TechCrunch brings a much needed new angle to looking at Zynga’s running away success with the Facebook games market, by comparing the company to a similar sized Japanese social games developer GREE.  In short, their Japanese counterpart is turning a bigger profit on slightly less MAU (monthly average users). Why might you ask? Well the post posits it’s because of GREE penetration into the mobile market.

I have to wonder though if that’s all there is to it.

Of course, any attempt to draw parallels between the Facebook games market and the social games market in Japan is going to be fraught with caveats.  Facebook games and social games in general are driven not only by cold hard cash, but the value of acquiring ‘free’ new customers through sharing. One has to wonder academically if and how the two cultures approach that kind of behavior and what the end value difference is, if any. 

Unfortunately I have never played any of GREE’s games (though please if you have, tell us everything), but I wonder if it’s more than position and GREE’s success is also driven by a variety of game types and designs. Perhaps even, in a bit better quality and more, well- fun.  

Closing note: Zynga is not an evil company. They are a successful company and they are very good at what they do.  I pick on them out of admiration, mostly, though of course there are times we have given out some heavy criticism.  Let’s not also forget, as the Russians say: о вкусах не спорят-  or about tastes don’t argue.  This is just one dude’s ‘fun’ meter.

IGN reported recently that in the month of November Mafia Wars 2, the follow up to the Zynga smash hit Mafia Wars that was one of the first games to nearly beat our Facebook wall into submission, lost 900,000 daily active users.  More significantly, only 10% of users are playing the game daily, half of Zynga’s average of 20%.

An incident is not a trend, a very wise boss once told me.  Of course, one can’t help but think (as the IGN article mentions) that perhaps this is either an indication of general market saturation, Zynga’s aggressive release schedule (and seemingly monolithic design palate), or both.  Facebook game haters, no doubt, are rejoicing at the news as an indication that they have been right all along.

Well Zynga is still headed towards an IPO with a $10 billion valuation.  That will not change. Nor will the tendency for plenty of people to throw down serious money for playing their Facebook games. 

Perhaps it is indeed an indication of market saturation, however.  More interesting from our perspective at CLE though, is if the demand is waning- where is it going?

We can’t help but think, hope (and maybe even pray) that much like we all grew tired of the thousands of NES titles that were pumped out, gamers have lost their giddy excitement about the experience and are now hunting for quality. In that case, I think we can see this as another indication that Coray’s design tenants for Facebook games may be an outline for what Facebook gamers are demanding. 

It’s so easy to hate on Zynga and their quest to seemingly take over the world, one slightly-consented-to-wall-post at a time.  They’re rich, they're successful, and like so many rich, successful companies they can’t help doing some things that are creatively annoying (really, another resource management game?) or just downright dickish (demanding back stock options from long time employees).  

(On the flip side, it’s also easy to hate on the haters, who are playing a Facebook game for FREE after all…)

The New York Times excellent blog “DealBook” has a great story about the culture at Zynga, driven by the MBA and former Wall Streeter at the top, Mark Pinkus,* that made me reflect on my own exotic business experience and how that’s helped me make business decisions in games and technology.

The Times post features some strong criticism of Mark for the hard-edged meritocracy that Zynga seems to have.  The article suggests the meritocracy that has helped drive Zynga’s leadership of the Facebook game market may also be its undoing. Mr. Pinkus seems to love his spreadsheets and it appears he applies them to his employees just as much as his products.

It’s easy to hate on that.  I’ll even go so far as to say a great deal of the ‘hate’ is well-grounded. But I have to let you in on a secret, I’m a (mostly) reformed Meritocrat so I totally understand where he is coming from.  As a manager, there is something beautifully liberating about just following the data. The data allows you to talk past much of the, well, bullshit and complaints that staff can and totally do bring up all the time.   

The first time I ran a company, instilling a meritocracy was a life (if not company) saver.  Of course,  it’s too easy to rely on the beauty of theory and miss what makes a company special, not just profitable.

The first company I ever ran was a small tourism outfit in Prague that had some success but was stagnate with no growth. The company was completely reliant on a few key partners to send nearly all our customers.  It was a party business and fit for a reality TV show, so the staff of the tired company were predictably drug addicted, lazy, illegally employed and completely bereft of incentive to do anything other than show up, more or less on time, every day to get trashed, high and/or naked with our customers.**

I was given responsibility for the company and the first thing I wanted to do was fire everyone.  I wanted the owner and myself to start over and build it up from scratch, right, as a pure sales organization.  The owner was hardly interested in putting in hours though (after all, that’s why paid me enough to leave technology for a year and sponsor my work visa). He also didn’t want to deal with the backlash from the staff and Prague tourism community.  I got to fire a few people but many had to stay.  I was just going to have to deal with them.

I had to find a way to make the old staff work with the new staff, and ensure the new guys didn’t end up like the old. The golden solution was a meritocracy.  Compared to other jobs in the Czech Republic we paid our staff very, very well and I decided that only people who earned it would be on our schedule.  I created a pretty simple system with the new team’s input and it worked like a charm. 

The business tripled in size in only a few months and lots of other great KPI’s grew, but let me focus on perhaps a different metric: what I called my ‘daily dose of bullshit.’  I’m not talking about random events that come up (we had those in spades), I mean the stuff that happens every day. The stuff that you can’t help but become convinced will never, ever go away no matter what you do.

1. Entitled idiots asking for work because they have a friend
   An ‘English teacher’ (90% of the time) friend of someone, would call me asking for ‘a couple shifts.’  No, they can’t or won’t promote. No, they aren’t interested in really doing any work, but yes, they will hang out and hand out a few beers if we pay them 4x the rate of Starbucks baristas. Of course, they’re a friend of someone, so if you treat them the way they should be treated, you’ll have yet more bullshit to deal with.
2. Crappy Staff asking for more shifts
   It was never the people who deserved it who asked.  It was always well-timed though, after their one good day in a month.  Often included was a diatribe about why the managers and/or bartenders at the places we work with love them so much, as if that had an impact on our bottom line.  Often, they would add something about some meeting (with no result or follow up of course) they had with some potential partner that would, of course, be a game changer. 
3. I’m too smart to work
   'I have 2 degrees from top-30 schools (or I’m a high school drop out with ‘real life’ experience). I have 15 letters of recommendation (some of which are real) dating from back when I was in high school.  I can’t sell anything or promote your business, but I have lots of great ideas and I even took an accounting course once.  You should hire me, but no of course I’m not going to stand in the square and hand out flyers like everyone else has to do, I’m too valuable for that kind of work.'

You know what solved all of that? No, not a baseball bat and a long, rusty metal staircase.  A meritocracy.  You sell, you get shifts. You don’t sell, you don’t get shifts. It wasn't that simple. I gave people plenty of room to have their ups and downs, but the message was clear: this is a team of people who get shit done.  

Now mind you, those calls and requests never stopped.  I was still peppered with the requests, if not downright demands, on a daily basis from people inside and outside the organization for work they didn’t deserve. Now though, instead of having to address all their petty bullshit, I would just point at the policy and say ‘participate like everyone else, or I’m sorry, I can’t take work away from people who have a clear record of growing our business.’

It was fair. It was simple. It was beautiful.  It required some balance in implementation (grilling people on having a bad day is just being a dick) and a slight fix to allow people to still work on commission if their numbers dropped too low for too long, but it totally worked, and the business still uses the same system to this day.   

The problem is: making a great Facebook Game isn’t promoting a club party.  Inspiring a kid who ran out of his parents’ money while backpacking around Europe is not the same as inspiring a designer or a programmer.  As tempting and alluring a meritocracy can be, there are severe limitations that become quite dangerous the more complex and creative your work gets. 

So Mr. Pinkus, I totally get it. But there’s more than just the data. If only it was that easy. *sigh*

*Mark gets some points for naming the company after his dog.  That’s pretty awesome.    

**Nothing wrong with that sometimes, but it’s the dose that makes the poison. 

I decided to write a response to a rather poignant post on Gamasutra by a developer who is tired of being laid off and is trying to make sense of the business forces behind his constant relocation.  It’s a big question, so my response will sometimes generalize and summarize rather complex systems. I’m going to put aside industry trends (like Facebook games and rising costs of AAA development) and try to focus on the challenges business people face, and how they result in developers' lives sucking. 

Risk
Investing is about one thing: managing risk.  If you want to understand the perspective of your business overlords, it’s seeing how risk management drives the entire chain of money behind games, from institutional investors to the person green lighting projects at a VC fund or Publisher.

First off, that person isn’t just trying to make more cash so they can upgrade the mistress’ Benz.  The people guiding huge investment portfolios have to keep their investments balanced as market conditions change, so they don’t lose all the teachers and firefighters retirement savings in one swoop.  It sounds like a cute summary, but it's true. 

Valuation Nightmare 
Some Russian Mining Tycoon calls you and says, “Here’s access to every piece of research in the world and some crack financial modelers. I need to know the value of three video game projects: a Facebook game prototype, a half finished cloud based RPG, and a core shooter that’s just started their private beta. Pick one to buy and fund.  Pick the right one and set the right budget so the project is profitable, or you and everyone that works for you is fired. Lucky for you, they’ve closed all the gulags, Yankee.”  *click*

Think you know video games? Try putting a dollar figure on a project.  If there is anything I wish creative people understood is how unbelievably difficult it is to make these business decisions.  Imagine being an executive who gets three Facebook game proposals an HOUR. Which projects should you bet your career on?

First the game has to be fun and finished on budget and on time. Then there has to be a way to take the game to market so that people notice it and play it fast enough to build momentum and recoup costs.  How do you value you that, even as late as in Private Beta?

Respect Business Builders
One quick note. I hate to get short, but we’re going to have to stop complaining about the locations and clusters of game companies. It’s really hard to run your own company. If you don’t want to deal with that risk and just work for someone else, be prepared to move to where those people are.

It’s easy to say, “There should be more game studios in North Dakota. Facebook games make so much money. Why aren’t developers here too?” Try throwing your entire life into a company and facing that decision.  The business is risky enough. You want to make it 10x harder to find experienced engineers just so you can help ‘the local game dev scene?’ If you do, that’s awesome, but it’s not really fair to hate on founders who just want to make games.

Will it stay like this? Yes, but it will get better
The good news is that the constantly changing industry is settling into better business models. The inherit risk will NEVER go away, but the business will get better at managing it.  

I think the number one thing a studio can do is have more than one customer.  If you’re a AAA developer with 150 employees working on an Xbox game, you only have one customer - the publisher. All it takes is one bad board meeting for the plug to get pulled.  

The industry is getting better, though, by nature of online games.  Facebook games are cheaper to make, produce persistent revenue streams and have near-zero distribution costs.  Even the online games that are not free-to-play are a step in the right direction, because you’re able to reduce the ‘fun’ risk by easily being able to update the game.

Silver Lining
This may sound like the Oz of econ we all hear about but never really see. The truth is that this situation is really awesome for the fans.   A chaotic market can be hell for those in the business, but fans are always getting new products from new teams on new platforms with new technology.  The chaos on our end means innovation on their end.  

Final Note
Entertainment businesses suck because they all face this problem.  I used to want to be a film producer. Then a friend worked on his first game project and I realized the ocean of difference.  At least the games industry is open and can be attacked by outsiders on a daily basis.  At least we don’t have to break into the industry by fetching coffee or the casting couch.  

All you have to do is make something great. 

This post is written in response to “the 7 reasons you don’t want to work in the video game industry.” I can’t help but write off most of the items as merely indicators of a fast growing, high-technology industry, with the lone though very notable exceptions of a quality of life issue.  

#7 You Won’t Work on A Game You Like
The article leads off by talking about how you’ll be forced to work on some kind of Hello Kitty Island adventure Facebook game or DS port you have no interest in when you’re starting off your career.  Well yeah- that’s how careers start. Nomar Garciaparra started his baseball career playing in the minor leagues in Trenton New Jersey, I doubt he’s crying on his wife Mia Hamm’s shoulder about it though.

#6 You’ll Be Expected to Move Far, Far Away
This is a tough one because it all depends on your personality and situation. For some the chance to work in a different country is an awesome experience. I’m rather biased because although I’m from a 1-stoplight town in New Jersey, I have lived and worked in both Czech Republic and Poland and even studied in Russia for a year.  The idea of working someplace else was part of the reason why I loved games and technology, the world is actually your oyster.  When you get to a certain point in your career you can almost spin the globe and stub out a finger.  

There are plenty of pockets in the US with lots of game development companies, generally concentrated around good cities and schools (go figure), so while you may have to move from North Dakota it’s certainly possible to stay in the Northeast or one part of the West Coast most (if not all) of your career.   Again though this is just part of working in a big, growing industry in the 21st century, potentially having to relocate is just the way the world is these days.

#5 The Fans Will Attack You For Everything
Well, customers can certainly be kind of annoying- ask this former starbucks barista- but again that’s kind of life.  The good news is in the video game market quality goes a long way (can’t say the same about film, Mr. Bay) and at the end of the day a great game, if well managed, is a huge business opportunity.  In fact, one could even argue a rabid cohort of fans is an indicator ofr success, if not a downright prerequisite.  

No really.   When EA ran the numbers on their active and angry forum contributors for the free to play Battlefield Heroe, not only were the many, many threats to ‘leave the game’ hollow, active forum users were the highest monetizing cohort.   At the same time the changes the fans were attacking increased the game’s monetization, user base, and more. That’s right the free market has spoken and the trolls have lost.  High-five for America.

#4 Nobody Will Understand Your Job 
Who cares what other people think? I bet most of the best jobs aren’t well understood by outsiders anyway.  Just tell girls you make Facebook games if you want them to think you've got bank. 

#3 You can’t Complain - Literally 
See #5 for a valuation of online complaining.  Want to really complain or deliver great feedback? Become great at what you do and work for someone else (or start your own shop).  That hurts- for realz. 

#2 You will work so many hours, you will essentially stop existing
On this point the article is spot on. This is just crazy and god knows why people still think this is good to do to their team, even though all the data goes against it. 

#1 You will get fired
Don’t want to ever get fired? Become a teacher and get tenure.  What an exciting career in a fast paced, high technology, cutting edge industry? Keep your skills and resumes up to date. No risk no reward hombre. 

Coray outlines the tenants for designers to create a great social game.  While some gamers are understandably unsatisfied with the current options in the Facebook game market, it's a new market and investors and customers alike are still figuring out their expectations.   Games without a clear and specific price point are fantastic opportunity for a variety of reasons, but the reasons why this model is attractive for investors and customers are naturally at heads with each other.  Investors want the highest return with the lowest risk and customers want the highest quality experience at the lowest cost.

Of course, as an independent developer one has to appreciate monetizing your games.  It’s important not to forget that for investors one of the draws of Facebook games, or games ‘on the cloud’ in general, is the fact that they solve the issue of piracy that was taking a huge cut from the bottom lines of major releases. 

As much as I truly believe Coray’s tenants are not only the foundation for a great experience for gamers- as well as a better path to sustainable value for investors, I can appreciate the driving forces behind the games that are more of a grind.  Developing games is a daunting business for everyone involved.  Companies large and small come and go because they are just so difficult to make and there is so much risk involved.  Facebook games are relatively cheap wagers at huge, ongoing, income streams. The economics just lends itself to printing as many products as possible, throwing them into the market laced with heavy, proven monetization mechanics and seeing what sticks.  

In some ways it’s akin to learning a few jokes and buying 1 decent outfit, then going out and just hitting on every girl you see every waking hour.  It may not be classy, but if it was a huge bar with 750 million people in it- eventually you would get a ton of results.  

Like most things in life, market opportunities and challenges often stem from the same well.  The social market is 'flat' and easy to enter creating a hyper competitive atmosphere where the safest best is creating and monetizing viral channels, and hard. The key to success isn’t merely reaching the market, but reaching a critical mass of initial players.

It may seem quaint, but time was half the challenge was just getting your product to market. The system was inefficient and one could argue, unfair, but the fiefdoms had a way of handling quality: a gentleman's agreement. When John Ford wanted to make what turned out to be the masterpiece, The Quiet Man he had to go to a so called b-studio, Republic Pictures to get the passion project funded. The deal came at a price of course, the studio agreed only under the terms that Ford also made the more mainstream, though also quit good in its own right, Rio Grande. 

In a closed off market, you can work the major and minor players who decide who can go to market. Facebook is as 'flat' as it gets though, so you have to either dominate or cut through the clutter.  So far this has mostly happened by aggressive marketing driven by aggressive monetization.

Thankfully, this is the video game industry. And I'll stack our crap to gold ratio up against any other entertainment industry any day. Investment is pouring into Facebook games and the experiences are only going to get better. CLE is certainly betting on it!

-Dylan Tredrea, COO

In this recent post  on gamasutra, I try to summarize a way forward for Facebook game designers based the core tenants of what a great Facebook game should be.  Facebook games are clearly going to be a huge market for a good while, but monetizing free games can be a tough balance for developers with anxious investors.  I think many fans would agree some titles grind gamers for their Facebook coin a tad too much.

This post outlines 4 steps I think designers can take to deliver a great gaming experience while still paying the bills.  The Facebook game market is still young in ways and as technology races forward higher quality games are bound to take the platform to the next level. 

-Coray Seifert, CEO