Zynga, Inc., the maker of the popular FarmVille and CityVille games played by bored teenagers on Facebook, has announced it intends to sell its shares publicly for the first time, with prices that would put its value at roughly $15 billion. It hopes to raise about $1 billion in the IPO. It had its first profitable year last year, making about $90 million.
Its future is heavily tied to the continuing popularity of Facebook, and of course, to the fickle whims of teenagers whiling away their time on Facebook. There is essentially nothing except faddishness underlying its growth and profitability. (See Bloomberg article for details). Incredibly, it derives most of its revenue from selling virtual goods within the games it offers for free on Facebook, such as a townhouse in CityVille, or a tractor in FarmVille. According to my teenage son, playing FarmVille, etc. is a popular way of wasting time among his circle of friends from upper-middle class families, but he knows of practically no one that actually ever buys anything for their farms or cities.
Zynga is nothing more or less than a moderately sophisticated way to waste time on the internet, that depends upon its revenue from a) Facebook’s popularity and b) its own popularity within Facebook. Companies that derive their revenues from selling actual stuff, like video games, such as Electronic Arts, Inc. ($8 billion) and Activision Blizzard, Inc. ($15 billion) are not considered as valuable as Zynga.
If Zynga successfully raises $1 billion, it will be the biggest IPO since Google’s in 2004. To justify the $15 billion valuation raising a billion dollars in its IPO would represent, Zynga will have to grow something like Google did. Thus it appears that Zynga and its social-media brethren–basically time-wasting devices–constitute the vanguard of growth for this economy.
Don’t misunderstand. With technological applications creating efficiencies in every sphere of human endeavor, there is plenty of time to waste. Every big and little thing humans need, from food to shoes to roofs to windows, and most of what they want, can be created and delivered with remarkable ease and efficiency these days; since Malthus was wrong in assuming birth rates would increase with increased wealth to keep people always scraping by, life becomes rather tedious without constant attention diversions. Humans were designed to survive a harsh and unyielding environment; now that the environment has been all but completely subdued, the instincts and abilities Nature provided mankind as survival tools lie mostly unused. FarmVille is better, one supposes, than staring at the ceiling.
Efficiency is both the driver and the Achille’s heel of capitalism. As more and more of goods and services necessary for survival can be produced with the same inputs, more and more must be consumed, until finally, consumption is satiated. When production gets too far ahead of demand, i.e., of consumptive needs, the whole thing grinds to a halt. That was the Great Depression. The trick then is to expand demand, either through opening new markets or creating demand for the consumption of new goods. That was World War Two and its follow-on decades. At some level of efficiency in production, so much wealth is created that a leisure class of two sorts–the fabulously wealthy and the derelict poor or criminal–arises, with even the middle producers enjoying some increased level of leisure. That is roughly where the US economy now is. It is therefore perfectly understandable that the production of all sorts of devices intended to break the oppressive ennui that wealth begets would be the only engine of economic growth remaining.
Zynga, a company that specializes in ennui-dissipating frivolities, becomes a Wall Street darling, at least for a while. Eventually the prescription for dealing with a burgeoning leisure class (9% unemployment) is to turn them into producers, but doing so would require new markets and an expanded consumer base. Is there any doubt that imperialism and capitalism go together like bad teeth and British stoicism?