Two earthquakes shook Northern Italy, the country’s major auto-producing region last week. A magnitude 6.0 quake was followed by a 5.8 magnitude temblor. While multiple sources reported that damage was minimal, luxury-car makers Ferrari, Maserati, and Lamborghini shut down their plants as a precaution. This is a reminder that business need to ensure continued operations in light of disasters and must take the necessary steps to do so. Supply protection steps, such as qualifying additional vendors, to mitigate the potential disruption of events like this are necessary. Acquiring and leveraging cloud services is no different and one observation that has been noted with the example of Sony’s gaming arm which suffered a large security breach last year. The breach compromised the personal identity information of millions of players within Sony’s gaming network. This event forced Sony to look for ways to have better control of their infrastructure exposure. Their approach was to move some of their workloads to Rackspaces’ OpenStack. By splitting their operating between the two different cloud providers, Amazon and Rackspace, they are able to control failures in a more effective manner. It also allows them to better control cloud infrastructure costs by reducing the dependency on one cloud provider.
Another interesting example is Zynga. Zynga is a social network game development company located in San Francisco, California. The company develops browser-based games that work both stand-alone on mobile phones and as application widgets on social networking websites such as Facebook, Orkut, Google+and Myspace. As of May 2012, Zynga's games on Facebook have over 250 million monthly active users. Five of Zynga's games, CityVille, Zynga Poker, FarmVille,CastleVille, and Hidden Chronicles, are the most widely used game applications on Facebook, with CityVille having over 40 million monthly active users. In the past two years, the number of servers the company has needed has increased 100 times. It now has a database with 24.5 trillion rows of data and is 1.4 petabytes in size. All the x86 servers are running CentOS Linux and all, up to recently, were running on Amazon’s EC2 cloud infrastructure with over 12,000 EC2 instances. Zynga was Amazon’s single largest customer. Zynga was spending north of a US$100 million a year renting infrastructure from Amazon. It has recently decided to build its own citrix-enabled private cloud, called zCloud, which went into full production in less than 6 months leveraging Cloudstack and Rightscale. zCloud mimics the Amazon Web Services cloud offering in order to allow effective and smooth management of both the private and public cloud offerings. zCloud was launched in January 2011 with CityVille Hometown as a proof of concept and by June 2011 it went into full production with CastleVille. The company leverages Rightscale to manage both the zCloud and AWS workloads. zCloud was designed to run mature games, predictable workloads and prototypes. It has 2 availability zones with data centers in the east and west coast and a direct fibre link to the public cloud - Amazon Web Services. zCloud has over 1,000 physical nodes and it takes 22 minutes to provision and add 100 nodes to their cloud. The infrastructure makes heavy use of open source technologies such as Apache, MySQL, memcache, Couchbase and Nagios. Zynga uses Amazon Web Services Elastic Compute Cloud as a staging ground before moving games onto its private cloud resources. The scalability of Amazon’s EC2 allows Zynga to allocate enough computing capacity to run millions of active users on a new game while collecting statistics, gathering performance information and other metrics until growth goes flat or becomes predictable at which point it is moving the workloads to Zynga’s data centers where it can be optimized to work with those resources. The value of Zynga’s hybrid cloud strategy is efficiency and focus. With an “on-demand” model, Zynga can minimize CapEx spend by not having to invest in more resources than necessary upfront, nor does it have to worry about under provisioning resources or otherwise inadequately configuring them when it brings games onto its private cloud.
Zynga executives highlighted the move from AWS on the company’s fourth quarter earnings conference call. Zynga operating chief John Schappert said:
“We have built our own infrastructure, the zCloud, to handle the tens of millions of players we serve each day. We migrated a number of our key games over to the zCloud, which provides ongoing network savings and enhanced performance for our players. By the end of the year, nearly 80% of our DAUs (daily active users) were hosted in the zCloud, compared to just 20% at the beginning of the year. Our technology sets us apart from other companies in our space and helps our games scale higher and perform faster while keeping costs down.”
The continued growth in cost and workloads has made Zynga rethink its strategy to improve efficiency and focus.
The economics for Zynga can be summarized as following:
- According to Dave Wehner, CFO of Zynga, the company will lower its cost of revenue over the next 18 to 24 months as third-party hosting costs decrease. Wehner said that Zynga plans to “roll off the majority of those third-party hosting arrangements.”
- Zynga’s capital expenditures in the fourth quarter were $50 million, down from $63 million in the third quarter. Most of that spending is focused on zCloud. For 2011, capital investments were $238 million.
- The building of its own infrastructure will help the bottom line. Zynga can depreciate its gear and lower quarterly expenses. “We believe this investment will have a short payback period and enable us to expand gross margins in the long term,” said Wehner.
Furthermore Zynga was under pressure to remain profitable which dictated for the company plans to provide guidance on broadening its revenue stream, in particular on mobile devices and reduce dependence on Facebook. Zynga is the top maker of games for Facebook, the world's largest online social network. It gets nearly all of its revenue, and its players, through Facebook, which takes a 30 percent cut of what people spend on virtual items in Zynga games. In turn, Zynga directly accounted for about 11 percent of Facebook's $1.06 billion revenue in the first quarter. Facebook has been a huge reason behind Zynga's growth and Zynga helps Facebook keep users on site. At the same time, the relationship was the first thing Zynga listed in its IPO filing under risks associated with its business when it went public last November. If the relationship sours, Zynga said, its business will suffer.
Zynga has been expanding beyond Facebook. It owns the popular game "Words With Friends," which can be played on mobile phones, and it bought OMGPop, the company behind Pictionary-like mobile game "Draw Something," in March. It also announced in March to expand and create the Zynga Gaming Platform (company.zynga.com/about/press/press-rele...ls-new-platform-play
). Zynga.com will become a destination for games and third-pary developers who want to leverage the Zynga gaming platform. This move further highlights Zynga’s plan to gain greater control over Facebook’s dependency.
Zynga is now controlling its own destiny. With the scaling of zCloud and hybrid cloud strategy, it controls its infrastructure while with the launch of its gaming platform it also diversified away from the Facebook dependency.
The importance of technology decision that need to be made with a strategic business mindset and long term vision can not be underestimated, especially in the new IT era. It appears that as our needs become more unique and the cost infrastructure grows, the need to control infrastructure becomes increasingly more critical. Whether it is through minimizing the dependency with a particular cloud provider as in the case with Sony or building your own private cloud as is the case with Zynga, those decision will dictate the hyper-competitiveness and survival of a company in this fast paced, global and innovative market.