Zynga Readies IPO

Now you know what the dog is hiding... money.

Since LinkedIn had their IPO and zoomed, other companies have reconsidered their pending IPOs. Rumors are flying that Zynga will be making their initial public offering soon, now that the market seems to be ready for IPOs again.

Some people have been critical of the valuation that Zynga is sporting, which is somewhat north of Electronic Arts ($8 billion compared to $7.71 billion). It does seem amazingly high given that Zynga has only been around a few years... on the other hand, it's going to pull in somewhere around $2 billion in revenue this year with an eye-popping gross margin. (Hey, those virtual goods are made from handwoven profits.) There's a lot of concern that this kind of valuation is a bubble, and that social games are due for a major crash soon. Others disagree.

I think that there's certainly way too much venture capital being thrown at social gaming or anything that smacks of it these days. That's different than the question of whether or not social gaming will disappear soon or at any time. I think social gaming has tapped into a much wider audience of gamers than the traditional "teen-age boys of all ages" demographic that marks hardcore gaming. It's ironic, really, that for many years game publishers would wish out loud that they could sell games to women, to people older than 30, to everyone. Now their wish has come true... only it's not the kind of games they're used to making or even games that they like to play.Their companies are mostly not benefiting from this huge new market, which naturally leads to jealousy.

Social elements are finding their way into games on many different platforms, and we're seeing many new types of social games on Facebook and in browsers. It's a period of great experimentation, and we're just seeing the beginnings of what games will be in the future. Sure, individual valuations of companies may be overblown. Will Zynga be fairly priced when it goes public? Beats me. It'll probably jump up when it's offered, then fall back at some point when the initial excitement fades. But I expect that in the long haul Zynga will do quite well. Their first-mover advantage has been solidified with a number of smart decisions, and I don't see them getting stupid right away. The high growth rate will certainly slow, and we'll have to see if they're smart enough to shift gears and slow down properly as growth slows.

Social gaming is here to stay, and even if you don't plan on creating or playing social games, you'll need to deal with this reality in the game industry.