Raise your hand if you thought Zynga Inc (NASDAQ:ZNGA) was a great company two years ago. Did you put real money on that belief when it went public at the end of 2011? Well, congratulations: You’re out two-thirds of your money, and you’re probably never going to get back to even.
Unless you’re Mark Pincus, in which case you’ll be just fine.
And maybe that’s what’s wrong with Silicon Valley.
The Valley delusion
Mark Pincus was, by all accounts, a pretty successful guy before founding Zynga Inc (NASDAQ:ZNGA) in 2007. A pre-RSS news-delivery start-up he founded in 1995 became one of Web 1.0’s earliest buyouts, delivering a $38 million payday after only seven months in operation. Pincus went on to create Support.com in 1997, a company that had the misfortune of mistiming the dot-com IPO market. Despite thie bad timing, Support.com’s persistence (it remains operational to this day) was nevertheless worth millions to Pincus, even at its post-bust low points.
Pincus left Support.com in 2003 to start an early social network called Tribe.net. By the time the Tribe.net story played out (Pincus sold it to Cisco months before founding Zynga), Pincus was already well established in Silicon Valley. Few digital entrepreneurs reach this level of success. Pincus decided to parlay his good fortune into a company built to make games for the nascent Facebook Inc (NASDAQ:FB) platform — or, in other words, “to change the world,” as he told Gamesbeat just after Zynga Inc (NASDAQ:ZNGA)’s late-2011 IPO:
I’ve been interviewed by someone on NBC who said, “Isn’t that what all you Silicon Valley people are about? Just trying to have more money or whatever?” And I said, “No, that’s really not what we’re about here. We’re way more ambitious than that. We want to change the world, make history.”
This is, more or less, of a like mind with the prevailing Silicon Valley attitude, but it’s hard to take these claims seriously in light of what Silicon Valley, by and large, actually does. George Packer’s recent New Yorker feature highlights the “cognitive dissonance” between what Valley luminaries like Pincus often talk about and what they’re actually creating:
It’s an article of faith in Silicon Valley that the technology industry represents something more utopian, and democratic, than mere special-interest groups. … [T]he personal computer was seen as a tool for personal liberation; with the arrival of social media on the Internet, digital technology announced itself as a force for global betterment. The phrase “change the world” is tossed around Silicon Valley conversations and business plans as freely as talk of “early stage investing” and “beta tests.”
[The following conversation is between Packer and Path CEO Dave Morin, who, like Pincus, is a Valley veteran.]
“San Francisco is a place where we can go downstairs and get in an Uber and go to dinner at a place that I got a restaurant reservation for halfway there,” Morin said. “And, if not, we could go to my place, and on the way there I could order takeout food from my favorite restaurant on Postmates, and a bike messenger will go and pick it up for me. We’ll watch it happen on the phone. These things are crazy ideas.”
It suddenly occurred to me that . [Emphasis added.]
One does not change the world by getting it to click on virtual cows, or by getting people to watch bike messengers deliver a bucket of moo goo gai pan on their smartphones. One can, however, get very wealthy while the world’s distracted by frivolity.
Zynga Inc (NASDAQ:ZNGA) certainly scaled up to the point where the entire world might have been down on the FarmVille, but this was a precondition of the venture capital Zynga relied on to fund its growth. One does not raise $850 million in venture funding if one does not plan to become the largest social-gaming enterprise in the world (Facebook Inc (NASDAQ:FB), by comparison, raised approximately $2.25 billion before going public). It’s worth asking, though, whether clicking on cows is an enterprise deserving of so much funding, so high a market cap, and so much dedicated technical talent and effort in the first place.