Zynga Making 4.4 Cents per DAU

Zynga ARPU of 4.4 centsZynga filed their S1 last Friday, and while some have focused on how rich CEO Mark Pincus and his officers could become, I’ve been looking at the financials and trying to tie it back to their daily active users (DAU) to look at revenue per DAU or ARPU (Average Revenue per User) so we could have some industry benchmarks.

Revenues

The S1 shows gross revenue by quarter as follows:

Q3 2009 – $31,311,000
Q4 2009 – $55,721,000
Q1 2010 – $100,927,000
Q2 2010 – $130,099,000
Q3 2010 – $170,674,000
Q4 2010 – $195,759,000
Q1 2011 – $235,421,000

Some interesting notes on this revenue figure:

  • This revenue includes everything, including advertising and virtual goods, but advertising has never made more than 5% of total revenues
  • The revenue figures are impacted by some accounting rules as to when the revenues can be recognized. Items that are consumables (like fuel or energy or components that are purchased and used) can be recognized within a month, while durable items (like tractors or décor that are used over time) take a longer time to be recognized (it isn’t specified in the S1, but it typically is amortized over the life of a user – for more discussion to revenue recognition, see this blog post from Bill Gurley). Zynga was only able to discern consumables versus durables starting in October of 2009, and only in one game. By January 2010, they were able to reflect this split in all games, meaning they could escalate revenue recognition. Thus it is likely that this new ability helped improve the revenue in Q4 of 2009 and Q1 of 2010. It also provides an incentive to focus games more on consumables than durables moving forward.
  • Facebook Credits were implemented in their games, starting in July 2010 and completed for all games as the sole purchase currency in April of 2011. Facebook Credits take 30% of gross, and since the full implementation didn’t occur until the 2nd Quarter of 2011, we won’t see the true dampening impact on Zynga revenues in the S1 (which only covers through Q1 201).

For our purposes, I will divide the quarterly revenue by the number of days in the quarter to come up with an average revenue per day.

Daily Active Users

DAU data by game is available back to June 2009 via appdata.com, so we can at least come up with an average DAU for a quarter from Q3 2009 forward. I am not including numbers from RewardVille and the Zynga Games Bar as they don’t appear to drive revenue directly (there may be search revenue) and these are peripheral to the games (one would not go to either if they did not play at least one game).

DAU per quarter:

2009 Q3 -24,309,425
2009 Q4 -56,757,183
2010 Q1 – 66,082,862
2010 Q2 – 58,012,018
2010 Q3 – 48,975,539
2010 Q4 – 47,631,850
2011 Q1 – 59,082,981
2011 Q2 – 52,447,745

These numbers are about 2% below what Zynga reports in their S1 so it may be that Zynga is adding some DAU from platforms outside of Facebook, but that figure is relatively small (3 million at most).

The caveat of course is that the DAU figures of several games doesn’t provide you DISTINCT DAU (e.g. Zynga showed 59 million total DAU across their games in Q1 2011, including 11.7 million in FarmVille and 19.4 million in CityVille. But many users could be playing both games and thus over-stating the distinct DAU across both games). Zynga did not report distinct DAU in their S1.

So what our DAU is showing is not distinct DAU, but number of game players. Whether the user plays one or five of Zynga’s games, the Revenue divided by DAU number here shows the average revenue they see per game player.

Since Q4 2009, Zynga’s aggregate DAU is relatively flat, while Facebook’s US audience has nearly doubled in the same time period:

Facebook doubles US users since Q4 2009

Of course that FarmVille peak happened in the era where developers could blatantly leverage the notifications API on Facebook. You can pretty clearly see the results now of Facebook turning off those Notifications on March 1, 2010 when you look at it by game:

Zynga DAU By Game

From the chart above, you can see FarmVille took the biggest hit and successful games like FrontierVille couldn’t grow enough to make up the gap as users continued to decline.

CityVille gave a nice bounce in the Q1 2010, helping boost Zynga’s aggregate DAU out of the upper 40 million DAU range for the previous two quarters (the game was touted to be the first launched simultaneously in French, German, Italian and Spanish and helped it to reach 100 million MAU very quickly, but the DAU never reached that of FarmVille at it’s peak).

These numbers appear to show that there is an upper bound on the number of users playing games – that getting consistently 50-60 million aggregated game players (again, could be 20 or 30 million distinct users playing multiple games) is difficult. Even with successive releases and fast-growing games like CityVille, Zynga has not been able to get an aggregated DAU that matched the peak of FarmVille in Q1 of 2010. The impressive gains of CityVille users seems to come at the expense of their other games, like FarmVille and FrontierVille.

Faced with the prospect that there is a ceiling to the number of aggregate users, you can possibly see a benefit in the recent pattern emerging of game releases every six months (FrontierVille June 2010, CityVille December 2010, Empires and Allies June 2011): Extract every dollar from the six-month life-cycle of a game before releasing the next game. Much like game developers learn that on the Facebook platform you need to keep providing your hard core players new content and features to retain them, Zynga is playing it’s own meta version, releasing new games on a steady pace tied to when they see their users beginning to drop off.

Aggregated Revenue per DAU

Thus the revenue per DAU by quarter shows that for the average player of a game, they’ve hit 4.4 cents in Q4 2010 and Q1 2011:

2009 Q3 $0.0145
2009 Q4 $0.0108
2010 Q1 $0.0172
2010 Q2 $0.0245
2010 Q3 $0.0378
2010 Q4 $0.0447
2011 Q1 $0.0443

Graphically you can see the trend here:

Zynga Estimated Revenue per Game User

So reviewing the factors that have impacted this growth number:

  • Revenue recognition of components that would have improved revenue starting Q4 2009 and fully implemented Q1 2010. Any games coming out moving forward that focus on consumables would like drive more revenue shortly after release.
  • Reduced virality in games due to changes in the platform (such as removing Notifications on March 1, 2010 and a severely dampening wall posts in September 2010). This actually may have left games with only their more hard core users and thus better monetization, but also resulting in a shorter lifetime of games as it became more difficult to back-fill those users that churn off the game.
  • The impact of Facebook Credits integration – a dampening impact from Q3 2010 to Q1 2011 but whose full impact we wont see until Q2 2011, but that could explain why the successive quarter-to-quarter growth in ARPU declined slightly in Q1 2011 after four successive quarters of growth
  • The success of game releases in driving better revenue per user and the percentage of aggregate DAU that each game makes. It’s well-known that Zynga optimizes everything and there is learning from game to game. In addition, if a larger percentage of your game players were playing Café World or YoVille (arguably poorer performers because they predominately focus on decorations which are durables and the difficulty of getting users to redecorate), then that impacts the aggregate number. Migrate Café World and YoVille daily users to newer games like FrontierVille and CityVille (which have more consumables and mechanics that drive a user to pay), and that can possibly increase the aggregate revenue per game player figure as well.

Is 4.4 cents per game player per day the holy grail for a mass market Facebook game (as opposed to RPGs which have smaller audiences but higher revenue per player)? Getting users to play every day and across multiple titles is key to driving customer lifetime value and insight into those numbers are lacking from the S1. Their most visible efforts at cross-game promotion and retention (RewardVille getting 1.25 million users per day) suggests that about 2.2% of users are engaged each day).

With Zynga DAUs declining in Q2, will they be able to match the quarter over quarter revenue growth? Will their latest game Empires and Allies, with a slightly more RPG style, provide enough additional revenues to make up the DAU gap? And if it doesn’t, will Zynga push ahead another release before December?

We will have to wait for more quarterly reporting to get a feel, but for now the 4.4 cents per day per user is a handy benchmark.

Two Reasons CityVille Broke 100 Million MAUs

cityville_logoCityVille has become the first game on Facebook to surpass 100 million Monthly Active Users – meaning one in every six Facebook users has played the game to date. Its massive growth and ability to dwarf its rivals in the city genre I believe are driven by two things: 1) an innovative way to leverage it FarmVille integration and 2) an ability to have a first mover advantage in the genre, albeit in a non-traditional way.

Leveraging FarmVille

CityVille, like all Zynga games, are able to make huge leaps in users by standing on the shoulders of their massively huge success of FarmVille. Prior to CityVille, FarmVille held the top mark when it peaked at 83.76 million MAU back on March 17, 2010. FarmVille’s peak might be slightly more impressive in terms of user penetration because it was at a time when Facebook only had slightly more than 400 million users on the platform. What CityVille has NOT done to date is reach the heights of the Daily Active User benchmarks of FarmVille – FarmVille peaked at 32.48 million DAU on February 11, 2010.

Zynga has leveraged this large number of users to drive installs for other games, most notably through cross-promo bars at the top of the game, in-game cross-promotion and spending on Facebook ads. But with the revamping of their email system (see http://accounts.zynga.com) back in September of 2010, users who provide an email address permission (a now nearly standard permission request by all developers during installation) are also allowing themselves to receive emails about all other games. Thus when CityVille launched and users were prompted to invite their FarmVille friends (because nearly everyone playing games has some FarmVille friends), if a user accepted, Zynga then sent an invite request via email to all of those users.

cityville-email-farmvillefriiends

While email is not necessarily cheap, it is likely a great deal more effective in driving viral installs than install requests and a lot cheaper than buying ads (which Zynga did as well across Facebook as well as other cross promo bars). It also helps explain how CityVille reached 20 million MAU in just nine days, compared to an average of 20-21 days for games like Café World, Treaure Isle and PetVille.

A First-Mover Advantage

CityVille by no means was the first city genre game on Facebook. Nor was it the first game by one of the top developers on Facebook (Zynga, Playfish/EA, Playdom or CrowdStar) that enjoy the resources (both in advertising dollars and cross-promotional network) to drive users to a game. Let’s take a quick look at the timeline to get a little perspective:

city-genre-mau

1989SimCity, created by Will Wright, is the first title released by Maxis and is the great grandfather for the city-building genre that finally arrives on Facebook two decades later.

November 27, 2009: My Town by Broken Bulb Studios launches – for me this is the first of these type of games but open to your comments on who else first broke ground and drove significant users. It peaked at 3.74 million MAU in late March of 2010.

January 29, 2010: My City Life jumps into the fray and grows rapidly maxing at 4.18 million MAU in mid March, beating out My Town for a short time, but with lower retention and not being able to match My Town’s DAU numbers. The game was given up in mid-June and has been used to promote other games of late.

March 6, 2010: Playdom seizes the moment with Social City, spending like gang-busters on advertising to become the first super huge hit in the genre. Social City went on to become their first game to exceed 1 million DAU and was truly their first hit on Facebook after having several misses porting over their MySpace hits to the platform. Arguably, Social City made Playdom and set up their purchase by Disney just four months later. In the graphs you can see that Social City’s rapid rise (peaking at 12.69 million MAU at the end of April, effectively had taken the wind out of both My Town and My City Life.

city-genre-dau

March 18, 2010: Zynga takes note of Playdom’s rapid ascent and begins research to define it’s own entry into the genre. These early surveys show Zynga was clearly targeting Social City users in generating a baseline understanding of competitive products. Nine months later CityVille would arrive.

May and June 2010: Success begets more followers as other large developers dive in: Playfish/EA enters with My Empire (thematically going for more of a ancient civilization theme) and CrowdStar releases Hello City. Both combine to take down Social City a notch, but neither exceeds 6 million MAU (these top-tier developers can’t attain half the MAU that Social City had attained at its peak).

Digital Chocolate also launches Millionaire City during this period – the game becomes Digital Chocolate’s biggest hit peaking at 13.11 MAU in December. In fact, Millionaire City became the city genre’s biggest hit, passing Social City’s high water mark on November 29, 2010 – a title it was to hold for only for 12 days after being crushed by CityVille. Digital Chocolate tried to re-skin Millionaire City, creating Hollywood City and Vegas City, but neither crossed 4 million MAU; Playdom did a similar thing by simply re-skinning Social City with ESPNU College Town (a missed opportunity to tweak it further for sports enthusiasts) – that game too failed to top 4 million MAU.

August 21, 2010: Playdom returns with another entry, City of Wonder, though the game is slightly focused more like Civilization than SimCity. The title grows quickly and peaks at 10.77 million MAU on September 24th. But the DAU number is less strong suggesting retention needs more work and it appears that the advertising to promote the game falls off shortly thereafter, resulting in MAU declines.

December 5, 2010: CityVille launches and reaches 20 million MAU in just nine days.

Obviously, CityVille was not the first mover in the city genre on Facebook. There are at least ten large-scale city games that were successful on Facebook prior to CityVille’s arrival. But where CityVille WAS a first mover was in localizing their game for different languages – basically the first city genre game to present itself in Spanish, French, German and Italian.

cityville-lang-options

Jens Begemann, CEO of Wooga, has been touting that the size of the European market rivals the opportunity in the US (when looking at online players in Germany, Spain, France and Italy as well as other English-speaking languages). His combination of localization of not only text but support and virtual goods is focused on these same languages (with the addition of Turkish).

cityville_espanol

By focusing on these additional languages (which likely added to the long development time), I believe Zynga was able to take CityVille to these incredibly lofty heights, helping it penetrate into markets no city genre game had ever reached in the past. In the future, we’ll be talking about first mover advantage less in terms of first to market, but in terms of first to market by each language.

Zynga Invades the 7-11 on My Block

I’ve been plenty busy lately (and thus blog-free for a while now) thanks to a new job with a game company here in New York City. But when I saw that Zynga was entering a partnership with 7-11 to promote its games, I knew I couldn’t escape Zynga’s grasp in my off-line world for long: They invaded the 7-11 around the corner from me.

Yes, there is the Slurpee machine:
zynga-711-slurpeemach

The Big Gulp machine:
zynga-711-biggulpmach

Those both had Iron Man 2 branding till earlier today. But the integration goes across even more food items – a whole “Fresh Goodies from FarmVille” section:
zynga-711-freshfarm

Complete with sandwiches and fruit tagging:
zynga-711-sandwich1

zynga-711-veggies

Even the farm-rased tuna: zynga-711-sandwich2

So you can see the breadth of items. And each type of item is redeemable for in-game goodies. Here is the list.

One example – buy a Big Gulp, get a special FarmVille “Big Splash” item:

zynga-711-ingameaward

zynga-711-bigsplash

When you’re Zynga and you’ve exhauseted the audience on Facebook (or at least the ones you can acquire cheaply on Facebook), this is how you get brand awareness and entice installs for those not regularly on Facebook.

And on the flip-side, Zynga brings its addicted players to 7-11, getting them to go through hoops to unlock UberGifts. First you need to buy up to eight items at 7-11, each one filling out the punch-card at the top:

zynga-711-ubergift

Following this, they will also have to do a specific in-game task:
zynga-711-ingametasks

zynga-711-slurpeeUsers need to achieve Level 3 Mastery of a special crop in FarmVille, which seems a lot harder than doing 41 jobs and winning 10 fights in Mafia Wars (and actually no in-game task for YoVille). While these seem skewed, they actually seem to match the value of the UberGift unlocked in each game: 200 FarmVille cash, 50 Reward Points for Mafia Wars, and a Slurpee Machine for your YoVille pad.

All-in-all, it seems like a good win-win for both Zynga and 7-11 and likely has been in the works for some time (what, no Treasure Isle tie-ins? Maybe that’s next summer), probably a natural extension of their initial deal to get Zynga cards on 7-11 racks.

How telling is it that Zynga has done more big distribution deals (7-11, Yahoo and MSN Games) than game releases (the tepid PokerBlitz and mega-hit Treasure Isle) this year? The Zynga machine has figured out how to extract the maximum eyeballs on the Facebook platform, now it looks like we’ll be watching them figure out how to do it offline as well.

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