How Zynga Boston’s Shutdown Birthed Proletariat, a New Mobile Studio

3/12/13Follow @curtwoodward

They don’t look any different from the other people packed into this buzzing shared work loft, just a few blocks from MIT in the heart of the Boston area’s startup scene.

Amid the funky couches, bright-colored walls, two-liters of soda, and Nerf guns awaiting battle, they’re just another five guys sitting at a long table, coding and designing and hammering away at their keyboards.

It’s what got them here that makes things a little more interesting.

This group, working under the name Proletariat Inc., is made up of former employees of Zynga Boston, the studio formerly known as Conduit Labs that was acquired in 2010 and unceremoniously shut down last October.

It means that, although their company is just a few months old, the Proletariat crew has already been on a veritable roller coaster ride with one of the Web’s next big things. It’s almost an entire career’s worth of craziness: An industry leader bought their company, went public, stumbled over a huge shift in consumer behavior, and showed up out of the blue one Tuesday morning to fire them all in a desperate bid to cut costs.

The whole thing took a little more than two years.

“I could go with never having [the layoffs] happen to me again. But I would love more acquisitions and IPOs. That was fun—I was okay with most of that stuff,” Proletariat CEO Seth Sivak says with a rueful laugh.

Now, as they work alongside other tech entrepreneurs at Intrepid Labs in Cambridge’s Kendall Square, the small team at Proletariat is on a new mission: To make what they want, working with their friends, for gamers like them.

Not a bad way to spend the severance check from the big company that dumped you.

When Zynga purchased Conduit Labs back in August 2010, it bolstered a sense of optimism about the Boston technology startup scene.

Zynga was the first company to make serious of money on top of Facebook, and looked for all the world like an enormous company that had unlocked an entirely new way of publishing games. The fact that it reached out to Boston to add to its fast-growing roster of talent showed that this second-tier tech hub might have a place in the next boom.

(Zynga never said how much it paid for Conduit. The Boston Globe reported that the deal was an all-stock transaction, and Conduit was one of six smaller acquisitions Zynga made in 2010. In its IPO paperwork, Zynga said those six deals cost it a total of $22.1 million in cash, along with stock valued at $26.3 million. Some key employees also got retention bonuses for staying, as is normal.)

The buyout would also serve as a big education for the Conduit folks. They were whisked away to Zynga headquarters for intense training on the new bosses’ ways of running games as a live, constantly evolving service on Facebook—something not well understood by other companies at the time.

“I learned more in that six-week period than I had in the previous six months of building games on Facebook,” Sivak says. “They had perfected it at that point, and they were dealing with huge scale, and really understanding what was going on.”

Sivak and three other eventual members of Proletariat, along with Conduit founder Nabeel Hyatt, made the original pitch to the Zynga brass for the game that would become Adventure World, which would later be branded with the “Indiana Jones” characters.

It was a very heady time. Zynga was making money on players who would flock to its games for free but stick around and spend money on little extras, or “virtual goods,” that would enhance their gameplay—extra nails to help build a barn in FarmVille, or bullets to take out the enemy in Mafia Wars.

In mid-2010, Zynga raised $300 million in private financing from Google and Softbank. Outside analysts said it was on pace to make up to $500 million in revenue that year. The company was all of three years old.

“If you wanted to make the biggest games, to be seen by the most people in the world, you had to be at Zynga. In the summer of 2010? There was no question,” Sivak says. “People ask me now, `Why did you choose to go to Zynga?’ It was a totally different mentality back then. Zynga didn’t have nearly the same stigma that it does these days. Back in 2010 it was this massively expanding thing. If you were in the game industry, it was like, `How are these guys doing this?’”

The former Conduit team, he says, bought in to the new company and worked hard to show that they were serious about helping, not just parading into the new headquarters as triumphant winners of the startup lottery.

“We would meet once a week and everyone would kind of go around and say what they did that helped out someone at Zynga this week,” Sivak says. “We were a team that was there to learn and work and make this company better.”

As the Boston team went to work on Adventure World, Zynga continued its march toward the public markets. It raised another $490 million in private financing in early 2011, and filed its IPO paperwork in July, seeking to raise about $1 billion.

Adventure World would launch in early September 2011, as Zynga was ramping up for its public stock-market debut. The Indiana Jones branding deal would come later, and Adventure World would end up being a moderate success for Zynga—not on the level of its biggest games like FarmVille, but a definite money-maker, Sivak says.

In December 2011, Zynga started selling its stock on the Nasdaq, but the stock didn’t meet with the kind of unbridled demand that tech-company investors were hoping to see.

Even though Zynga registered more than $90 million in profit in 2010, investors had questions about its continued growth and how sustainable its business model would be. A typical Zynga game would see a huge initial spike of users, followed by a dropoff over time, and the company continually needed new games to attract those users so it could continue selling virtual goods.

Your garden-variety Zynga employee didn’t get terribly rich from the IPO, either. The company’s stock would peak at more than $14 per share last spring, but quickly fell again. It’s been trading at around $3 since August. “Yeah, we all had stock. If it was still in the $14-$15 range … we would be in good shape,” Sivak says.

As 2012 wore on, it was clear that a shift was taking place. Zynga had built its social, casual games for the same desktop Web environment that had spawned Facebook, but people now wanted to play on their smartphones and tablets as well.

In March, Zynga paid a staggering $180 million for mobile-game startup OMGpop, a studio that had one hot title called Draw Something. At a game business summit in April, Zynga Boston general manager Fareed Mosavat cited Draw Something as a hopeful sign that casual games had a lot of room left to grow. (Conduit Labs founder Nabeel Hyatt left Zynga in February 2012, becoming a venture partner at Boston’s Spark Capital.)

Within Zynga, the rise of mobile also meant new thinking for the game developers. Sivak, who was a product manager, says the Web game that Zynga Boston was working on after Adventure World was shelved while everyone tried to find ways to capitalize on mobile platforms.

They started working on ideas, with teams sketching out two smartphone-based games and another intended for tablets. The project Sivak was working on got some interest from the corporate offices, including CEO Mark Pincus. And they were off to the races again.

It would require a lot of work to release the game in time for the 2012 holiday season, as the team hoped to do. For one thing, Zynga was a bigger company now, with more layers of bureaucracy to coordinate. And developing for mobile platforms isn’t a plug-and-play operation for developers who are accustomed to the programming languages of the Web. But they were ready to tackle the project, and dove right in.

The first sign that something might be a little off came in the third weekend of October. Even though they were just weeks away from being ready to release the new game, Sivak says his Boston team wasn’t getting any response to e-mails it had sent to officials from their division.

Then again, he thought, the company had been through the wringer on Wall Street, and everyone was getting ready for the quarterly earnings report that was coming up later that month. Lord knows what their inboxes looked like, Sivak thought. So he shrugged it off—until Tuesday.

“And then, that morning, our division head just showed up in the office unannounced with HR folks,” Sivak says. “He pulled a couple of us into a room and gave us the situation and said, `Hey, this is going to be announced at 1:00. Today is Boston’s last day of operation.’”

“They were actually pretty nice about it,” Sivak says—people had until the end of the day to clear out, and there weren’t any security guards hustling them out the door. At day’s end, the 50 or so suddenly unemployed people headed to Charlie’s Kitchen, the bar across the street from their Harvard Square offices.

Talking to Sivak about the sudden shutdown now, it seems like the whole thing is still a bit stunning to those who went through it.

“One of the guys who is a game industry veteran said it was like his fourth or fifth studio closure. So it’s something that happens in the game industry. But I was personally never expecting it to happen,” he says. “I think what happened was, we just got caught in the middle.”

There was a lot of emphasis right away on staying connected and helping people find jobs—especially the younger workers, Sivak says, who didn’t have as many connections in the close-knit game industry.

Some of the former Boston team ended up going to San Francisco to continue working for Zynga. Others went to startups around the Boston area, while some explored work for studios or contracting their services to other game developers.

The team that would become Proletariat was feeling out all of their options, Sivak says. But they eventually were drawn toward working with each other, giving it a shot on their own as a mobile game development studio—an idea that had cropped up when the five of them were still at Zynga and realized you didn’t need a huge company’s resources to make a fun, successful game on mobile platforms.

“Dan Ogles, who is our CTO, came over to me when we were out at the bar that last night and said `We should do this. Let’s do it,’” Sivak says. They met up and started running through their options together, but it soon became clear that the startup route was the most appealing.

Within a few weeks, they met with a lawyer, and Proletariat was born. Along with Sivak and Ogles, the company is made up of art director Damon Iannuzzelli, chief creative officer Jesse Kurlancheek, and director of engineering Joe Mukai.

Intrepid Labs CEO Mark Kasdorf let the gang crash at his company’s shared work space for part of November, while everyone figured out their finances—the company has been seed-funded by the Zynga severance checks, along with the occasional contract development work—and they’ve been there ever since.

Proletariat’s first game was a super-simple app called Hug the Sloth—a cute little diversion that lets you dress up and play with an animated sloth in a tree. It was a practice run that had one of every feature you might want to include, Sivak points out: An in-app purchase, leaderboard, simple interaction, and so on.

Last week, Proletariat released Letter Rush. This iPhone game is a bit more complicated: Words zoom in from the right side of the screen, and the player has to spell them out by tracing a finger across a set of jumbled-up letters at the bottom before the words hit the left side of the screen. It’s fun and challenging, just fast enough to get your concentration fired up but simple enough to progress through while you’re waiting for the subway.

The experience has also helped Proletariat get a feel for the difficulties of fixing bugs on the fly and working through Apple’s approval system, not to mention standing out and getting downloads amid hundreds of thousands of other apps available.

Up next will be a bigger step forward, Sivak says. Proletariat is working on a tablet-first, core strategy game aimed at younger male gamers like themselves.

The young company is also looking into its options for financing. In the past, publishers held the keys to the safe in the gaming world. But the rise of Zynga and other Silicon Valley gaming companies have opened some doors to the venture and angel investing world.

Proletariat is banking on its experience with one of the industry’s biggest names, no matter how its star may have fallen, to help move those conversations along a little quicker. Its team knows a lot about how the industry works, has insights into how huge games are scaled quickly, and has a proven record of working on money-making titles for a major, high-pressure company.

After all, it would be pretty cool if something as terrible as the whiplash-inducing shutdown of Zynga Boston led to a successful new startup growing in its wake.

“Personally, for me, I don’t have grudges against people. I don’t know how I’d feel about Mark specifically,” Sivak says of Pincus, laughing. “But there are a lot of people I like and respect, and they had things they needed to do.

“It feels like a breakup. There was anger at the beginning … [but] all of us have talked about how our significant others and friends have said, `We haven’t seen you this happy in so long.’”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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  • Drew Hession-Kunz

    Boston- 2nd tier- come on, Curt, Austin is 2nd tier, Boston has 25% of the market, and has more startups per capita than silicon valley

    • curtwoodward

      I guess in my formulation Austin would be third or fourth tier ;) Not meant to be a slight against the Boston area of course, but I will say that’s the general consensus nationally – the “first tier” being occupied solely by SF/Silicon Valley.

    • jim

      @drew its not about Boston or Austin …its about the article and this great startup story…I love how people always find a way to make things about themselves

  • fjcmclgm

    Boy did Zynga plow through the game community and leave a wake of carnage and failure. I’ve heard the folks in Baltimore are heart broken after Zynga just swooped in and fired them all. What a wonderful company.