Zynga 2012 Annual Report Download - page 14

Download and view the complete annual report

Please find page 14 of the 2012 Zynga annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 122

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122

Our Technology Stack
We have invested extensively in developing our proprietary technology stack, which has the ability to
handle sudden bursts of activity for millions of players over a short period of time with high levels of
performance and reliability, to support the growth of our business. Our proprietary technology stack includes
datacenter and cloud computing management, a shared code base, network and cross-promotional features and
proprietary data analytics. Our technology stack also supports the growth of our 2D and 3D game engines across
the mobile business in addition to supporting high-level security and anti-fraud infrastructure. We believe that
our technology stack is a competitive advantage and we will continue to innovate and optimize our stack to
extend our technology leadership.
Marketing
We acquire most of our players through unpaid channels. We have been able to build a large community of
players through the viral and sharing features provided by social networks, the social innovations in our games
and the network effects of our games.
We are committed to connecting with our players. We have fan pages, generally on Facebook, for each of
our games to connect with our players; and we leverage various other forms of social media, including Twitter, to
communicate with them. We periodically host live and online player events. We also use traditional advertising
activities, primarily online advertising spending on Facebook.
Agreements with Facebook
To date, we have derived a significant portion of our bookings (81% in 2012) and revenue (86% in 2012)
and acquired substantially all of our players from our games played on Facebook. We expect to continue to
derive a significant portion of our revenue from games played on the Facebook platform for the foreseeable
future. We have entered into two addenda to Facebook’s standard terms of service that govern the distribution,
promotion and operation of our games through the Facebook platform. Our first addendum requires us to use
Facebook Credits as the primary payment method for any of our games that are either on the Facebook platform
or that utilize the data from the Facebook social graph, and requires Facebook to remit to us an amount equal to
70% of the price stated to our players. The second addendum obligated us to use Facebook Credits as the sole in-
game payment mechanism in any games launched on our own social gaming network, and entitled Facebook to
retain 30% of the stated price for transactions on our network. The second addendum also required us to use
Facebook as the exclusive social platform for the Zynga properties and to exclusively launch certain of our
games on the Facebook platform for up to twelve months, subject to certain exceptions.
In June 2012, Facebook announced its plans to discontinue the use of Facebook Credits and instead will
offer pricing of our virtual goods in local currencies. Facebook will continue to retain 30% of the stated price for
transactions on their platform under the terms of their new payments program. We expect to begin our transition
away from Facebook Credits and to adopt Facebook’s local currency-based payments model in the first half of
2013.
On November 28, 2012, we amended our agreements with Facebook such that our use of the Facebook
platform and any data from Facebook on any Zynga service offered through a Zynga game page (for example,
the With Friends Network) will be governed by Facebook’s standard terms of service beginning on March 31,
2013. Under the current terms of service, we will be limited in our ability to use a Facebook user’s friends list
and Facebook’s communication channels to promote the With Friends Network. In December 2012, Facebook
amended its standard terms of service to prohibit (i) apps on the Facebook canvas from promoting or linking to
game sites other than Facebook and (ii) the use of emails obtained from Facebook to promote or link to desktop
web games on platforms other than Facebook. We will be prohibited from cross-promoting traffic to games that
are offered on platforms other than Facebook from our games on Facebook. We will not be permitted to use e-
mail addresses obtained from Facebook to promote desktop web games that are not on the Facebook platform,
subject to certain limited exceptions.
6