Why gaming powerhouse Zynga bought Chartboost … before getting bought by Take-Two

Five days ago, gaming giant Take-Two bought Zynga for $13 billion. But before that, Zynga bought Chartboost for $250 million.

• What’s going on?
  Why is a gaming company buying an ad network?
  And what does this say about the future of games and media?

In this episode of TechFirst with John Koetsier, we chat with Zynga Chief Product Officer Scott Koenigsberg and Chartboost CEO Rich Izzo.

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Zynga & Chartboost: questions we discuss

• Zynga bought an ad network for $250M. A decade ago that would have sounded insane. Why?
• We know Zynga for games. But you’re not the only combination of gaming and adtech. What’s driving this merger frenzy and consolidation?
• How does having Chartboost make Zynga better? How does having Zynga make Chartboost better?
• Are there downsides? Competitive issues?
• What’s evolving in tech and platforms that is changing the competitive landscape?
• What kind of platform that you can build will be well-optimized for the future state?
• Zynga has acquired other gaming studios as well. What’s the goal?
• Mobile was a phase-shift in technology that privileged some platforms and networks and deprioritized others. What’s the next one … do you have metaverse bets, and what kind of timetable to you envision there?
• How will this change your business?
• Planning to still be acquisitive?

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Transcript: why Zynga bought Chartboost

(This transcript has been lightly edited for length and clarity.)

John Koetsier: Adtech is the price that we pay for free YouTube, email, apps, games, web search … but it’s been in upheaval over the last year. We’ve seen multiple billion dollar acquisitions and maybe more M&A than in the previous decade. That includes ad networks bought by gaming companies, gaming companies bought by ad networks. What’s happening? And why? And how are we changing the landscape of technology?

To learn more about that, we’re chatting with Rich Izzo, the CEO of Chartboost, and Scott Koenigsberg, the Chief Product Officer at Zynga. Welcome, both of you! 

Scott Koenigsberg: Thanks, John. Thanks for having us here today. 

Rich Izzo: Yeah, thanks John. 

John Koetsier: Hey, super happy to have you. Let’s start right here, and … you know what, Scott, we’ll probably throw this one your way first and then get Rich’s opinion as well. Zynga bought an ad network for $250 million. I mean, a decade ago that would have sounded insane. Why’d you do it? 

Scott Koenigsberg: You know, it’s a good question.

I think one of the things that drove us to do this acquisition was we were looking for ways to take more control over our ability to monetize players and our ability to acquire players.

Zynga has one of the largest ad inventories in mobile gaming, and it’s a very diverse set of inventory across many different games. And we pride ourselves on having an ad-eligible audience and providing that ability for our players both to monetize and progress, and so we see ad monetization as a way to retain players in our games. We also, we’re looking to vertically integrate into these channels, where, quite honestly, there’s a loss of kind of data and obviously there’s a lot of dollars that get taken along the way by intermediaries.

And so we’re looking for opportunities to vertically integrate to get these efficiencies to create a better market for ourselves in both the user acquisition and ad monetization side.

And so we started looking at companies out there who already were at scale and already had a proven track record and ability to do this … and quite honestly, it’s not a very long list. And then the other piece is, of course, we wanted to work with a team that fit culturally into Zynga. And that’s one of the, you know, in our M&A history, I think one of the most important things, the most important success factors is finding teams that fit well with Zynga and work in the same way.

And when we met the team at Chartboost and kind of looked at their reach and their scale and what they’d already accomplished, they kind of checked all the boxes. They had the ability to help us monetize better in our own inventory. They had a large SDK reach and they were going to help us be able to buy more efficiently through their DSP. And so it was sort of, you know, it fit all — it checked all the boxes, did everything we needed. And then when we met Rich and the rest of the team, it was like, honestly, two or three weeks into working together, it was kind of like we’d been working together for a year or two.

John Koetsier: Rich, let’s bring you in here. It’s kind of interesting, because Scott mentioned the phrase vertical integration, right? And that’s something that … we’ve seen an explosion in adtech. We’ve seen an explosion into these tiny little slices of functionality, right? There’s an alphabet soup of different components and pieces of the adtech puzzle.

Is this kind of a reaction to that? Or is it, is something else happening here? 

Rich Izzo: I think it’s in part a little bit of both. I think there’s this notion that in order to continue to play at scale, you need to have a lot of these pieces that folks are mentioning.

You need to be able to control your own destiny.

I think Scotty said a lot of these things really well. The more you can control your user acquisition, your ad monetization, and really provide services to support not only your own content and users, but additionally the third party aspects — those things are key and critical, I think, to growth and scale.

This notion of a software platform is what I think we’re driving toward as well. And I think you’re seeing this in this space a lot. A lot of the big players are using that terminology and building toward it as well, and Zynga is no different in this sense. So, that’s what we’re headed toward and that’s what we’re driving toward. And that’s, you know, in part the trend that exists today that we’re following through with. 

Scott Koenigsberg: And I think…

John Koetsier: Let’s dive in… [crosstalk] Go ahead, Scott.

Scott Koenigsberg: In mobile gaming, in particular, you know, a lot of what we do is data-driven, right? We experiment our games, we make decisions for it to optimize on different metrics. And it’s no different in ad monetization or user acquisition. You need a very robust decisioning engine, and that’s become more important than ever.

And so with our ability to kind of combine our first-party gaming data with Chartboost’s ability to — their algorithms to monetize and acquire users, that seemed like a very natural fit, and I think that’s why you’re also seeing a lot of the vertical integration. It’s about having more visibility into the data to make better decisions.

John Koetsier: What else is behind this? Obviously there’s a lot going on in terms of privacy, there’s a lot of change that happened with iOS — although maybe not as much change, we’ve been noticing in the last little bit with Apple backing back on some of its privacy restrictions, perhaps, in private — what else is driving this? Can you go a little deeper there? 

Scott Koenigsberg: Rich, do you want to take that? Or…

Rich Izzo: Yeah, I mean, I think, John, you’re asking really good questions. With respect to privacy, this is a challenge that it’s almost like the gauntlet’s been thrown by Apple to everyone in this space. Google’s following suit. There will be a lot of trends. I think, for every company that participates in adtech now, you want to be privacy forward. You want to be building towards solutions that are privacy forward. And Scotty really hit the nail on the head, I mean, having this consolidation of first-party data and a number of tools to help deploy that data in meaningful ways. And again, you know, data that Zynga owns and users are opted into, and again, in thinking in terms of privacy forward, how we manage that data and utilize it to do this user acquisition, to do monetization, to potentially provide other services and tools as well. I think that’s what we’ll be doing.

John Koetsier: Talk a little bit about the merger here. You mentioned that, hey, it worked really well together, you guys kind of bonded really, really quickly. How does having Zynga make Chartboost better? 

Rich Izzo: Scotty, you want me to take that one? 

Scott Koenigsberg: Yeah, if you can take that one, I’ll take… [crosstalk]

John Koetsier: I definitely want you to take that one and then I’ll ask Scott the opposite question. [laughter]

Rich Izzo: Yeah. I mean, so, there’s a number of things. I think the first and foremost, there’s a couple things. I’ll take the philosophical first, like — and Scotty touched on this as well, I mean, he said a lot of things quite well — we have a very similar philosophy, a very collaborative nature, and I could tell that from the very first few phone calls that I had with Scotty, other members of his team, Alex, Frank, etc. So it was great to get to know everybody and just get an understanding of like what it is that they want to do in this space. 

From a how does Zynga really benefit Chartboost?

It’s really about, like, I would say a couple of things.

One, there’s investment. They’re very keen on investing in our platforms so that we could serve not only Zynga, but third parties as well. And I think that that’s core and critical, and that will be very meaningful to our success.

The other piece about this is in large part the data, you know, the first-party data that they have has been one of the, arguably, one of the largest developers in the world. Our plan is to, again, be very sensitive with that and use it properly, but to continue to help them scale and acquire users. And in essence, it seems simple, right? We say we talk about doing user acquisition.

We talk about doing ad monetization and even more simplistic, I guess, is this notion of creating a flywheel, where we’re not only continuing to keep their users engaged in their own ecosystem, but continuing to find new ones outside of that that we can bring into the ecosystem, through our combined efforts.

So that’s probably the simplest and easiest way to describe it. Yeah, that’s the real benefit. 

John Koetsier: Yeah, I mean, it’s interesting — I’ll bring in Scott here — because of course, if you’re Zynga you have, what, over 4 billion installs/downloads of your games — it’s probably an out-of-date number, it’s probably bigger than that now — so you’ve got a lot of in-game data of what people do, how they act, if they buy something, how long they spend, all that stuff.

If you’re Chartboost, you have a lot of visibility into this very arcane and little seen world of adtech, especially mobile adtech, where auctions are happening millions of times a second, you know, bids, impressions, costs, different users, now a lot of context as well … fewer identifiers or unique universal identifiers for devices. How does putting those two datasets make Zynga better?

Scott Koenigsberg: So, it’s a great question and it’s funny, because as we look at the — we have a very sophisticated ad stack, right?

And we have, we actually built our own ad server, and as I said, we have one of the largest inventories in mobile gaming. It’s very diverse: we have banners, we have interstitials, we have reward video … and so we have, we’ve been doing this for a long time and we have one of the more sophisticated waterfalls, I think, of anyone in the market, and it’s where we take a lot of pride in that it’s a large part of our business.

But we’ve never seen kind of the underbelly, like you said, of kind of what really happens in the background, because we were simply a customer. And so we’ve been able to learn from Chartboost about kind of what happens in the background and how things are processed, and it’ll give us, and if we can combine that data — our first-party data and behavioral stuff and contextual stuff — with what Chartboost does on the monetization side, we can theoretically get to better ad yields and provide better experiences for our players.

Same thing on the user acquisition side, you know, we buy a lot of third parties but we’ve never had the ability to really hone the algorithms for exactly what we want it to, because they’re other people’s algorithms. Now we actually have the ability to use our machine learning and data science capabilities to work directly with Chartboost and their teams to say, ‘Okay this is the type of user we want to acquire and this is the behaviors we look for, and by the way, this is how they may or may not act in our game.’ And then we’re looking for more of these people or a diverse set. And so it gives us a lot more capabilities. One of the hardest things in mobile gaming is user acquisition and scaling your game. So, it really does provide Zynga an opportunity to take some of the risk out of that and be much more efficient as we launch those games and also retain and retarget our players. 

John Koetsier: Part of that efficiency, I’m thinking, has got to be cost, because … it’s different in different areas, but there’s been some looks at what percentage of each dollar that’s invested into adtech actually goes to buying the media…

Scott Koenigsberg: Right.

John Koetsier: … buying the time in front of somebody’s eyeballs, right? And there’s been some really nasty, awful, horrible studies that look at that, where it’s like 20 cents, 30 cents, 50 cents, maybe, on the high side. And a lot of other, there’s 5 cents a year for that slice of adtech and there’s 10 cents for that slice, and there’s … and so you’re seeing, hey, I as a publisher am spending a certain amount to get in front of somebody. And adtech is taking a chunk, and the actual person who’s hosting the ad, which is a publisher in another sense, is getting a piece. I’m guessing with Chartboost you can make that more efficient… 

Scott Koenigsberg: Exactly.

John Koetsier: … and get more bang for your buck. 

Scott Koenigsberg: Exactly. And so our dollars — not only our dollars, but the Chartboost third party customers as well — spending through Chartboost on, say, Zynga’s inventory, right, there’s going to be efficiencies gained by those third parties, as well as what Zynga spends directly through Chartboost in the open market.

The goal is to maximize the amount of the dollar that goes from me, the advertiser, to the publisher at the end, to make the market as efficient as possible so that those people are getting — and then it also increases the competitiveness of my bids.

John Koetsier: Yep, excellent. And we won’t go into those details, but there’s a very nasty lawsuit involving Google right now that is very interesting actually. I’ll probably share that in some other details around what percentage they’re taking and how that’s working.

Rich, let’s bring you in here. So, that makes a ton of sense. Are there some downsides to being part of Zynga? Are there some competitive issues? Are there some times where a potential customer may not want to work with you because you are part of Zynga? 

Rich Izzo: That’s a great question. You know, I would say — no. There are always risks, of course, like there are always risks that things don’t turn out the way you want them to, that the integrations don’t go as well, that the very cost savings that you two are referring to takes a little bit longer to exploit than we would like it to, etc. So there’s some risks, of course.

But in reality, there really aren’t too many downsides to this at all. And, you know, totally transparent … we really didn’t experience a whole lot of that post-integration and post-announcement and anything else. I think there was some notion and some questions around it from clients around, hey, how’s this gonna work? How are you going to operate your business? What does this mean for us? Are you going to keep things separate? And Zynga has been amazing and totally supportive about, hey, you run your third-party business, you keep all that information and data separate, you continue to do that. They’ve espoused that from the beginning, and we’ve loved it … and our customers have as well.

So it’s been, not only a great rapport with Zynga but with our customers, and I think just over the years the way we’ve operated in this space, the way we built our agreements, the way we’ve always touted transparency and trust, people are — they get it. I mean, they know us. They’ve been working with me now for probably too long, [chuckling] probably tired of it. But, yeah, they know who we are, I guess, and that’s been really helpful. So I don’t, you know, again, and just to circle it back around, I just don’t see really any downside. I think for the most part, it’s up to us to execute and there’s just a tremendous amount of upside here. 

John Koetsier: I’m going to bring in Scott again, and I want to talk about the platforms of the future. We know some of the major platforms … even down to the technology side, the iOS/Android. We know some of the major platforms in the space like Google and Facebook and others.

And we see this emerging category that I’ve called the new titans of adtech, where we’ve seen like AppLovin having been super acquisitive … Unity, a lot of growth. You, Zynga and Chartboost, are in that vein as well because you’re building towards something.

What is that towards? What is that something? What does that look like? What’s the — there’s no end state here, this is business, this is technology, this is the world, we’re always evolving, but as you see it right now, what’s that next state that you’re building towards? What’s the entity, what’s that look like?

Scott Koenigsberg: Yeah, and it goes back to what Rich said, it is about delivering on that concept of a platform.

And so that we want to develop a platform such that we have the capabilities both to launch games, scale games, maintain those games from an acquisition standpoint and obviously monetize them as efficiently as possible.

You know, there’s a very small portion of users across the ecosystem that actually use purchase through in-app purchase. But there’s a much bigger opportunity around ad monetization and what type of ads you serve those players, and you want to provide great experiences, right? And so you want, we talked about the efficiency of dollars. We talked about getting more transparency of data and more access to data along the value chain. But at the end of the day, we want to make sure we also provide great experiences to our players, and the more personalized those ads are and the better we do a job at that, then the better it feels in the game.

And there is, you know, we recognize that people are trading their time for value. They watch a rewarded video ad, they get a reward in the game. It makes players opt into that experience and what we found is not only does that obviously increase monetization, but it also increases player retention. It gives them a way to progress without necessarily playing. Maybe it takes longer, but we do, we reward their time with value.

And so, being able to control that experience from end to end and access all of the data, that’s — this is the concept of a platform and creating efficient marketplaces, and changing the very fragmented ad landscape that exists today. 

John Koetsier: I love that you mentioned rewarded ads. I was chatting with somebody in the industry just yes— two days ago actually, and both of us — there’s a certain game that we play that we have in common — and both of us are fairly well paid people who work in the tech industry. If we wanted to, we could buy pretty much everything in the game, right? And we don’t, because it feels like cheating, right?

So yes, you watch the rewarded ad and you give it your 30 seconds, your 45 seconds of attention, and then you get your gem or you get your power up or you get your whatever … [laughing] it’s interesting how this industry has evolved. 

Scott Koenigsberg: If it feels, if the rewards are right and the experiences are right, it feels good … and you feel like you’re trading your time, and you know when you watch an ad on TV you don’t, nobody’s paying you for that. In our games, we are compensating you for the 30 seconds you gave us to watch that ad. 

John Koetsier: Mm-hmm. Interesting. Maybe one more for you, Scott. Are you planning to still be acquisitive? Are you looking for other components/pieces to fit into this puzzle, this platform of the future?

Scott Koenigsberg: Yeah, I think as you said, it’s a very, it’s an ever-evolving landscape, and we have an idea of what the end game, the end state looks like, but it’s going to change. This is a rapidly evolving space. It’s changed dramatically just over the last year, not only through what’s happened from the vertical integration front but also privacy changes, also that changes the tools and the landscape that you need to be successful.

So I think the answer is yes, we’re always looking for opportunities as to how we grow our platform and what are the, you know, we’re kind of looking forward, what are the future needs that we’ll need for the platform? What are the current needs? And then what can we obviously build ourselves? So yes, the short answer is yes, we’re always looking. 

John Koetsier: Excellent. You mentioned this end state, I mean, I’m curious — what is this end state that you envision? 

Scott Koenigsberg: I think it, so, again, it goes back to that platform that I spoke of where we have full visibility and control over the experiences that we’re providing our players and we’re not necessarily beholden on third parties for success.

Now, Zynga’s at — most of the companies we’re talking about are at such a scale that nobody’s ever going to fulfill all of our ad inventory, it’s just not possible, and we’re never going to be able to acquire our players.

But if we can do better, and we can make and our dollars can get to the publishers faster, I think the end state is where every dollar is getting that much more further to the publisher and we’re getting more of the quality users that we want at the right price. 

John Koetsier: That is a really big statement actually, and that goes beyond user acquisition and monetization; that actually goes into some of the territory that you might have with an Epic Games or something like that, with certain lawsuits around the App Store and monetization and where it can happen.

We’re not going to dive too deep into those, but that is an interesting statement and I think that any gaming company, any publisher, of size, is bound and beholden to do that because anything that has existential power or control over your right to be, to exist, and to compete, is a potential threat.

Very, very interesting.

Rich, let’s bring you back in for half a moment. You’ve been in adtech for, you know, maybe it’s been two years, maybe three — I’m joking — it’s been a while, right? [laughter] It’s been a long time. What have you seen and where do you see it moving towards that end state? I mean, there’s been such change, we’ve gone from this adtech ecosystem of the quite-far-distant past where you threw money out and maybe something happened, and maybe you knew what happened, and then we went to this adtech ecosystem where you pretty much had this little messenger bot that you included with every dollar, and you could track almost deterministically on almost every dollar what happened, and what that little soldier went and did. And we’re returning to a world in which it’s a little less certain and there’s going to be multiple different ways of measurement, and some are deterministic but they’re not granular, and some are just probabilistic in nature.

Where do you see us moving over the next couple years?

Rich Izzo: Yeah, that’s a big question, and I think you’re going to continue to see a number of things. I think you’re gonna continue to see consolidation of the fragmented pieces in the space. That’s just going to continue to happen. I think the larger players will move and acquire pieces, and you’re seeing it now. I mean, it’s just, it’s happening … I’m sure there are deals being talked about right now behind closed doors that will result in even further consolidation.

And you also, John, you mentioned something very meaningful about getting precise. I think that’s going to continue to happen. People are going to use whatever KPIs, whatever attributes, whatever data and this sort of notion of first-party data, the more of it you can get — obviously, again, privacy compliant and privacy forward — the better position that you’ll be in.

I think there’s also a move toward the consolidation of buying power, meaning the more inventory that you’re able to offer to buyers at scale will be really meaningful for them and will make sort of not necessarily a one-stop shop, to Scottie’s point, but a really meaningful shop that folks in this space that are looking to do user acquisition need to stop into and participate.

And also brand, I mean, brand needs to be unlocked inside the mobile landscape that really hasn’t been done in a meaningful way, and I think we’re gonna look to obviously contribute to that and provide opportunities there as well, but the space is headed in that direction there’s no question. Yeah and I think that sums up pretty much everything. There will be no shortage of, I think, consolidation, but there’s also a lot of opportunity for innovation, some blue ocean things, and … there’s also, I mean, there’s blockchain, there’s NFT, you know, we can go on for quite a while but… yeah, there’s a lot there. 

John Koetsier: This is the world of technology. This is the world of mobile. It is constantly changing — I’ll bring you, Scott, back in, and this is actually a great segue because of course we do have Web3, we do have crypto, we do have NFTs, we have this world of collectibles inside apps which is potentially changing a very significant amount of what we do.

We also have this sense that we’re — we’ve got an impending phase shift. We’ve had the phase shift from desktop to mobile, right, a decade, 15 years ago. That’s really complete, basically, right now, as much as you can say something is complete, right? And that privileged some platforms and some networks and it deprioritized some other ones, right?

What’s the next one?

We keep hearing metaverse, metaverse. We’ve got this Web3, crypto stuff that Rich just brought up as well. You know, what do you see the next sort of phase shift as? What kind of timetable do you assign to that? And how’s that going to work into what Zynga does? I’m just giving you the easy questions here, Scott … [crosstalk & laughter] nothing tough. 

Scott Koenigsberg: I mean, it’s something that we do obviously think about. Our goal at Zynga has always been to bring our games to wherever players are. And so we’ve launched games now on Snapchat, on Amazon Alexa, on Google Nest Hub, on TikTok, on Facebook Instant — if you remember way back, there was a short blip where there was a store on iMessage where we had…

John Koetsier: Yes.

Scott Koenigsberg: … our own game. And so we generally look at the ecosystem as we want to bring our games wherever the players are. I think the metaverse is quite interesting, and there’s the Roblox metaverse and then there’s Facebook working in kind of AR, like two different experiences — both big opportunities for games, I think, in the long run. For us, it’s about bringing games to wherever our players are.

So we are, you know, we’re going to evaluate all those experiences and prioritize accordingly with all of the other things that we have going on. We just, we recently announced that we’re bringing a game to PC console, and then we also announced that we’re going into blockchain gaming. So we are evaluating all these and blockchain gaming is something that’s very new. It’s very, very early days, but I think we do have the opportunity to potentially do something there with the current landscape and some of the IPs that we have available that might lend itself well to that kind of gaming experience. 

John Koetsier: That’s really interesting, and actually it’s quite intriguing as a larger studio — as Zynga is — with many different properties, because you’ve got ‘small M’ metaverse, you’ve got ‘large M’ metaverse, and it’s been for over a decade now — much more than that probably — that gaming studios have said, ‘Hey, we’re going to cross-promote what we have.’

Well you can have a mini metaverse, a Zynga metaverse with doors and portals in a Zynga game or app to another Zynga experience or game or app, or something like that as well, right. So there’s lots of different ways that you can start building those doors and entryways and then maybe cross-pollinate across.

Scott Koenigsberg: Right.

John Koetsier: It’s going to be an interesting world … I look forward to seeing it. 

Scott Koenigsberg: Yeah, and you know it already has been with the success of some crossplay games where people are playing on a console and then moving to a mobile device and playing against mobile players. Like it’s really, it is an interesting world and I think we’re seeing that a lot of these experiences shouldn’t be device specific, but rather, you bring them to anyone no matter where they’re playing. And so that’ll be our goal at the end of the day.

Not all experiences will lend itself to, you know, an experience in Roblox, for example, might not lend itself well to a mobile game — different. But we’re going to develop games that are bespoke for the platforms. That’s the most important thing, so that our games feel native to the platforms that they’re on, they don’t feel like they’re ports. So, we will evaluate all of it. You know, it’s exciting, a time for us as we see the evolution, because there hasn’t been that much evolution over really the last year or two. So it’s really an exciting time to be in gaming. 

John Koetsier: Absolutely. Well, I want to thank you, Scott. I want to thank you, Rich. This has been very interesting. Thank you for your time. 

Rich Izzo/Scott Koenigsberg: [Simultaneously] Thank you so much, John. Appreciate it.

Scott Koenigsberg: Great to meet you.

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