SiliconBeat

Zynga released its latest quarterly earnings number in an updated prospectus. Dean Takahashi at VentureBeat has a good overview of the numbers:

“Zynga reported net income of $12.5 million in the third quarter ended Sept. 30, down 54 percent from $27 million a year ago, according to anupdated S1 filing with the Securities and Exchange Commission. The performance isn’t stellar, but it’s not so bad as to suggest Zynga’s planned initial public offering is in trouble.

Revenue was $307 million in the quarter, up 80 percent from $170.6 million a year ago. In other words, Zynga is working harder for the profits it gets by generating a lot more revenue compared to the past.

In the second quarter, Zynga reported only $1.4 million in profits on $280 million in revenue, so the third quarter report is an improvement on a quarter-to-quarter basis.”

What’s interesting are the user metrics. From the filing:

“According to AppData, as of September 30, 2011, we had the largest player audience on Facebook, with more MAUs on Facebook than the next eight social game developers combined.”

In the previous filing, Zynga had as many users as the next 15 developers combined as of June 30.

Also:

“Our players are also more engaged, with our games being played by more than 58 million average daily active users, or DAUs, worldwide as of September 30, 2011.”

That’s down from 60 million at the end of June. And the quarter included the release of two new games: Empires & Allies and Adventure World. Also, monthly average users fell from 232 million to 230 million in the quarter.

Finally:

“According to AppData, as of September 30, 2011, our games were played by more DAUs than the next 14 social game developers combined.”

That number is down from 30 at the end of June.

So, as Takahashi notes:

“Zynga is working harder for the profits it gets by generating a lot more revenue compared to the past.”

The good news, as Zynga prepare for an IPO in the next few weeks, is that it’s coaxing more revenue out of fewer players. And Zynga has a big pipeline of games coming. That includes CastleVille, which will launch in the next couple of weeks.

The CastleVille release is the latest in Zynga’s “Ville” franchise that includes FarmVille and CityVille.

“This is really built on the shoulders of the games that came before it,” said Bill Jackson, the Zynga creative director who led a team based in Dallas that built the game.  ”It’s built on the shoulders of giants.”

Jackson was giving me a preview of the games a few days ago. And the quality is indeed impressive.

CastleVille is set in Medieval times and has many elements that will be familiar to Zynga players. In this case, the goal is to build the castle of your dreams by engaging in a series of quests. A preview of the game demonstrated how Zynga continues to push the edge in terms of graphics as well as music, which includes the use of a full symphony to create the soundtrack.

Where the game pushes into new territory is in its expanded use of narrative. There is a story at the heart of it that players can choose how they follow, rather than having quests or goals dictated to them as in previous games.

At its heart, CastleVille remains a social game, but it also shows how Zynga is moving toward creating massively multiplayer experiences. The question now is whether the rising production values and the evolving game experience will draw new players as well as longtime Zynga fans.

There were two tantalizing tidbits that broke yesterday about Twitter.

The first was a nice scoop by All Things D’s Kara Swisher that Andreessen Horowitz had bought $80 million dollars worth of Twitter’s stock from employees in a secondary placement. Every more interesting, though also more vague, was a report by Swisher’s sister publication, the Wall Street Journal, about some possible acquisition talks between Twitter and Facebook and Google:

“As Internet valuations climb and bankers and would-be buyers circle Silicon Valley in an increasingly frothy tech market, many eyes are on one particularly desirable, if still enigmatic, target: Twitter. Discussions with at least some potential suitors have produced an estimated valuation of $8 billion to $10 billion.
Executives at both Facebook Inc. and Google Inc., among other companies, have held low-level talks with those at Twitter Inc. in recent months to explore the prospect of an acquisition of the messaging service, according to people familiar with the matter. The talks have so far gone nowhere, these people say.”

That’s an odd way to start a story, because it reports the talks and then tells us not to take them too seriously. Okay. The story justifies itself by saying what’s really interesting is that buyers are talking about an $8 billion to $10 billion price tag for Twitter.

I’m sure the Twitter folks are stubbornly clinging to their independence. But they shouldn’t. They should take the money. And they should take it from Google. And Facebook should walk away.

I know popular sentiment in tech circles is for Twitter to stay independent. Someone I respect a lot, Matthew Ingram at GigaOm, wrote a post, “Please Twitter, Don’t Sell to Google or Facebook.”

Ingram writes

“One of the best things about Twitter, despite all the problems it has had in the not-too-distant past with reliability and other issues, is that it is totally, 100-percent focused on being a real-time communications network. Being bought by either Google or Facebook might bring a big payoff, and substantial financial and operational resources, but it would almost certainly dilute that focus — simply because it would be a small part of a much larger company — and that would be a shame just when the service is starting to show its real potential.”

But with all due respect, let me say, “Please Twitter, do sell to Google.”

Here’s why:  I still don’t believe Twitter has a sustainable business model.

Twitter, of course, believes it does. And when I see smart people like Andreessen Horowitz buying shares at this relatively late date, I believe they see some there there. But I don’t.

The reason has to do with Twitter’s fundamental relationship to me. I don’t think Twitter knows all that much about me. And I don’t think there’s much of interest it can leverage to advertisers.

Let’s compare Twitter to the two potential acquirers. Facebook is going to be an advertising monster because it has an unprecedented amount of information about me, my friends, and my likes. It is my default Web profile. And it’s still in the early stages of learning how to use all that data. But its knowledge of me is the stuff that advertisers have probably dreamed of, well, ever since there has been advertising.

Google knows far less about me, and what it does know is muddled. If it follows my searches from home, it probably thinks I’m interested in technology, Duke University basketball, Star Wars, Captain Underpants, and Barbie. That’s because my whole family uses that PC. What has made them so successful is that they do a better job than anyone else at guessing who I am and what my interests are. Much of that comes directly from my search queries.

So Facebook knows who I am. Google is great at guessing at who I am. Where does that leave Twitter?

My profile information at Twitter is spare. There’s little way for it to know what tweets I might have read, unless I click on something, which I rarely do. It might draw some inference from my friends and followers, but that’s a weak pool of information.

Twitter probably doesn’t even know how deeply I engage with the service. Yes, I visit the Twitter homepage once a day, or so. But I have TweetDeck running all day, across three Twitter accounts I manage. I have glimpsed a promoted Tweet there once or twice, but rarely. I click on links in tweets, but that doesn’t mean I endorse or like the content, just that I was curious.

Given the way people use Twitter, and the poor quality of information it collects, I don’t have any expectation that it will be a compelling place for advertisers. As for any paid services, Twitter is so consistently behind the curve in feature development, it’s hard to imagine that they will build any specialized features that they could charger power users for.

In sum: No business model here. And you know what? That’s okay.

We have this default assumption that any company or service that can attract a kajillion users certainly must be able to monetize them. This is a kind of article of faith in Silicon Valley, but it’s wildly misplaced. As evidence, I would point to the most important piece of technology that may just be the worst business on the Web:

The browser.

There was a brief moment when Netscape asked us to pay $30 for the browser. But Microsoft put an end to that. And for the past 15 years or so, the browser has been free. Three of the four big ones are now made by big companies that don’t expect any revenue from them: Explorer, Safari, and Chrome. The browsers allow them to collect data on our Web surfing habits, but don’t put cash into their pockets. The other, FireFox, is developed under a non-profit.

I think Twitter is like that. It can be an important service that another company can use to enhance other things it does. The question then, is who is the best buyer?

The answer: Google.

As Ingram mentioned, Google needs to get social in the worst way. On the plus side, I think it has the engineering and the infrastructure to help Twitter fix its reliability problems once and for all. And I think it could help develop analytic tools that could help maximize Twitter’s limited revenue upside. And combining that user data with our search data would hopefully enhance Google overall.

Is there a chance that Google could snuff out all that is magical about Twitter? Yep. But I think it’s a chance worth taking to ensure that Twitter continues to exist.

A deal with Facebook would be a mistake for both asides. Ingram is right to point out that Facebook probably doesn’t have the cash to do the deal. But that aside, what would Facebook do with Twitter? I don’t think it could directly integrate Twitter, because it would mangle both services. The friend and follower dynamics are too different. And I’m not sure it brings any new users into the fold. Possibly Facebook could become a kind of social media holding company, owning both Facebook and Twitter, but operating them independently (though with friendlier integration). But that seems way too distracting.

No, at this point, there’s not enough upside for Facebook.

All this said, I think chances for a deal any time soon are remote. Twitter probably has enough money to run for awhile. It seems able to keep raising more private money, both for the company and to let employees cash out. And I’m sure the company wants to give its advertising business its best shot.

I think the real pressure, here, is on Google. In my mind, there is no amount of money that Google could pay for Twitter that would be too much. Not because of the revenue potential, but because it might inject some social thinking into Google’s engineering-driven DNA.

Google should put crazy money on the table until it’s piled so high, Twitter and its investors have no choice but to accept.

It’s official: Marc Bodnick, co-founder of the investment fund Elevation Partners, has left to join Quora, one of Silicon Valley’s hottest start-ups.

In a press release issued late Thursday night, the Elevation said:

“Elevation Partners, a private equity firm focused on large-scale investments in market leading consumer and technology businesses, announced today that Managing Director Marc Bodnick has resigned from the firm to pursue interests outside of Elevation Partners. Mr. Bodnick’s responsibilities will be assumed by Elevation’s other managing directors.

“Marc has made the decision to leave Elevation to pursue new opportunities,” said Roger McNamee,
Managing Director and Co-Founder of Elevation Partners. “Over the years, Marc has made many
contributions to the firm, and he leaves behind a healthy portfolio from Elevation’s first fund. We wish Marc continued success in the future.” “

Word began leaking out earlier this week about Bodnick’s departure from the firm that was started by McNamee and U2’s Bono, among others. Just a couple of weeks ago, I had a chance to interview Bodnick, whose reputation was on the rise thanks to his role in getting Elevation to invest in Facebook and Yelp:

“Perhaps no investor had more reason to cheer the deal that valued Facebook at $50 billion this week than Elevation Partners. Just one year ago, the conventional wisdom in Silicon Valley was that the high-profile investment fund, co-founded by Bono of U2, looked like a bust thanks to a bet on Palm that appeared to be a disaster.

But the success of its big investment in Facebook, and a smaller one in Yelp, have raised its standing in the valley and put the spotlight on Elevation partner and co-founder Marc Bodnick, 41, who played a critical role in landing both.”

Among the people I interviewed for the profile was McNamee, who was very complimentary about Bodnick’s role in the firm, those social media investments, and his general tech vision. However, according to the Daily Beast’s Dan Lyons, some at Elevation were less than pleased with the story I wrote and its focus on Bodnick:

“…an insider, speaking on the condition of anonymity, said Bodnick had exaggerated his contribution to Elevation’s success.

They’re especially miffed by a recent profile of Bodnick in the San Jose Mercury News in which Bodnick got a lot of credit—too much, the Elevation insider says—for Elevation’s successful investment in Facebook.

“Marc is a great guy. He’s a friend. But if you look at Marc’s background and hold that up to the rest of the group, well, he’s an equal partner, but if you’re going to lose somebody he’s probably the least damaging one to lose,” the insider said.”

It’s unclear whether Bodnick and Elevation have settled all outstanding issues related to Bodnick’s departure. Among the questions to be determined: How much of Bodnick’s share of the fund and its return will he be allowed to keep? What happens to his board seat at Yelp?

And most important: Will this have an impact on any plans Elevation has to raise a second fund? When I spoke to Bodnick earlier this month, he indicated signs seemed favorable to raise a second fund, despite the fact that Elevation investors had refused to give the partners more time to invest the first fund. They were apparently unhappy over its performance on investments in Palm (which managed to post a good but not great return) and Forbes (which has not done so hot).

But Facebook’s soaring valuation seems to have the first fund poised to post a healthy return. And as McNamee said when we talked, this serves as a reminder why it’s dangerous to pass judgment on any fund before it’s all said and done. At the time, McNamee said he’s be “surprised” if Elevation didn’t raise a second fund, and noted that the firm had brought on two new partners last year, presumably laying the groundwork for a second fund.

As for Bodnick, his move to Quora, a question and answer site launched last year by some former Facebook employees, puts him in the middle of a fast-growing new segment of the social media world. Bodnick has been a poweruser of the site since it launched.

On Friday morning, Bodnick responded to the question: “How was Marc Bodnick recruited to Quora?”

Bodnick wrote:

“Meeting the founders and using the product were the first steps in my growing interest in the company. I knew Charlie Cheever and Adam D’Angelo through mutual friends. I’ve been an active Quora user since October 2009, a time when there were only a few hundred users. I got onto the site after running into Charlie and Rebekah Cox, Quora’s lead product designer and first employee, at a birthday party in Palo Alto and bugging them for a beta invitation.

In October, Charlie invited me into the beta and I became immediately addicted. I have an eclectic set of interests, and I spent a ton of time on non-technical topics -> U.S. Politics, Movies, Children’s Books, Crossword Puzzles. In 2009-10, my kids and I were in the middle of reading Harry Potter, and I ended up writing dozens of questions about the books as I read each one. Then I did the same thing for the Matrix movies, Iron Man 2, and Black Swan. (I’m currently plowing throughPercy Jackson, btw.) I wrote way more questions than answers.

In early 2010, Charlie and I started talking about policy on the site, and he asked me if I wanted to get more involved with the company. So I started meeting most Sunday nights with Adam, Charlie, and Rebekah. These were awesome discussions for me. I was like a Madden fan getting to hang out with Bill Walsh to talk about the West Coast offense.

Toward the end of the year, Adam, Charlie and I started talking about the idea of me joining Quora in a more active role. It’s a small company, so I’ll take on a variety of roles including product marketing, community, and business operations. This is a big change since I’ve been an investor my whole life. I start Monday Jan 31 at Quora and it is a super-exciting new adventure for me.”

At the age of 41, Bodnick now becomes the “adult” presence at Quora. While he will have a wide-ranging portfolio, it will inevitably invite some comparisons to his sister-in-law, Sheryl Sandberg, the chief operating officer at Facebook.

Can Quora be turned into a real business? Will Elevation raise a new fund or is this the end of the road? Stay tuned.

Here’s an odd thing. Today, a former colleague sent me an email saying they had just called the Facebook switchboard. When the automated attendant came on, the second option was for “law enforcement.”

I agreed that seemed unusual, so I called myself (650-543-4800). Sure enough, “law enforcement” is the second option. But the full message was also amusing.

The message starts with the expected, “Thank you for calling Facebook…For customer support, press 1. For law enforcement, press 2.”

Law enforcement comes ahead of business development, marketing, press, and employment verification in the list of options.

Is Facebook really getting that many calls from law enforcment? Apparently so. When I pressed 2, the next message says: “This message is only for members of law enforcment. Please note that due to a very large volume of incoming calls, the current call back time is two to four business days. For faster response time, please leave your work email. A member of Facebook’s security team will email you in a timely manner.”

So, what do you suppose all those cops are calling about?

I spent Tuesday at the Internet Identity Workshop at the invitation of Kaliya Hamlin. I met Hamlin a couple of years ago while working on another conference, and had some fascinating discussions at the time about the Semantic Web and the future of news.

Hamlin was named by Fast Company last year as one of the most influential women in technology. She’s the organizer of numerous un-conferences around the valley. But in this case, she was being recognized for her co-founding and ongoing role in the Internet Identity Workshop. Started five years ago, the group gathers twice each year and was holding its 10th conference this week at the Computer  History Museum in Mountain View.

The subject of identity on the Web is especially timely right now with the controversy swirling around Facebook. The social media giant wants to essentially be the main repository of your online identity, and allow you to carry that around the Web with you. There are a lot of benefits to that, but there are also reasons to be wary. The folks at the workshop are developing more open alternatives.

What’s at stake here? As Hamlin frames it on her blog:

“The issue at hand is fundamentally about FREEDOM: the freedom to choose who hosts your identity online (with the freedom to set up and host your own), the freedom to choose your persona – how you present yourself, what your gender is, your age, your race, your sex, where you are in the world.”

So I stopped by the workshop for a few hours to sit in on some sessions and talk to Hamlin about the subject of identity on the Web. It was a great conversation, so let me summarize some of her thoughts. And at the end, I added a copy of her presentation that kicked off the three-day gathering.

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After spending the morning at f8, the Facebook developers conference, I’m convinced more than ever that Facebook is about to take over the whole Web. And by the whole Web, I mean, well, all of it.

And if Google isn’t trembling over this, they ought to be. We might look back at this day as the moment when Facebook set itself on a path to eventually dwarf Google in size, power, and eventually, revenues.

Simply put, Facebook is positioning itself to become deeply embedded in almost every single website. And the way it’s structuring this platform, it places Facebook itself at the center of Web more than ever.

Here’s why I think Facebook is about to become a monster.

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Last week, the biggest social media service most people have never heard of came out with a startling announcement. Ning, which allows you to build your own social networking site, was going to end its free service and focus on its paying customers.

The news was broken last week by Techcrunch which snagged a copy of CEO Jason Rosenthal’s memo to employees about the big change:

“When I became CEO 30 days ago, I told you I would take a hard look at our business. This process has brought real clarity to what’s working, what’s not, and what we need to do now to make Ning a big success. My main conclusion is that we need to double down on our premium services business.”

Rosenthal has just replaced Gina Bianchini as CEO. She co-founded Ning with Mark Andreessen. The company confirmed the change in a blog post the next day:

“As many of you know, we made a decision yesterday to focus 100% of the company on enhancing the features and services we offer to paying Ning Creators. The tens of thousands of you who already use our paid service represent over 75% of our traffic, and we’ve heard repeatedly from you ways that we can deliver a killer service to help make your Ning Network more effective.”

This announcement touched off a wave of panic among users of Ning, particularly educators and non-profits. But it also set off a round of smug “I-told-you-so” posts from developers who didn’t like Ning because it was a closed, proprietary system. They had long been warning people of the risks of putting so much content and resources into a service run by an unprofitable company with no sense of what might happen to all of that information should the company go kaput.

But the reality is not so simple. And while I’m generally a fan of open source and the open Web, I also became a big fan of Ning. And I think in that seeming contradiction, there’s a lesson for people who are building Web services and tools that they want regular folks to use.

So let me talk about my experience and what I plan to do with my network going forward.

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I’ve had a couple of days to reflect back on Chirp, the first Twitter Developers Conference held this week. Reading back on my column this week, written the day before, my gut feeling that Twitter is at an inflection point was reinforced by what I heard and saw this week.

What’s amazing about Twitter is how the company has succeeded despite itself. The service is unreliable. It’s hard for newbies to learn how to use it. And there’s been no grand vision guiding it along the way. Just a flourishing of ideas and applications and uses driven by consumers and developers that Twitter has been racing to keep up with. That it hasn’t collapsed completely may be its most remarkable achievement so far.

But while that’s amazing, it also presents immense challenges for building a company for the long term. Twitter execs addressed a range of issues. Some of what they said was good. Some was bad (or troubling). And some is bound to get ugly.

I’m going to walk through each of those, and what I think it means for the future of Twitter. Read the rest of this entry »

Google Buzz is here. And the big question is this: Can Google finally get in the social game? After playing around with Google Buzz for a bit today, I’ll say the jury is out for me. But I have a few thoughts, and will have more after I’ve played with it for a few weeks.

The first impulse I have is to fight is the despair over creating and learning a new social networking tool. Facebook and Twitter work well for me, despite some imperfections. I won’t say there isn’t room for improvement. But any new service has to clear a pretty high barrier to become part of my daily routine.

After digging in and following a few friends on Google Buzz, the next thing that strikes me as interesting about Google Buzz is how much it mirrors the approach to social that Yahoo is taking. And there’s something I wouldn’t expect to be writing: How Google is following Yahoo. Read the rest of this entry »

We learned in late December that Yelp turned down an acquisition offer from Google reported to be worth $500 million. Yelp then raised $25 million from Elevation Partners, with another $75 million possibly coming down the road.

It may need that money to ward off Google, which is ramping up its local advertising offerings. The new service places Yelp directly in Google’s scope. And I wonder if it won’t lead Yelp to regret not selling when they had the chance.

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