Zynga’s Quest for Big-Spending Whales

A tiny number of virtual-goods high rollers supply the bulk of
the game maker’s revenue

By Douglas MacMillan, Brad Stone and James Aley
     July 7 (Bloomberg BusinessWeek) -- Joelle Ibgui collects
horses. Lots of horses. In her stable of 108 colorful creatures
is a Clydesdale, an Asian wild foal, a spotted appaloosa, and a
clown pony, which sports a bow tie, a red honk nose, and a
rainbow-colored wig—and cost about $5. The pony and its
companions are not real animals, of course, but virtual ones in
the hit online game FarmVille, produced by Zynga, the hottest
gaming company on the Web and soon, perhaps, on Wall Street.
Ibgui, a 30-year-old real estate manager from Kew Gardens, N.Y.,
has played FarmVille since its introduction two years ago and
last year spent more than $500 to burnish her farm and get ahead
in the game. “In the winter there came a point when I was playing
six hours a day,” she says. “It does get addictive. It does get
to the point where you’re not picking up your phone when it’s
     On July 1, Zynga filed with the Securities and Exchange
Commission to raise up to $1 billion in a sure-to-be blockbuster
initial public offering. To investors immune to ominous talk of
tech bubbles, the numbers look alluring: The San Francisco
company has 232 million active monthly users; last year it posted
a net income of $90.6 million on revenue of $597 million, which
was up fivefold from 2009. In the quarter that ended in March,
profit was $11.8 million.
     Although its games are free-to-play and widely accessible on
Facebook, Zynga makes money by selling virtual items that are
avidly hoarded by collectors, competitive players, and
obsessives. Among the risk factors Zynga listed in its
prospectus: “We rely on a small percentage of our players for
nearly all of our revenue.” It didn’t specify the percentage of
people willing to fork over a few dollars for a virtual barn,
building, or tractor, but multiple people familiar with the
booming business of digital goods, including one former Zynga
employee who did not want to be named discussing internal
matters, suggest that less than 10 percent of Zynga’s players
spend money and less than 1 percent are responsible for between a
quarter and a half of the company’s revenue. Las Vegas has a name
for that kind of incredibly profitable patron: whales.
     Game makers don’t like to talk about whale management, but
people familiar with Zynga say it does internally refer to its
high-value customers as whales and has offered them membership in
a VIP “Platinum” club. Whales get special discounts and can wire
sums of $500 or more directly from their bank accounts to Zynga.
The company declined to comment for this story, citing its
SEC-mandated quiet period.
     One person familiar with Zynga’s business, who requested not
to be named because his company works with Zynga, says a user
spent $75,000 in one year on a single game. “The compulsion in
Vegas is the illusion you can make money. The compulsion in
social games is the illusion you can be more successful than your
friends,” says Peter Relan, chief executive officer of CrowdStar,
a Zynga rival that has about 24 million players, including as
many as 200 people who spend more than $10,000 a year. “In both
cases, you’re working with people’s emotions and psychological
     So who are these whales? Relan and executives at other
virtual-goods companies say they tend to be comparatively
wealthy, older players. They’re also willing to pay to get ahead
and avoid the slog of achievement—such as constructing buildings
and collecting rent in CityVille—usually necessary to earn the
in-game currency for buying virtual items. Tagged, a San
Francisco social network and gaming company with 100 million
registered users, says that for the first six months of the year,
the top 1 percent of its players accounted for 46 percent of its
gaming revenue. About half of those were American, and 59 percent
of those U.S. players were male with an average age of 48. “A lot
of these whales don’t have the patience or the time to go through
all the stuff by playing,” says Greg Tseng, Tagged’s CEO who
recently hired a former Myspace customer service executive to
build a VIP concierge service to give deals to its best players.
“They just dump in a lot of money to get ahead.”
     Zynga’s FarmVille features virtual-goods updates at least
twice a week. (Among the most recent were a Fourth of July
decorative water fountain and a Charro gnome, part of a limited
edition Mexico-themed collection.) The company also cultivates
scarcity to drive up the value of items. In February 2010, Zynga
introduced an Unwither Ring in FarmVille, which guarantees a
player’s crops will never wilt and die from neglect. The item
cost 250 in farm cash, or around $50, and has been offered only a
few times for limited periods since it was first introduced.
Mafia Wars, one of Zynga’s first hits, is built around what game
designers call “sinks”—parts of the game, such as
player-vs.-player gun fights, that motivate users to sink money
into additional energy points and weapons to increase their
chances to win. “You might as well target whales because
targeting everyone else is too difficult,” says Alex St. John,
president of online gaming network Hi5. As for those who play
without spending, there’s probably nothing that will coax them to
open their wallets. And despite the popularity of social games on
Facebook, St. John says the process of buying Facebook Credits,
which users purchase to convert into currency for specific games,
is too confusing for everyone but the most committed players.
     As investors scrutinize Zynga’s numbers in the weeks ahead,
they’ll have a lot to consider: whether the company is too
dependent on Facebook, whether it can keep minting hits such as
FarmVille, CityVille, and its new strategy-and-combat game
Empires & Allies, and particularly, whether it can keep reeling
in whales. Tseng from Tagged thinks the virtual goods model is
brilliantly efficient, because it allows everyone to pay what
they want to pay. Casual users play for free; hard-core addicts
pay through the nose. Either way, it costs virtually nothing to
create and sell a virtual good. “Every player has their own
price,” he says. “Really that is the beauty of the virtual
currency model.”
     Some of its most enthusiastic players, though, wonder if
Zynga is asking too much of its whales. Ibgui, who proudly shows
off pictures of her horse and gnome collections, frets that Zynga
has started releasing too many items too quickly and at inflated
prices. “They are pushing it,” she says. “It makes them come
across as money-hungry.” Then there are players such as Christine
Marie Wilson, a retired paramedic from Houston who for months
played FarmVille nearly “every spare minute” and bought Zynga
gift cards at Wal-Mart at every opportunity. Earlier this year
she quit the game entirely, after recognizing that it had become
an addiction that she was concealing even from her family. “I was
like a gambler,” she says. “I hid it pretty well from them.”