medved, a partner at SoftBank Capital, focuses on early-stage consumer and enterprise mobile, social marketing, gaming, and commerce investments. He serves on the boards of BestVendor, CrowdTwist, Jump Ramp Games and Thumb. SoftBank Capital’s other investments include BuzzFeed, Buddy Media, The Huffington Post and Omgpop. You can follow Joe on Twitter @joevc or read his blog at www.joemedved.com.

Sailesh wondered aloud, “How much time do we have for any of these?” “How many of them can coexist?” and “Do we really need them?” My answers were, respectively: “A lot.” “Many of them.” and “No, but we want them.” That dinner discussion prompted some observations that I am outlining here, and I invite you to share your own observations in the comments below.

In a nutshell, the Internet has evolved from being a need-driven utility medium with only a handful of winners to a discovery-driven entertainment medium with room for multiple winners. The necessary and sufficient conditions for this evolution are now in place — broadband, real names and tablets are the three horsemen of this New New Web. As consumers, entrepreneurs and investors, we should get used to the fact that the online economy is increasingly blurring with the offline economy, and in the limit, that distinction will disappear. As a result, just as in the real world, the Web of entertainment will be much bigger than the Web of utility.

A Theory of Human Motivation
One framework for understanding the consumer Internet is Maslow’s Hierarchy of Needs, which Abraham Maslow put forward as a way of explaining human behavior at large. The core premise is that once our basic needs of food, shelter, safety and belonging are satisfied, we tend to focus on things that are related to creativity, entertainment, education and self-improvement. A key aspect of this framework is that it’s sequential: Unless the basic needs are met, one cannot focus on other things. As an example, a study in 2011 showed that humans who are hungry will spend more on food and less on non-food items compared to those who are not hungry. Using this framework, we can see how consumer adoption of the Web has evolved over the last 20 years, and why all of the ingredients are only now in place for consumers to use the Web for what Maslow called “self-actualization” — a pursuit of one’s full potential, driven by desire, not by necessity.

1992-2012: Web of Need
Between the AOL IPO in 1992 and the Facebook IPO last month, the Internet has largely been in the business of satisfying basic consumer needs. In 1995, the year Netscape went public and made the internet accessible to the masses, I was a young product manager for a consumer Internet company called Global Village Communication. We were a newly minted public company and our hottest product was a “high speed” fax/modem with a speed of 33.6 kbps. Back then, using the Internet as a consumer or making a living off it as a business was rather difficult, and sometimes simply frustrating. In the subsequent years the basic needs of access, browser, email, search and identity were solved by companies such as AOL, Comcast, Netscape, Yahoo, Google, LinkedIn and Facebook.

2012-?: Web of Want
Today, the billion users on Facebook have reached the apex of Maslow’s hierarchy on the web. All of our basic needs have been satisfied. Now we are in pursuit of self-actualization. It is no surprise that on the Web, we are now open to playing games (Zynga, Angry Birds), watching video (YouTube, Hulu), listening to music (Pandora, Spotify), expressing our creativity (Instagram, Twitter, Draw Something), window shopping (Pinterest, Gojee*) and pursuing education (Khan Academy, Empowered*).

The Web Is Becoming Like TV
How do we make sense out of a Web where multiple providers coexist, serving groups of people who share a similar desire? Turns out we already have a very good model for understanding how this can work: Television. Specifically, cable television. The Web is becoming like TV, with hundreds of networks or “channels” that are programmed to serve content to an audience with similar desires and demographics. Pinterest, ShoeDazzle, Joyous and Alt12* programmed for young, affluent women; Machinima, Kixeye and Kabam programmed for mostly male gamers; Gojee* for food enthusiasts; Triposo* for travellers; GAINFitness* for fitness fans and so on.

In this new new Web, an important ingredient to success is a clear understanding of the identity of your users to ensure that you are programming to that user’s interests. The good news is that unlike TV, the Web has a feedback loop. Everything can be measured and as a result the path from concept to success can be more capital efficient by measuring what type of programming is working every step of the way — it’s unlikely that the new new Web will ever produce a Waterworld.

Why Now? Broadband, Real Names & Tablets
As my partner Doug Pepper recently wrote, a key question when evaluating a new opportunity is to ask “Why Now?” Certainly, companies like AOL, Yahoo and Myspace have tried before to program the Web to cater to interests of specific audiences. What’s different now? Three things: Broadband, real names and tablets.

The impact of broadband is obvious; we don’t need or want anything on a slow Web. With broadband penetration at 26 percent in industrialized countries and 3G penetration at about 15 percent of the world’s population, we are just reaching critical mass of nearly 1B users on the fast Web.

Real names are more interesting. In 1993, the New Yorker ran the now famous cartoon; “On the Internet, nobody knows you’re a dog.” This succinctly captured the state of the anonymous Web at the time. Reid Hoffman and Mark Zuckerberg changed that forever. Do we find Q&A on Quora to be more credible than Yahoo! Answers, celebrity profiles on Twitter more engaging than Myspace and pins on Pinterest more relevant than recommendations on early AOL chatrooms? I certainly do, and that is largely because Quora, Twitter and Pinterest take advantage of real names. Real names are blurring the distinction between online and offline behavior.

Finally, the tablet, the last necessary and sufficient piece that fuels the “Web of want.” The PC is perfect for the “Web of need” — when we need something, we can search for it, since we know what we are looking for. Searching is a “lean-forward” experience, typing into our PC, either at work or at the home office. The Web over the last decade has been optimized for this lean-forward search experience — everything from SEO to Web site design to keyword shortcuts in popular browsers makes that efficient. However, smartphones and tablets allow us to move to a “lean-back” experience, flipping through screens using our fingers, often in our living rooms and bedrooms, on the train or at the coffee shop. Tablets make discovery easy and fun, just like flipping channels on TV at leisure. These discoveries prompt us to want things we didn’t think we needed.

Early Signs
This thesis is easy to postulate, but is there any evidence that users are looking to the Web as anything more than a productivity platform? As has been reported, mobile devices now make up 20 percent of all U.S. Web traffic, and this usage peaks in the evening hours, presumably when people are away from their office. Analysis from Flurry* shows that cumulative time spent on mobile apps is closing in on TV. We certainly don’t seem to be using the Web only when we need something.

Economy of Need Versus Want
The economy of Want is different from the economy of Need. We humans tend to spend a lot more time and money on things we want compared to things we need. For example, Americans spend more than five hours a day on leisure and sports (including TV), compared to about three hours spent on eating, drinking and managing household activities. Another difference is that when it comes to satisfying our needs, we tend to settle on one provider and give that one all of our business. Think about how many companies provide us with electricity, water, milk, broadband access, search, email and identity. The Need economy is a winner-take-all market, with one or two companies dominating each need. However, when it comes to providing for our wants, we are open to being served by multiple providers. Think about how many different providers are behind the TV channels we watch, restaurants we visit, destinations we travel to and movies we watch. The Want economy can support multiple winners, each with a sizeable business. Instagram, Path, Pinterest, ShoeDazzle, BeachMint, Angry Birds, CityVille, Kixeye, Kabam, Machinima and Maker Studios can all coexist.

Investing in the Web of Want
The chart below shows that over a long term (including a global recession) an index of luxury stocks (companies such as LVMH, Burberry, BMW, Porsche, Nordstrom) outperforms an index of utility stocks (companies such as Con Edison and Pacific Gas & Electric that offer services we all need). The same applies to an index of media stocks (companies such as CBS, Comcast, News Corp., Time Warner, Viacom) which outperforms both the utilities and the broader stock market. Of course, higher returns come with higher volatility — Nordstrom’s beta is 1.6 and CBS’ beta is 2.2, compared to 0.29 for PG&E. It is this volatility that has cast investing in the Want business as a career-ending move in Silicon Valley for the past 20-plus years. As the Web evolves from serving our needs to satisfying our wants and, in turn, becomes a much larger economy, sitting on the sidelines of the Web of Want may not be an option.

Let’s Not Kill Hollywood
With a billion users looking for self-actualization and with the widespread adoption of broadband, real names and tablets, the Web is poised to become the medium for creativity, education, entertainment, fashion and the pursuit of happiness. As the offline world shows, large, profitable companies can be built that cater to these desires. Entrepreneurs and investors looking to succeed in the new new Web can learn quite a few lessons from our friends in the luxury and entertainment businesses, which have been managing profitable “want” businesses for decades. The fusion of computer science, design, data, low friction and the massive scale of the Internet can result in something that is better than what either Silicon Valley or Hollywood can do alone. It is no wonder that the team that came to this conclusion before anyone else is now managing the most valuable company in the world.

Epilogue
When we go see a movie or splurge on a resort vacation, we don’t stop using electricity, brushing our teeth or checking our email. The Web of Want is not a replacement for the Web of Need, it is an addition. Many of the Internet companies that satisfied our needs in the last 20 or more years of the Web are here to stay. In fact, they will become more entrenched and stable, with low beta, just like the utilities in the offline world. Microsoft has a beta of exactly 1.0 — it is no more volatile than the overall stock market. And for those longing for the days of “real computer science” on the Web, do not despair. Just keep an eye on Rocket Science and Google X Labs — there is plenty of hard-core engineering ahead.

Disclosures: * indicates an InterWest portfolio company. Google Finance was used for all of the stock charts and beta references.

Keval Desai is a Partner at InterWest, where he focuses on investments in early-stage companies that cater to the needs and wants of consumers. He started his career in Silicon Valley in 1991 as a software engineer. He has been a mentor and investor in AngelPad since inception. You can follow him @kevaldesai.

The social game company’s shares are now officially down 50 percent from its December public offering when it sold shares for $10 apiece to raise $1 billion.

Its troubles can be blamed on a number of factors, including Facebook’s poor public performance and persisting questions on how both companies — Facebook and Zynga — will be able to gracefully transition from the Web to mobile.

But at least this time Zynga’s steep decline doesn’t seem to be tied to Facebook, which was up 1.5 percent, or 40 cents today, to close at $27.40 a share. And, as Kara Swisher pointed out earlier today, many public tech companies continue to perform well.

Forbes reported that Cowen analyst Doug Creutz warned in a research note today that new data suggests game playing on Facebook is in an “accelerating user tailspin.” Additionally, he said that Zynga’s daily active users were down 8.2 percent in May, the second consecutive significant month-over-month drop, “with nearly all of the company’s major titles declining significantly.”

In an interview on CNBC, Creutz elaborated, saying there were two reasons he was concerned: First, over the past few months, Zynga accelerated the number of game launches, but because the games were not substantially different, players jumped from one game to the next too easily. Second, while Zynga is aggressively going after the mobile games market, it’s still uncertain if it will be successful in making the transition.

To that end, Zynga announced a partnership with Enrique Iglesias and Jennifer Lopez to help promote the company’s recently acquired Draw Something game.

Zynga was criticized for overpaying for Draw Something’s creator OMGPOP because almost immediately after paying $180 million for it, the game started to lose its appeal. The game is now Zynga’s third largest on Facebook, with 5.6 million daily active players, down from 14.4 million at the time of the sale.

Still, the game could make a comeback, especially as Zynga begins to put its full force behind the indie production.

Zynga said it was launching Draw Something in 12 new languages, including Chinese, Korean and Japanese. To assist in the international launch, players will be able to select the “JLo Enrique” feature to unlock special words that they will have to draw.

Both artists have agreed to engage players of Draw Something on Twitter during the week-long promotion in the lead-up to their North American tour, starting July 14.

Recently, Funzio sold to Japan’s Gree for $210 million, and Zynga acquired OMGPOP for $180 million; not too long before that, Electronic Arts paid $750 million for PopCap.

In an interview, Pocket Gem’s COO Ben Liu said that mobile game companies are hot commodities right now, but to sell is shortsighted.

“We feel like it’s the early days of mobile,” Liu said. “There’s a decade-long shift occurring from PC and the Web to mobile, and games is only the first vertical to take off. There’s so much opportunity. We need all of our attention on that to be successful.”

Liu would not disclose the company’s revenue, but said that it has been growing extremely fast. Over the past year and a half, the company has moved its offices five times to accommodate the growth of its staff — from 10 to 120 employees.

And as of a few months ago, the company recorded 60 million app downloads since its founding in 2009. Its hit title Tap Zoo generated 20 million downloads alone.

Pocket Gems’ games fall into the “casual” genre, and are focused on building products that have fairly addicting play; they attract a predominantly adult female audience. The games normally have “tap” in the name — Tap Zoo, Tap Pet Hotel and Tap Jungle allow players to build, respectively, their own zoo, pet hotel and mystical rain forest.

Last week, Pocket Gems released its first game exclusively for Android, called Tap Dragon Park, which allows players to train dragons to defend their kingdoms.

Pocket Gems has been able to rise in the rankings without having to tap investors too much. (Maybe their next game will be Tap Bank?) It has raised $5 million in capital from Sequoia Capital and a handful of angel investors, and is profitable.

Here are Liu’s thoughts on some of the issues facing the mobile games industry.

On making acquisitions versus being acquired:

Liu says Pocket Gems isn’t entertaining offers at this time, but will consider making acquisitions of its own. “We’ve been completely focused on organic expansion, but I think as we continue to grow, something we’ll look at is acquisitions, as well. We are focused on building a great team organically, and are opportunistic.”

How many games can you release in a year?

“Last year, we launched 10 games total. Some of them are new IP that requires a larger team and can be franchise-sustaining, and others are seasonal titles or extensions.”

Is there an issue with copycats in the space?

“Yes, all of our games have been cloned extensively by most of our competitors. But that’s one of the prices of success. We’ve always prided ourselves on being an innovator. The thing that is difficult to clone is creativity. … We have a saying: Pocket Gems is a leader and not a follower. And many of our competitors have a fast-follower strategy.”

What are your thoughts about third-party distribution platforms, like Gree and DeNA, which are trying to create mobile social networks?

“We haven’t opened our games to third parties. It’s in our interest to develop our own platform. Their businesses are really compelling, but there’s no winning platform yet in the mobile space. We have our own loyal community, which is a powerful game engine. We don’t want to be dependent on someone else’s platform. Our own great platform is a powerful source of marketing, and it is good at letting our users know about the games. That’s the most effective.”

Is summer a good time for people to play and discover new mobile games?

“It’s a good time. People are on vacation and in transit, and it’s a natural device to use during those times. And people have more downtime and free time. We’ve found historically for it to be good. Holidays are another.”

Typically at this point in the hardware cycle, he said, the cost of developing new videogames would lead to a loss. But in a conference call with investors yesterday, Riccitiello said revenue from digital content will keep EA profitable.

“In the face of, unfortunately, somewhat of a headwind relative to console, we’re getting top line growth, robust digital growth, robust margin expansion, robust EPS growth, while affording the investment in the next-gen console. I don’t think, going back to our foundation in ’82, that’s ever happened before. So what we are guiding for is entirely unprecedented, and it’s a function of everything we’ve been saying on the call so far. … It’s our hope to be able to accelerate top line through a transition and accelerate bottom line growth through a transition because we won’t be facing sort of negative console compares.”

Nintendo expects to release the Wii U later this year, which will require new games that tap into both the TV and a touchscreen device. Neither Microsoft or Sony have unveiled plans for their respective next-generation hardware systems, the Xbox and PlayStation. Riccitiello did not mention the new consoles by name, and instead referred any direct questions about hardware to Sony, Microsoft and Nintendo.

“We intend to invest $80 million in Gen4 console development in fiscal ’13. We are strong believers that console will return to strong growth, and represent a great opportunity — one that is in lockstep with our digital plans.”

In fiscal 2012, EA generated $1.2 billion in digital revenues, representing a 47 percent increase year over year. In the past six months alone, FIFA 12 — one of the company’s traditional packaged good titles — was able to break $100 million in digital revenues for the first time. This year, it’s predicting digital revenues of $1.7 billion, representing 40 percent of the company’s overall business.

Even though Riccitiello painted a positive outlook, he failed to turn to the tide.

Along with a broader market meltdown, the company’s stock fell 65 cents, or 4.3 percent, at $14.48 a share. At that price, the company’s stock is off more than 40 percent from its 52-week high of $26.13 a share.

During the call, Riccitiello also tried to stress that while Star Wars: The Old Republic is an important title for the company, it is getting an unfair amount of attention by analysts. In the quarter, he said the number of subscribers fell to 1.3 million from 1.7 million when the game launched.

“So while I understand there’s an enormous amount of interest, I don’t know that it warrants as much as what we’re seeing right now,” he said, according to a SeekingAlpha transcript.

The final highlight from the call was when Riccitiello questioned how much Zynga paid for OMGPOP and its hit title Draw Something, which was No. 1 for a short period of time. He didn’t actually name the two companies, but it was implied.

“Right now, what I’m starting to see is valuation expectations that assume that these things are all hockey stick moving up and to the right with no end in sight, and I think those are bad assumptions,” he said. “Some of them will work, some of them won’t, but they can’t all be worth the multiple that I’m seeing in the market right now.”

In an interview, co-founder and President Anil Dharni said the company was founded two and a half years ago, but it didn’t make its first mobile game until nine months ago. Since then, it has launched three titles, including Crime City, Modern War and Kingdom Age, all of which have generated more than 20 million downloads.

The quick multimillion dollar sale is reminiscent of Zynga’s recent $180 million purchase of OMGPOP, which had been around for awhile but only recently catapulted to the top of the iPhone charts with its overnight hit Draw Something.

Dharni said the two back-to-back sales are not necessarily an indication of a trend in mobile games.

“We tend to hear only about the successes,” he said. “If you look at some of the other mobile gaming companies, some have gained traction but there’s others struggling that have fallen off the charts. … I think the downward trend is also happening.”

All three of the company’s games are free to play and monetized through in-game items. Both Kingdom Age and Modern War are among the top 25 grossing apps on the iPad. Crime City is the company’s oldest title. Neither Funzio nor Gree disclosed how much the apps are grossing, but Dharni said what makes its games stand out from the rest of the pack is player retention. And generally, the longer players engage with the games, the more likely they are to make purchases.

Funzio, which previously raised $20 million in capital, is expecting to be completely integrated into Gree’s San Francisco operations, relocating all of its 125 employees to Gree’s offices, where the two will have more than 300 employees all told.

“From day one, the thing we proposed was that we didn’t want to be an independent studio. We want to be integrated as much as possible in Gree,” he said.

Gree, which is a mobile-gaming powerhouse in Japan, is aggressively trying to build a worldwide social network for games on mobile devices. Rivals include DeNA’s Mobage network, which came to market through the acquisition of San Francisco-based Ngmoco, and Apple’s Game Center.

Funzio will now begin developing games for Gree’s mobile social platform, although they will not necessarily be exclusive.

Dharni said both he and the company’s co-founder and CEO Ken Chiu started talking with Gree a few months back, and since then had discussions with a number of other suitors, whom Dharni characterized as the “usual suspects.”

What stood out about Gree was its vast experience and knowledge about the mobile gaming space, he said.

“Mobile games in Japan make a ridiculous amount of money and we are just getting started in America. They are two to three years ahead of us in terms of understanding game mechanics and monetization. We can learn so much from them,” he said. “They are super smart and hungry folks and their vision matched ours. We had excellent alternative options, but we found the perfect partner.”

Late today, it announced the acquisition of Funzio for $210 million.

At that price, it exceeds what Zynga just paid for OMGPOP, which arguably had just one hit game. Sources said at the time that Gree was also one of the bidders in that deal.

Funzio, which is based in San Francisco, has developed a number of well-received mobile social games, including Crime City, Modern War and Kingdom Age, all of which have generated more than 20 million downloads.

“The team at Funzio is creating some of the best mobile games in the world today. This acquisition allows us to join their talent and expertise with our vision for a mobile social gaming ecosystem,” said Naoki Aoyagi, Chief Executive Officer of Gree International, in a release. “We are extremely excited to expand our mid-core portfolio and continue to show how the mobile games market is the inevitable next step for gamers worldwide.”

Funzio’s executive team, including CEO Ken Chiu and COO Anil Dharni, will join Gree International as Senior Vice Presidents while CTO Ram Gudavalli and VP of Engineering Andy Keidel will join as Vice Presidents. In February, Gree announced aggressive hiring plans in San Francisco. The company said it was moving into a new 41,000-square-foot office this spring, which will enable it to double its headcount to about 300 employees.

In May 2011, Funzio raised $20 million, and more recently, TechCrunch reported it was seeking to raise $50 million at a $350 million valuation.

Gree is aggressively trying to build a social games network for mobile phones, similar to the network Facebook has built for social games on the Internet. Rivals include DeNA’s mobage network, which came to market through the acquisition of San Francisco-based Ngmoco, and Apple users would compare the network to the iPhone and iPad’s Game Center.

But in order to attract users, it must first have good games. For foreign companies, like DeNA and Gree, it’s even more important for those games to appeal to Western markets as they try to expand here.