Social-games maker Zynga raised $1 billion in its initial public offering on Friday, setting the stage for a blockbuster Facebook IPO in 2012. Zynga's is the biggest IPO since Google raised $1.9 billion in 2004.
Zynga is the undisputed leader in online social games. The company has 232 million active users playing titles like CityVille, FarmVille, Empires & Allies and Mafia Wars. Zynga makes its games available on Facebook, Google+, MySpace, Yahoo, the iPad, iPhone and Android devices. Monies from an IPO could help the company expand rapidly, but long-term success is not a given.
"Everyone understands the business model: revenue streams include consumers buying virtual goods -- perfect timing for holiday purchases of Facebook Gift Cards -- and also for brands to 'rent space' and build virtual stores inside the gaming environment," said Jake Wengroff, global director of Social Media at Frost & Sullivan. "But with its future ties to Facebook uncertain and as Zynga struggles to build mobile gaming environments, it will be aggressively seeking additional revenue streams."
Does Zynga Need a B2B Strategy?
Wengroff is not surprised that Zynga hit the billion-dollar mark. The company was incubated in Facebook's shadow, and Facebook has been valued as high as $100 billion, he noted.
"At issue is Facebook Credits, as well as Zynga's mobile strategy," Wengroff said. "Zynga could explore a revenue opportunity by providing gaming environments for B2B or professional markets."
Specifically, Wengroff said, large tech providers like IBM, Cisco, HP, or Alcatel-Lucent could create virtual games for their online or mobile communities -- business plan competitions, managing your own startup, being a venture capitalist, and the like.
Wengroff also suggested that publishers could offer similar games for their audiences -- 'powered by Zynga' -- as another avenue for their own advertisers to get in front of readers. Games could also be created for companies as an HR/employee engagement tool -- pick the charity we should support, build a virtual community, Habitat for Humanity style, and so on.
The Next Big Social IPO
Wengroff has also been closely watching the social media IPOs in 2011. Groupon reminded investors of the Internet heydays when it took its stock to the public markets on Nov. 4 with a valuation that was the highest since Google. Groupon followed LinkedIn, which went public in May. A Facebook IPO will overshadow all the rest by raising as much as $10 billion when it goes public sometime in the second quarter of 2012.
"While the social-media IPOs have dipped since their initial highs, we need these companies to go public for several reasons," Wengroff said. "They need new sources of capital. There is now more transparency and accountability in
their operations. It is expected that they will now deliver more value. And social media will be more pervasive in consumers' and businesses' everyday lives."