Mark Pincus On The Inspiration Behind Social Games And The Future of The App Economy

Last night Dave McClure interviewed serial entrepreneur Mark Pincus, who has run the social game development firm Zynga for the past two years, growing it to over 300 full-time employees and an estimated $50 to 100 million in revenue.

After speaking briefly about his past entrepreneurial experiences, which started in the 1990s with Pointcast competitor Freeloader and most notably includes the early social network Tribe, Mark dove into the inspiration behind Zynga and social games in general. He described how his experience with Tribe taught him that he was more interested in building extensions, or plugins, for social networks than the social networking containers themselves. So when Facebook prepared to open up to 3rd party applications in 2007, he jumped at the chance to become that network’s premier social games provider, even though many people - including Facebook’s own Dave Morin - doubted the viability of social games at the time.

Aside from believing that games were simply the “coolest thing” for people to do together on social networks, Mark believed they fit two particular insights. First, since Tribe had suffered from user engagement, with its most engaged members actually costing the site much more than they gave back, Mark was looking to build a product that aligned engagement with monetization. Gamers tend to spend more money the more they play, so Zynga was established with the idea that it could make money from the early days and enjoy even greater revenue as engagement increased.

Mark also realized from his own gaming addictions that people were willing to spend money to beat others in competition. Gamers who don’t have the skill to beat their online opponents without assistance are often eager to pay for advantages, or power-ups, that make it possible for them to win faster and save time. Zynga was therefore predicated on the notion that virtual goods should impact gameplay, not just add extra value around the edges.

So far these insights have paid off, with Zynga exploding in growth over the past year from about 60 employees to over 300. This has been a managerial challenge for the company, and it has required the institutionalization of corporate processes that were vital if irksome to many employees. He described how startups need to introduce delegation at around 50 employees and really start to bend under the weight of 200+ employees. For Zynga, this required painful changes to how things are run, but Mark says these changes have laid the foundation for another doubling in the company’s size.

Mark’s most intriguing remarks of the night were about how he predicts online distribution and monetization to change over the next 5-10 years. He believes that we’re moving towards an app economy where most internet services with be distributed over platforms. These apps will derive most of their revenue from digital goods and services, not advertising. Basically, users will begin paying for things online at a much higher volume, and developers will use metrics and game mechanics (even with non-games) to maximize engagement and profitability. A corollary to this trend will be making all consumer services more fun, since enjoyment encourage users to pay for more virtual goods and upgrades.

This paid goods vision of the web hinges on the availability of better and more pervasive payment systems. However, Mark thinks it’s still to-be-determined how the payments market will play out, and he anticipates that there will be many players at many different levels of the ecosystem. Because of his optimism for online payments and the app economy in general, he encourages all of the big players (Google, Microsoft, Yahoo, etc) to get more involved as platforms or risk losing out on the more private corners of the web.

June 29: Mark Pincus, Zynga

Our speaker this month is Mark Pincus, co-founder and CEO of Zynga. Social gaming site Zynga is one of the largest application developers on Facebook, with more than 40 million monthly active users and top games such as Texas Hold’em and Mafia Wars.

Previously, Mark was also the founder and CEO of Tribe Networks, and a serial entrepreneur with a track record of growing venture-funded technology companies. Prior to founding Tribe Networks, Pincus founded and served as CEO of SupportSoft, a provider of service and support automation software. Prior to SupportSoft, Pincus co-founded Freeloader, the first consumer push information service, which was acquired in 1996 by Individual, Inc. for $38 million.

Before becoming an entrepreneur, Pincus worked in venture capital where he led investments in new media and software startups at Columbia Capital Corp. and at Tele-Communications, Inc. Before getting involved in new media, Pincus was a business consultant for Bain & Co. and an investment banker at Lazard Freres & Co. Pincus graduated Summa Cum Laude from University of Pennsylvania, Wharton School and he is a graduate of the Harvard Business School.

May 28: Randi Zuckerberg, Steve Grove, Chris Sacca on Government 2.0

Our Startup2Startup speakers for May 28 are: Randi Zuckerberg of Facebook, Steve Grove of YouTube, and Chris Sacca, ex-Googler and a Twitter investor. 

They will speak about how the Internet, social networks, and social media are being used in government and democracy, and what it means for both entrepreneurs and citizens.

Randi Zuckerberg manages marketing initiatives at Facebook, where she has led the Facebook US election and international politics strategy, and managed several large media partnerships. Included in The Hollywood Reporter’s 2008 Digital Power List, Randi has led projects ranging from the ABC News/Facebook Presidential Debates to the CNN/Facebook Inauguration Day Partnership and Comcast’s Facebook Diaries. She is a television spokeswoman for Facebook and has made appearances on Good Morning America, The Today Show, France 2, and World News to discuss Facebook’s marketing and political initiatives. Most recently, Randi represented Facebook as a correspondent for CNN.com’s Inauguration Day live broadcast. Randi is a graduate of Harvard University and has a passion for Italian opera and Broadway showtunes.

Steve Grove is the news and political director at YouTube, where he directs all news and political programming for the company, including the YouTube CitizenTube blog & video channel.  Steve’s work at YouTube has included the development of You Choose ‘08, YouTube’s 2008 Elections platform that hosted presidential campaign YouTube channels, election news coverage and commentary from voters and media organizations, and spawned two presidential debates in partnership with CNN. He develops and manages media programs with national and local news and political partners, in order to increase citizen engagement and in politics, government, and news reporting. Originally from Northfield, Minnesota, Steve worked at the Boston Globe and ABC News prior to joining the YouTube. He received a Master’s in Public Policy from the Kennedy School of Government at Harvard in 2006.

Christopher Sacca is an investor, advisor, and entrepreneur in a number of consumer web, mobile, and wireless companies, including Twitter.  Previously at Google, Chris served as Head of Special Initiatives and was responsible for telecom projects including Google’s 700MHz and TV white spaces spectrum initiatives, and  Google’s free citywide WiFi network. Chris also led many Google business development and M&A transactions.  Most recently, Chris worked on President Barack Obama’s campaign as a Telecommunications, Media, and Technology advisor, and as Co-Chair of Finance and a Trustee of the Presidential Inaugural Committee.  Prior to Google, Chris held executive roles at Speedera Networks (acquired by Akamai), and was also an attorney with Fenwick & West where he handled venture capital, M&A, and licensing transactions.  Chris graduated cum laude from Georgetown University Law Center, and graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University. Chris also attended university at each of Universidad Católica del Ecuador, University College Cork, and the Universidad Complutense in Madrid, Spain.  Chris lives in San Francisco and is an avid surfer, kitesurfer, skier, and triathlete.

Steve Blank and Eric Ries: “Customers! Customers! Customers!”

Retired serial entrepreneur Steve Blank was joined by IMVU co-founder Eric Ries last night at Startup2Startup in Palo Alto to discuss how startups should couple customer development with product development from day one.

Blank began by describing how the product development process used by most entrepreneurs is ill-conceived. Instead of continually reassessing their product designs in light of customer feedback, companies tend to follow a linear development path that takes them through four main stages: 1) conceptualization, 2) product development, 3) beta testing, and 4) launching.

Ries argued that this strategy only makes sense when both the problem and the solution to that problem are fully understood. Most startups, however, cannot readily conceive a good solution to the problem they’ve identified. And many others don’t even have a clear idea of the problem they are trying to solve. Particularly in the latter case, startups must continually reevaluate both the problem and the solution by consulting their potential customers and developing a thorough understanding of those customers’ needs and behaviors. And this reevaluation leads to lots of product iteration that turns the development process into more of an ongoing cycle.

While we tend to think that the technology behind a startup determines whether it succeeds or fails, most startups actually fail from a lack of customers. This is especially true on the web where the risks to technology are relatively low, while the risks to customer acquisition and retention are relatively high. Therefore, it’s crucial for a web startup to incorporate processes that help it to develop a promising customer base while it builds out its technology.

Blank emphasized that there are no magic solutions for customer development; it simply takes a lot of focus on customers and the market at hand from the very beginning. When startups continually focus on their customers, they tend to fail fast and often because they discover a need to realign their efforts. But this is a good thing since lean startups with the ability to adapt (and “get outside of the building” to talk with customers) end up creating products that customers are actually willing to pay for. After all, earning revenue from the start is the best signal that you’ve stumbled upon a real solution to a real problem.

Here are the slides from the presentation by Steve & Eric:

Here is a recent presentation by Eric Ries on “The Lean Startup, Step-by-Step”, from his webcast earlier today via O’Reilly:

Here is a schematic from Eric on the Lean Startup feedback loop / iteration process:

Here is a brief pre-event interview with Steve Blank, conducted by Startup2Startup co-founder Leonard Speiser:

Here is the full recorded webcast of Steve & Eric’s talk below, courtesy of uStream: