Facebook and Zynga have experienced similar roller coaster-like devaluation from their peak stock valuations, and they’ve been partners for years, which is why MarkZ and MarkP often get lumped together in the same sentence by fearful investors whose stock is underwater: “Facebook and Zynga (insert analysis here).”
Such bundling masks a deeper structural truth. The reasons that the two companies have tanked in the market could not be more divergent, and more indicative of the character and strategic vision of the startups’ respective founders. Forget any analysis that lumps the two companies together, and instead find lessons in Aesop’s fable that are important to every startup founder.
Zynga is the Grasshopper in Aesop’s fable, playing and trying to get others to play. The fundamentals of Zynga’s business – even when it was working perfectly – are to ensure a steady stream of new games (often via M&A), to grease the user acquisition machine via advertising on other venues (largely Facebook), and to incent users to rope in their friends (via in-game promotions). This strategy depends on playing with copious amounts of capital to buy companies, ads, and promotions, and yet Zynga’s IPO and secondary seemed less concerned with raising capital for Zynga’s corporate coffers. After all its financings, BusinessInsider estimates that Zynga has about $1 billion in pro-forma cash on hand.
Grasshoppers just want to have fun. In March, Zynga’s founder Mark Pincus enriched himself and a few other large shareholders with giddy abandon; the goal of their secondary offering was to provide liquid exits to several existing shareholders. A longer-term thinker would NOT have cashed out a lot of his stock, but Pincus did. In fact, Pincus sold 15% of his ZNGA stock.
A lawsuit against Zynga contends that Zynga executives were selling even though they knew the quarterly numbers were weak. Long-term-focused management does not sell its stock in blocks of 15%; it sells cautiously in tiny amounts scheduled regularly over many years. Examples include Bill Gates, Larry Ellison, Pierre Omidyar, Larry Page, and Sergey Brin.
Facebook is the Ant, stashing resources for the winter with grim determination, regardless of which interest groups might be hurt in the short term (among them: investment bankers who were squeezed down to 1% commissions and retail investors who bought high). Mark Zuckerberg’s goal for Facebook’s record-breaking $16 billion IPO was to put as much as possible into Facebook’s corporate coffers, not his own; through financings to date, Facebook now has over $10 billion in liquid assets.
In retrospect, it’s extraordinary to think about Mark Pincus selling $200 million of Zynga stock and $38 million of Facebook stock to enrich himself, while Mark Zuckerberg only cashed out barely enough to pay his tax bill. Let that fact sink in for a few moments, and then compare how Zynga employees feel with how Facebook employees feel about their respective stock prices going down.
Ants work hard, driven by a higher cause. Mark Zuckerberg truly believes that Facebook’s mission – to make the world more open and connected – is the biggest and most important in Silicon Valley. I’ve heard stories that even his relationships with close friends have suffered if those friends chose to sell Facebook stock on the secondary markets or otherwise showed a lack of faith in the long-term mission of the enterprise. His motivations are far closer to messianic zeal than most investors (and David Fincher’s Social Network movie!) recognize… and simple pattern-matching shows us that the greatest companies in technology are started and sustained by founders like him, who live for the mission.
Mark Pincus, by contrast, seems obsessed with his wealth. With some of his early stock gains, Pincus bought a posh 11,500 sq ft, $16 million mansion on the Gold Coast. He has been living large for years, with multiple homes. Zynga evidently spends $1.37 million a year for Pincus’s personal security – in the top 3 of all public companies behind Lockheed Martin and Oracle. Pincus’s stock obsession was first demonstrated by his attempt to claw back stock grants (extra classy touch to do it during the “quiet period”!) from loyal long-term employees — a move so audaciously selfish that I heard entrepreneurs muttering about the long-term damage to the entire startup ecosphere if early employees started thinking their stock could be taken away within weeks of an IPO.
Compare that with Mark Zuckerberg, who lives more like Larry Page than Larry Ellison. He has a single Palo Alto abode that is biking distance from Facebook HQ. His wedding was a backyard affair for fewer than 100 guests with “catering” that appeared to consist largely of tacos, followed by a honeymoon that was newsworthy largely for the money he DIDN’T spend (no tip on a $40 dinner! lunch at McDonald’s!). He lives a life that allows him to focus his energy on Facebook.
Zuck’s goal is to deploy Facebook’s giant war chest and tremendous talent to build a “social utility” that will outlast his lifetime, like Walt Disney and Steve Jobs before him. Pincus, on the other hand, is so out of ideas that Electronic Arts is suing Zynga for copying them too much. Perhaps he’ll get lucky and online gambling will become legal in America soon. But even the gambling-will-be-legalized wager is a demonstration that he’s willing to bet the company on something that MIGHT happen, and lose. Zynga may still have $1 billion in its coffers, but the actions of Pincus do not demonstrate that he knows how to prudently employ that capital. If Zynga fails, whatever, at least he got rich in the process. If a Game-of-Thrones-like Winter is coming, it will be game over for Zynga as they burn their remaining cash and run out of resources.
If Mark Pincus wants to demonstrate that he’s in Zynga for the long run, he will deploy the $200+ million from his March payout, to buy ZNGA shares on the public market the way Netflix CEO Reed Hastings just did with FB stock. A great poker player demonstrates commitment by going “All In”.
The values of startup founders are baked deeply into the DNA of their startups, from inception on. A founder’s character, attitude, and strategy contribute significantly to the corporate culture, so it’s interesting to compare the “culture of play” with the “culture of making the world more open and connected.” To understand the two Marks is to appreciate how they’re making choices now that affect their companies’ future prospects profoundly. Zynga is having fun, like the solo Grasshopper, because times are good. And Facebook, like an army of Ants marching, works tenaciously and tirelessly towards its vision of a better future every single day.