Notes on business sustainability – Joel Andren on Zynga

Joel Andren posted a couple of weeks ago on Why Zynga couldn’t go public soon enough – in which he notes that everything is great at Zynga right now (revenues on a tear, Farmville is hot, Cafe World is getting there) but postulates that ‘their current efforts have probably reached their apogee without making significant changes to their ecosystem’.  Hence they should get out while the going is good and IPO.

I’ve got no inside track on Zynga buy Joel’s analysis is interesting and can (and probably should) be applied to most internet businesses.  He has a ‘customer ecosystem’ model into which he has plugged Zynga:

And by way of explanation:

If a company is strong, it will have three of four squares rated green. Anytime a company has a red square it essentially means that their customer ecosystem is unhealthy.

I like this model a lot.  It is applicable to a wide range of internet businesses and has the merit of forcing you to look at every aspect of the customer lifecycle and I’m using it to help analyse an ecommerce company as we speak.

To comment on Zynga’s red squares:

• We have seen the danger of Facebook dependence before when iLike was only able to sell itself for $20m.  This point is not lost on Zynga who are pushing their own site Farmville.com quite hard and would, I’m sure, love to be working in more social networks, and to be fair to them when the business was started it looked like Bebo and Myspace would have application platforms to rival Facebook’s.
• Customer retention is a challenge for all games developers as it is difficult to get gamers to care about anything other than individual titles – which is why franchises are so important for the industry.  I thought Social were a little different as developers have the option to cross promote between their different games.  Indeed, Zynga even had a sort of in-game cross promotional ad network story for a while as a way to attract third party games into their orbit.  Not sure what happened to that.

I’m a big believer in the importance of sustainability, which is why I like this model, but since Joel wrote his piece Zynga has raised a further $15m from existing investors, including Kleiner Perkins and Union Square Ventures.  I’m guessing the picture isn’t all bad .