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I guess this is a pretty good example of the difference between a business built based on "innovation" vs "extraction". With innovation, you consistently make

I guess this is a pretty good example of the difference between a business built based on "innovation" vs "extraction". With innovation, you consistently make new and exciting products and your customers are really happy. With an extraction-based model, you corner out the market, and then you impose access fees, taxes, etc on the users. Instead of going with innovation, Zynga decided to go with extraction, and they are now paying a heavy price. Farmville, Cityville, etc, are all essentially just the same game. They add clicks and beeps to get middle-aged housewives to pay $5/month for virtual items and I guess it's simply not sustainable. As a side note, I've been to Zynga's headquarters in SF. The offices are beautiful, and spacious. My friend pointed out a human-sized statue of the Zynga's dog that was repainted for something like $10-20k because apparently the CEO didn't like the color. You can walk around and see a lot of dot-com waste everywhere. We went to one of the snack areas, and there were opened bags of organic chips just laying around. Apparently, they have an office-supply vending machine filled with $100 wireless keyboards, mice, etc, that people just take whenever they want. As an (unhappy) investor, it certainly looks like there is a lot of room to cut the fat at that company, so maybe they can slash their costs relative to their revenues and turn it back into a viable business.

reitzensteinm 14y ago
> As an (unhappy) investor I don't think I'm the only one here that would love to hear that story!
- steve8918 14y ago
  Not much of a story to tell, I bought ZNGA shares, and am unhappily suffering LOL. I figured they are getting close to book value, and they couldn't drop much further (always the worst reason to buy a stock). And I thought that given they have real revenues, that someone might be willing to step in and buy them for their customers. Maybe YHOO or AOL, or even FB. Now, with their revenues dropping, it could be that NO ONE wants to buy them for fear of overpaying (like they did with OMGPOP), so I could be up the creek on this one.
  - reitzensteinm 14y ago
    Ah of course, post IPO. For some reason I assumed it would be earlier than that.
  - prodigal_erik 14y ago
    Investors can't rely on seeing their share of the current book value if a company fails. That would be a good lower bound on companies' market cap if they generally wound down and sold their assets in an orderly way, but few companies do that. Most continue operating until they literally can't and then the bankruptcy receiver has to dump all their assets in a fire sale. Sorry.
niggler 14y ago
As a (happy) short seller of ZNGA who covered after hours Thursday, I think it should have been painfully obvious from day 1 that the business was unsustainable in its current incarnation, and that every avenue of growth (e.g. internet gambling) would be stifled by competition (e.g. MGM, LVS)
- jrockway 14y ago
  Why sell short instead of buying put options?
  - niggler 14y ago
    You end up paying extra to buy put options (because of the implied time component -- "theta"). To see the phenomenon, look at the in-the-money put prices and compare them to the current value (if they were exercised today). If the borrow costs are incredibly low, its much cheaper to hold onto a short position for a month or two than it is to buy long-dated puts. The other advantage is that its easier to take profits sooner. The bid/ask spread is much larger on the options than on the equity. Finally, notice how the options have .50 cent increments. When dealing with the equity directly, you can capture as small as a cent profit.
    - jrockway 14y ago
      But with unbounded risk. (I looked at the options chains for ZNGA. Doesn't seem like there is much activity, perhaps because everyone now expects the stock to tank.)
      - niggler 14y ago
        Yes that is true in some sense, but with options its far more likely that your money will disappear (the options will expire worthless) than with shorts (the price would have to double for that to happen)
        jrockway 14y ago
nikcub 14y ago
The story about the office reminds me of one of the smartest people I have ever worked with, an investment banker. His job was to research, audit and credit check companies in developing economies. He told me how within a few minutes of walking to the lobby of a company headquarters he could with some accuracy judge how the business was operated. Lavish spending on insignificant things was a sign that there were inefficiencies or problems elsewhere. for eg. in one case a Russian investment fund had a large 3-level high marble lobby with a large bronze statue of the founder. Turned out that they were hundreds of millions in debt rather than wildly profitable as they had mis-priced assets. The other anecdote he shared was that there seemed to be a high correlation between businesses that hired young, attractive secretaries in short skits and accounting fraud.
- deleted 14y ago
  [deleted]
  - Eduardo3rd 14y ago
    This is the most sexist thing I've read on HN in a while. I can't down vote you, but I hope someone else does.
    - reinhardt 14y ago
      Might be sexist but that doesn't (necessarily) make it untrue.
      - rhizome 14y ago
        It's an opinion, it's neither true nor false, saying that if the admin is unattractive then it's not a good VC. What is not a matter of opinion and is incontrovertibly true is that those two things have nothing to do with each other.
        reinhardt 14y ago
        > saying that if the admin is unattractive then it's not a good VC. That's now what he said though. He just mentioned his observation that not so good VCs have less good-looking admins. Correlation != causation yada yada.
Aloisius 14y ago
Not really sure why the vending machine is a bad idea. It sounds like they just automated part of their IT department.
- niggler 14y ago
  Vending machine is a bad idea because it destigmatizes requesting equipment. If you knew you could just go to a vending machine and get equipment, what would stop you from just requesting extra for your personal use? Since any new equipment comes out of my personal returns, I don't get a new keyboard just because the keyboard doesnt feel like it did out of the box -- I clean it. If you knew that you could request a new keyboard every time you spilled coffee on your keyboard, what would keep you from carelessly placing drinks on your desk? I know that my desk was paid for with my money, so I'm very careful with regards to stuff like coasters and tall cups. If you have to look a person in the face, you feel a greater sense of accountability (as if that person knows you requested it) and you will be less likely to frivolously request stuff.
  - birken 14y ago
    I think your point is unlikely to be accurate. The person that, by their presence in the transaction, is stigmatizing frivolous requests costs money too. Probably a lot more money than whatever minor percentage increase in equipment requests also happen. (Also if their system is anything like Google's, all requests are tracked by your employee badge, so abuse is easily caught). You are also conveniently forgetting the cost of somebody who did accidentally spill coffee on their keyboard. Every hour they cannot work because there isn't a functioning input device to accept their keystrokes is just productivity being wasted. Obviously I don't think the fact that Zynga has these vending machines makes them a great company, but I can certainly say that having them doesn't make Zynga a bad company.
    - niggler 14y ago
      "The person that, by their presence in the transaction, is stigmatizing frivolous requests costs money too." That person also keeps up with the latest technologies and, ideally, would be able to advise on the appropriate type of keyboard or mouse or whatever. "You are also conveniently forgetting the cost of somebody who did accidentally spill coffee on their keyboard." If the spilt coffee results in keyboard damage, no qualm there. I'm referring to cases where you have a slight drop and decide to get a new keyboard rather than wiping it. " I can certainly say that having them doesn't make Zynga a bad company." I don't think the vending machine by itself impugns a company but it certainly matches a sense of wastefulness from other anecdotes.
wangarific 14y ago
The "fat" is the visible part but the reality is that Zynga's share price won't move until they can show investors, and the market, that they've evolved past their current library of games. As an investor, I don't care about the pennies on the dollar represented by the vending machine and the organic chips. I want to see them evolve (and have that evolution translate to the bottom line) and until they do, you won't see a meaningful upward move in their share price. The waste you've identified is a red herring.
seiji 14y ago
$5/month? That's hilariously off by two to three orders of magnitude for some buyers.
- erikpukinskis 14y ago
  People spend $5000/month on Zynga?
hristov 14y ago
I agree about Zynga having the wrong model, but I do not think the things you mentioned are wasteful (other than repainting the dog). I do not know why people always assume that treating your employees well is some type of waste. Think about this -- how much does a competent IT person cost per hour? How much does an engineer cost per hour? Some engineers cost up to $100 per hour once you add all the incentives and incidental costs. Now what happens when an engineer has a broken keyboard in an old fashioned "frugal" company? He has to call tech support and he has to wait and he gets the perfect excuse not to do work. Tech support will not show up immediately, because this is a "frugal" company, so they do not have people in tech support just sitting around waiting for someone to get a broken keyboard. Oh no, they are frugal and have their support people's schedules full, which means that $100 an hour engineer gets to wait a couple of hours till the support person comes. But in "wasteful" Zynga, that same engineer can go and replace his own keyboard for 5 minutes. That office supply vebding machine seems like a brilliant idea to me. Of course it is a vending machine, so it presumably keeps track of who takes what, so nobody can just take a bunch of stuff and resell it on the street. The thing about the organic chips is a great idea too. It takes so much longer for anybody to go somewhere and buy something. And if a programmer goes out of the office he loses context, which means it may take him another hour to soak up the context of everything he was doing. Oh and if you eat unhealthy food or drink sugary drinks you can easily spend an entire afternoon in food/sugar coma. Of course one should not waste food regardless of how much they paid for this, but that can be solved by social measures. I do not know why investors get their hearts warmed up by the suffering of their companies' employees but this is usually very counterproductive. Google is very successful and is famous for their perks. Outsiders make fun of them, but Google management knows better. The better the perks, the more likely your valuable employees will stay in the office, avoid distractions and get more work done.
- edwinnathaniel 14y ago
  So you're saying that we should lock a programmer in a room and give him a blank sheet of paper for their "wishlist" and let them work non-stop? It's about time we drop this whole mumbo-jumbo "software developer laser-focus work hours increase productivity through the roof". At the end of the day, all of us are human being that is limited by something somehow.

reitzensteinm 14y ago

> As an (unhappy) investor I don't think I'm the only one here that would love to hear that story!

steve8918 14y ago
Not much of a story to tell, I bought ZNGA shares, and am unhappily suffering LOL. I figured they are getting close to book value, and they couldn't drop much further (always the worst reason to buy a stock). And I thought that given they have real revenues, that someone might be willing to step in and buy them for their customers. Maybe YHOO or AOL, or even FB. Now, with their revenues dropping, it could be that NO ONE wants to buy them for fear of overpaying (like they did with OMGPOP), so I could be up the creek on this one.
- reitzensteinm 14y ago
  Ah of course, post IPO. For some reason I assumed it would be earlier than that.
- prodigal_erik 14y ago
  Investors can't rely on seeing their share of the current book value if a company fails. That would be a good lower bound on companies' market cap if they generally wound down and sold their assets in an orderly way, but few companies do that. Most continue operating until they literally can't and then the bankruptcy receiver has to dump all their assets in a fire sale. Sorry.

niggler 14y ago

As a (happy) short seller of ZNGA who covered after hours Thursday, I think it should have been painfully obvious from day 1 that the business was unsustainable in its current incarnation, and that every avenue of growth (e.g. internet gambling) would be stifled by competition (e.g. MGM, LVS)

jrockway 14y ago
Why sell short instead of buying put options?
- niggler 14y ago
  You end up paying extra to buy put options (because of the implied time component -- "theta"). To see the phenomenon, look at the in-the-money put prices and compare them to the current value (if they were exercised today). If the borrow costs are incredibly low, its much cheaper to hold onto a short position for a month or two than it is to buy long-dated puts. The other advantage is that its easier to take profits sooner. The bid/ask spread is much larger on the options than on the equity. Finally, notice how the options have .50 cent increments. When dealing with the equity directly, you can capture as small as a cent profit.
  - jrockway 14y ago
    But with unbounded risk. (I looked at the options chains for ZNGA. Doesn't seem like there is much activity, perhaps because everyone now expects the stock to tank.)
    - niggler 14y ago
      Yes that is true in some sense, but with options its far more likely that your money will disappear (the options will expire worthless) than with shorts (the price would have to double for that to happen)
      - jrockway 14y ago

nikcub 14y ago

The story about the office reminds me of one of the smartest people I have ever worked with, an investment banker. His job was to research, audit and credit check companies in developing economies. He told me how within a few minutes of walking to the lobby of a company headquarters he could with some accuracy judge how the business was operated. Lavish spending on insignificant things was a sign that there were inefficiencies or problems elsewhere. for eg. in one case a Russian investment fund had a large 3-level high marble lobby with a large bronze statue of the founder. Turned out that they were hundreds of millions in debt rather than wildly profitable as they had mis-priced assets. The other anecdote he shared was that there seemed to be a high correlation between businesses that hired young, attractive secretaries in short skits and accounting fraud.

deleted 14y ago
[deleted]
- Eduardo3rd 14y ago
  This is the most sexist thing I've read on HN in a while. I can't down vote you, but I hope someone else does.
  - reinhardt 14y ago
    Might be sexist but that doesn't (necessarily) make it untrue.
    - rhizome 14y ago
      It's an opinion, it's neither true nor false, saying that if the admin is unattractive then it's not a good VC. What is not a matter of opinion and is incontrovertibly true is that those two things have nothing to do with each other.
      - reinhardt 14y ago
        > saying that if the admin is unattractive then it's not a good VC. That's now what he said though. He just mentioned his observation that not so good VCs have less good-looking admins. Correlation != causation yada yada.

Aloisius 14y ago

Not really sure why the vending machine is a bad idea. It sounds like they just automated part of their IT department.

niggler 14y ago
Vending machine is a bad idea because it destigmatizes requesting equipment. If you knew you could just go to a vending machine and get equipment, what would stop you from just requesting extra for your personal use? Since any new equipment comes out of my personal returns, I don't get a new keyboard just because the keyboard doesnt feel like it did out of the box -- I clean it. If you knew that you could request a new keyboard every time you spilled coffee on your keyboard, what would keep you from carelessly placing drinks on your desk? I know that my desk was paid for with my money, so I'm very careful with regards to stuff like coasters and tall cups. If you have to look a person in the face, you feel a greater sense of accountability (as if that person knows you requested it) and you will be less likely to frivolously request stuff.
- birken 14y ago
  I think your point is unlikely to be accurate. The person that, by their presence in the transaction, is stigmatizing frivolous requests costs money too. Probably a lot more money than whatever minor percentage increase in equipment requests also happen. (Also if their system is anything like Google's, all requests are tracked by your employee badge, so abuse is easily caught). You are also conveniently forgetting the cost of somebody who did accidentally spill coffee on their keyboard. Every hour they cannot work because there isn't a functioning input device to accept their keystrokes is just productivity being wasted. Obviously I don't think the fact that Zynga has these vending machines makes them a great company, but I can certainly say that having them doesn't make Zynga a bad company.
  - niggler 14y ago
    "The person that, by their presence in the transaction, is stigmatizing frivolous requests costs money too." That person also keeps up with the latest technologies and, ideally, would be able to advise on the appropriate type of keyboard or mouse or whatever. "You are also conveniently forgetting the cost of somebody who did accidentally spill coffee on their keyboard." If the spilt coffee results in keyboard damage, no qualm there. I'm referring to cases where you have a slight drop and decide to get a new keyboard rather than wiping it. " I can certainly say that having them doesn't make Zynga a bad company." I don't think the vending machine by itself impugns a company but it certainly matches a sense of wastefulness from other anecdotes.

wangarific 14y ago

The "fat" is the visible part but the reality is that Zynga's share price won't move until they can show investors, and the market, that they've evolved past their current library of games. As an investor, I don't care about the pennies on the dollar represented by the vending machine and the organic chips. I want to see them evolve (and have that evolution translate to the bottom line) and until they do, you won't see a meaningful upward move in their share price. The waste you've identified is a red herring.

seiji 14y ago

$5/month? That's hilariously off by two to three orders of magnitude for some buyers.

erikpukinskis 14y ago
People spend $5000/month on Zynga?

hristov 14y ago

I agree about Zynga having the wrong model, but I do not think the things you mentioned are wasteful (other than repainting the dog). I do not know why people always assume that treating your employees well is some type of waste. Think about this -- how much does a competent IT person cost per hour? How much does an engineer cost per hour? Some engineers cost up to $100 per hour once you add all the incentives and incidental costs. Now what happens when an engineer has a broken keyboard in an old fashioned "frugal" company? He has to call tech support and he has to wait and he gets the perfect excuse not to do work. Tech support will not show up immediately, because this is a "frugal" company, so they do not have people in tech support just sitting around waiting for someone to get a broken keyboard. Oh no, they are frugal and have their support people's schedules full, which means that $100 an hour engineer gets to wait a couple of hours till the support person comes. But in "wasteful" Zynga, that same engineer can go and replace his own keyboard for 5 minutes. That office supply vebding machine seems like a brilliant idea to me. Of course it is a vending machine, so it presumably keeps track of who takes what, so nobody can just take a bunch of stuff and resell it on the street. The thing about the organic chips is a great idea too. It takes so much longer for anybody to go somewhere and buy something. And if a programmer goes out of the office he loses context, which means it may take him another hour to soak up the context of everything he was doing. Oh and if you eat unhealthy food or drink sugary drinks you can easily spend an entire afternoon in food/sugar coma. Of course one should not waste food regardless of how much they paid for this, but that can be solved by social measures. I do not know why investors get their hearts warmed up by the suffering of their companies' employees but this is usually very counterproductive. Google is very successful and is famous for their perks. Outsiders make fun of them, but Google management knows better. The better the perks, the more likely your valuable employees will stay in the office, avoid distractions and get more work done.

edwinnathaniel 14y ago
So you're saying that we should lock a programmer in a room and give him a blank sheet of paper for their "wishlist" and let them work non-stop? It's about time we drop this whole mumbo-jumbo "software developer laser-focus work hours increase productivity through the roof". At the end of the day, all of us are human being that is limited by something somehow.