From Jewel Quest to World of Warcraft, gaming has always occupied a niche online. By combining the social might of Facebook with the narrative element of experiential games like Oregon Trail or The Sims, Zynga -- a social network game developer based in San Francisco -- was able to become one of the fastest-growing companies on the Internet. Millions of Facebook users play FarmVille, Mafia Wars and the company's other titles -- with many shelling out real dollars to add to their virtual barnyards or crime syndicates. A recent New York Times report put Zynga's estimated value at $10 billion, noting that investments have quintupled its worth over the last two years.
Andrew Trader was a member of Zynga's founding team in 2007, and until last year served as executive vice president of sales and business development. Previously, Trader was CEO of Tribe.net, a social network sold to Cisco in 2007, and co-founded Coremetrics, a website marketing analytics firm. Trader (otherwise known as "AT") is currently entrepreneur-in-residence at Maveron, a venture capital firm with offices in Seattle and San Francisco. In a recent interview with Knowledge@Wharton he discussed the rise of social gaming, how "gamification" is seeping into other industries, the importance of analytics in Zynga's success, and the different strategies male and female users employ in building virtual worlds in its games.
An edited version of the transcript appears below.
Knowledge@Wharton: You're currently employed as entrepreneur-in-residence at Maveron, a venture capital firm. Can you tell me a little about what that job entails?
Andrew Trader: As an [entrepreneur-in-residence], I am looking for my next big opportunity.... I work with [the Maveron team] by bringing them interesting opportunities, and they show me interesting things that they're pursuing or that they're looking into. It's a great symbiotic relationship.... My next big opportunity has four criteria: It's a transformational consumer experience; something that's massively scalable; something that uses the same social gaming mechanics ... that have made FarmVille, CityVille and Zynga's other games so successful. It may not be a game per se, but [a project that] uses some of the similar mechanics, and also, something that has a little bit of social benefit. Zynga has raised $4 million for charities, including Haiti and Japanese [earthquake] relief. That, to me, is a really important part of the overall mission.
At the end of the day, that transformational consumer experience is what gets me excited. Part of the reason for Zynga's historic success and growth has been its ability to create a quick, easy, lightweight, fun, social interaction with your real friends. And it changed everything: It took online games out of the shadows and put them into the light of day, into the hands of the mass market. I've been lucky enough to be [part] of three big, transformational consumer experiences: Zynga with social games, Tribe with social networks, and Coremetrics with e-commerce and making sense out of e-commerce with data and analytics....
Knowledge@Wharton: What type of tech startups do you think will be the wave of the future? Is it going to be more social gaming? It seems like a lot of location-based services have sprung up in the image of Foursquare, and also clones of the Groupon model.
Trader: It's all social. We are just scratching the surface when it comes to social. Social media has changed everything. It has changed the user experience. It has lowered the bar for [being able to launch] startups, and created companies of historic proportions in terms of growth. I believe that the way that we find, use [and] consume media, commerce, shopping, services, everything, is going to involve a social component -- and that's [coming] over the next few years.... According to The Wall Street Journal, Groupon and Zynga are two of the fastest growing companies, if not the two fastest growing companies, in the history of commerce, and it's because they nailed that social component.
Knowledge@Wharton: It seems like a lot of people are trying to launch initiatives based around social media. There are many startups in this space, and a lot of people taking the Groupon model and trying to capitalize on that, or using the Zynga model, and trying to innovate from that. What sets apart the startups that make it from those that don't? What factors are the most important?
Trader: It's providing an authentic, compelling, valuable social experience. Zynga and Groupon are a little bit different. For Zynga, that ... social connection continues to be a very deep and real compulsion for the daily usage of the games. Groupon started that way. Groupon nailed that social selling piece [with the idea] that deals were only active once they tipped, which meant they hit a sort of minimum threshold. That was a reason for users to go out and send that [deal] to their friends, because they wanted ... to take advantage of the deal, but they could only get it if a certain number of people took advantage of it. The problem now is that those things tip --
Knowledge@Wharton: In two minutes?
Trader: In two minutes, right. And so it's lost a little bit of that social compulsion. I think Groupon has a massive potential opportunity if it could reignite that social dynamic, and I am confident that they probably will. With Zynga, it starts with that social element. What they've done amazingly well is use the social gaming mechanics -- for example, the harvesting [mechanic] in FarmVille, an energy and gifting mechanic in Mafia Wars and a neighbor mechanic in CityVille, all of which encourage the user to not only play today, but also to come back tomorrow. In Farmville, there's nothing worse than having your crops wither. In Mafia Wars, there's nothing that makes me happier than somebody adding me to their mafia. And I will want to repay that favor.
Knowledge@Wharton: Looking at FarmVille and CityVille and some of those other Zynga games on Facebook, it brings me back to those days when I was a kid and I was playing Oregon Trail [a computer game about 19th century pioneer life,] where you're trying to make sure your settler doesn't die of cholera. What do you think it is about social gaming that's really made it catch on with customers? What is it that makes people really almost obsessed with coming back and making sure their farm is staying alive, making sure they're taking out people in Mafia Wars?
Trader: It's funny that you bring up Oregon Trail. There were two versions of Oregon Trail in the early days of the Facebook platform that both took off and then went to zero. The problem was that there wasn't enough depth in the game.... It ended too fast. If you weren't developing those games in a way that had significant depth, so that a user found value in it every single day, every single visit, they're just short lived. That was the problem with a lot of gaming. If you remember all the way back to 2006, the online gaming experience was ... casual games that you could play on Pogo or Yahoo Games or AOL Games, where it was a single player experience. It was solitary. You felt dirty after you played the games [because] they were fun and a little bit addictive. You couldn't stop once you started.
But it wasn't a fulfilling experience because it wasn't social, you weren't playing with your real friends, and you're looking over your shoulder trying to see if anybody's watching you.
The other experience was the hardcore MMOs [massively multiplayer online games, which support hundreds or thousands of players simultaneously], like World of Warcraft, which is a great niche of 10 million monthly users. But it's still a niche.... It's not for everybody; users invest, three, four, five hours a day in games like that.
Social games hit a mass market for three reasons. This was our belief when [Zynga co-founder] Mark Pincus and I and the rest of the founding team at Zynga were talking about social gaming. Our belief was we could reach a mass market by, one, making the [games] fun and quick and easy; two, by making them real social, so you're playing with your real friends, and three, enabling the user to express themselves in the game. If [users] were willing to express themselves, and if you provided a way for them to express themselves, they'd be willing to invest their time, their social network and even a little bit of hard dollars.
Knowledge@Wharton: To make sure that a game is going to create that value and that experience for a consumer, it would seem that if you're developing it, you would really have to play it all the way through and sort of delve into those layers to make sure that it does. Can you tell me a little bit about that process in terms of your experience at Zynga, and maybe in terms of some of the projects you're working on now?
Trader: I still remember the first time that I really had that emotional connection. I was playing one of our first word games, which was a game called Scramble. I was playing with ... a good buddy of mine. He ... lives in the neighborhood, but I never see him. I hardly ever call him on the phone and we rarely email each other. And forget about texting or IMing each other. There's no time for that, right? We have busy lives and families.
When I was playing Scramble with him, it was an asynchronous game, which meant you didn't have to be online at the same time. When we were playing that game, it felt like no time had passed between the times that I actually did see him because there was that real, fun, quick, competitive connection that we were sharing. That's when the lights came on for me. It was at that moment that I felt very confident that Zynga's games could reach the mass market and could deliver this really satisfying social experience....
Knowledge@Wharton: Was everyone at Zynga becoming obsessed with not letting their crops die on FarmVille a couple of months before the Facebook users were? Just to make sure the game was going to work the way you intended it to work?
Trader: Big studios are not only managing all kinds of new features, but building on those social gaming mechanics. You're really zeroing in on the stuff that drives that compulsion. As a user, you're not exactly sure that's what's at work there. You just know that getting a gift from somebody feels really good. And when you do, you want to return a favor. Or [if] somebody is asking you to be their neighbor [in a game, you think], "Hey, that feels really good. I want to pay that person back. And oh, by the way, it felt so good that I want to invite a couple of other friends of my real friends to be my neighbors. Oh, and by the way, by doing that, it's actually helping me progress faster in the game. I'm accelerating my experience in the game."
All of those things are at play. We had phenomenal product and development teams that innovated around those social gaming mechanics and added features.... But that's also why Zynga has 1,600 [employees] now. Each [gaming] studio can have 60, 80, 100 people in it.
Knowledge@Wharton: How do you think that customers' affinity for social gaming can be leveraged into other sectors? Can you take what made FarmVille work, what makes CityVille work, and apply that to the business world, for example?
Trader: The trend now is called gamification, which I find a little bit hard to say. But suffice to say, gamification means applying those successful social gaming mechanics to other areas.... There's nothing that I find more valuable than when a friend suggests an article for me to read. I don't find anything more valuable than when a friend says, "Hey, I got these climbing shoes at REI. You should check them out." There's nothing more valuable for me than when a friend says, "Hey, I just found a new financial advisor" or "I found a new doctor...." Almost every aspect of my life is better, satisfying, more fulfilling and easier when my friends are suggesting or recommending, or are able to have some input on the things that I do and buy and see and watch and consume and eat. I believe every one of those industries that are affected will benefit from social.
Knowledge@Wharton: How do you take that idea of friends suggesting things to friends and apply it to other industries, and where does the game part come in?
Trader: Take health and wellness -- imagine if a health insurance company was so progressive that they said, "You know what? For everything that you do that's healthy or that benefits you from a wellness standpoint, we're going to give you points. Eat a healthier diet, see a doctor more regularly, have your blood pressure checked, take vitamins [and] you're going to get points in the game of health, the health game, the wellness game. As you progress, you're not only going to get these virtual benefits -- [where the insurance company will] put you on a leader board among your friends saying, "Here's AT and he's a super healthy guy" -- [but where the company will] also turn it into a real, valuable experience by having it affect my premiums....
Knowledge@Wharton: As social media has grown, there's been a lot of talk about this idea that people are more comfortable sharing things that might have been kept private years and years ago. What are the challenges creating a profitable social gaming application, but balancing that with a need to protect users' privacy? And also to protect users against scams?
Trader: Zynga has always been super, super sensitive to privacy issues and has made sure to follow the Facebook Terms of Service and [the] terms of service [of whatever platform] that we've been on, and to follow those extremely closely.... I'm a consumer, too. I want my privacy protected. I think the best news has been Facebook's aggressive approach to privacy, [which] has had significant backlash in the last half year. It's made them rethink a number of their policies and approaches, and I think it's better for everybody. Facebook, its users and its development community, are all benefiting from that.
Knowledge@Wharton: Because Zynga and other applications like it have been so successful, there are a lot of other companies wanting to be a part of that, and tie offers from that business to different benefits users can purchase to move forward in the games. How do you protect users against spam or scams?
Trader: That whole process has been totally redefined in the last almost two years now. Once [leadership at Zynga] realized that there were offers that were misleading, were scammy or spammy, were confusing, were fraudulent, we took a really, really hard line. We dropped all of the offers from our site for over a month. We wanted to make sure that we had a system in place that would help monitor, as well as have a manual process for evaluating and approving every single offer that went back onto the offer walls. Facebook also changed its policies to insure that the user experience was protected. I feel good now that the industry as a whole has addressed that for the benefit of the consumer.
Knowledge@Wharton: What type of conversations do you expect going forward in terms of privacy concerns?
Trader: Those [scam] offers have been around a long time on different places, in different forms. You can find them all over the web. They're not as regulated, frankly, as they are on Facebook and some of the other networks, and they don't have companies like Zynga, who are championing the user experience, who put forth the understanding that if you violate the trust of a user, that user will never come back....
Knowledge@Wharton: Now getting back to your health care example, if someone's playing this "health care" game, they're not only gaining benefits, they're also providing a great amount of data to that company. How are companies able to leverage this?
Trader: The dirty little secret of Zynga is, of the five corporate values, none is more important than being metrics driven. For Zynga, that meant if you can't measure something, don't build it. If you couldn't measure the results, don't try it. Because how do you know it's working? How do you know it isn't? Especially in the early days, it was hard to be true to that value. But what it did was it instilled in our culture, in our company's DNA, a real significant emphasis on metrics.
I believe that that was a differentiator between Zynga and a lot of our competitors: The ability to test, analyze, optimize [and] repeat that cycle was instrumental in driving significant growth. I hear this all the time from companies. They've got eight people, 12 people, 25 people, and they say, "You know, we're thinking about hiring an analytics person." And then I say, "Well, it's too late. If that wasn't in the fabric of your DNA from the outset, it's really, really hard to try to backfill that." Everybody at Zynga -- developers, product managers, business people, executives, CEO, everybody -- had that focus on metrics and transparency, which really did allow us to innovate quickly, test things really, really aggressively, and ultimately, kind of dominate this space....
Poker was the first game that we launched [on Facebook], and we weren't the first. We were the third poker game to launch. It wasn't about being early. It wasn't about being in the right place at the right time. It was Mark Pincus' stroke of genius to launch poker. But it took great execution and understanding of both the viral piece of it, and innovating around the social elements. Every step of the way, every incremental improvement was always about testing, analyzing, optimizing, repeating. It almost sounds clichéd, but it comes down to execution always. Once you get the strategy generally right, it's about who can execute against their plan better.
Knowledge@Wharton: Users probably don't think about it, but every bushel of corn that they buy, there's a number behind that, that you can use to learn different things about the site.
Trader: That's right. And in fact, the three priorities that we always had at Zynga were: reach, retention and revenue. We called them the three R's. In the early days, it was about reach. Then it was about reach and retention, and then reach, retention and revenues. We never did anything in those early days for revenue at the expense of reach and retention. But within each one of those priorities, there are a set of metrics that you look at. For reach, you're looking at viral growth, paid cost of acquisition [and] cross promotion capability.
[For] retention, you looked at my day one retention, how many of those users that came the first day ever returned? What's my week one retention? What's my average number of days per user? On the revenue side, you've got metrics like average revenue per user, it's called ARPU, or we sometimes call it revenue per DAU, daily active user. For each one of those metrics, you're analyzing it and optimizing to the extent that it doesn't impact your overall priorities. We found some great insights.
In managing reach, the insight was growth is a leaky bucket. If you don't offer users a valuable experience every single day, every single time they come back, and keep building depth into the game, that leaky bucket will have no bottom. No matter how fast you keep putting users into the top of that funnel, they're just going to spill out. The insight around retention was that retention is really the leading indicator. Of the three priorities ... retention [was] the leading priority, the leading indicator. If you get retention right, revenue and reach will follow.
On the revenue side, it was really about self-expression. If you allowed a user to express themselves through the game, they [were] willing to spend hard dollars on that game. A couple of sub-insights: The way that men and women spend money, why they spend money, is a little bit different. Women are very aspirational. If a woman is playing FarmVille, she says, "Hey, if I had a farm, this is how I would want it to look. I would have a beautiful red farm house with a white picket fence." And a lot of women were willing to pay for that.
Knowledge@Wharton: So women were nesting.
Trader: Perhaps. And men were all about ruthless efficiency, "I must beat my buddy, do it in less time and I'm willing to pay for that privilege." Hunting and gathering.
Knowledge@Wharton: Changing tack a bit, what is your biggest challenge as a leader?
Trader: It's managing a balance between those professional values and personal values. What I love is a company where you can integrate both. Zynga did a masterful job at getting the professional values right. I see other companies, like Groupon, where they're doing a really good job now of integrating the personal values, too. You can hear it, by the tone of their emails, by the bios of the executives. They're letting their personalities creep into their management styles.
I think that's great, and it's something that I definitely aspire to. It's not necessarily easy, especially in the world of startups where there's a level of intensity and uncertainty that you're constantly fighting. You don't know whether or not this product is going to take off. You don't know if the business model is going to work. You don't know if the funding is going to come through. There's so much uncertainty that it gets hard at times to strike a good balance. That has an impact on the people who work with you. It can be a real challenge.... People have families, and people have interests outside of work, and you want to foster those things. You want to give people time and energy and space to have those other fulfilling things. And it can be challenging when you're in the heat of a startup.
Knowledge@Wharton: What is your favorite part of the job? And conversely, what keeps you up at night?
Trader: I love working with entrepreneurs. It is so fabulous. The energy and the ideas and the creativity, the intellectual horsepower, and the exchange of ideas, that open communication and exchange are so fun and so exciting, it's like being on an idea conveyor belt. The approach at Maveron is putting entrepreneurs first. They focus on the entrepreneur; less so, the business model. It's such a great and unusual approach because they correctly presume that the entrepreneur or the team, whatever their idea is currently, it's going to change, and they're going to have to pivot. You just want to back people [who you are confident] are going to be able to pivot quickly, correctly, and keep on a successful path. That's what I like so much about my current role and Maveron in particular.
Knowledge@Wharton: Conversely, what keeps you up at night?
Trader: What keeps me up at night? I can't stop thinking about the next big opportunity. I've been going deep on a few things recently, social applications, and when I start getting the wheels turning, it's really, really hard to shut them off. I think about product, and I think about business model, I think about competition, I think about a team, I think about execution. It's fun, but
there are times I wish I could shut that off a little easier.