Zynga Buys Conduit Labs; Social Gaming Giant’s Footprint Now Includes Boston

8/17/10Follow @wroush

[Updated, see page 2] San Francisco-based Zynga, continuing the acquisition spree enabled by the massive success of its social games for Facebook, MySpace, and the Apple iPhone, has acquired Conduit Labs, the three-year-old music gaming company based in Cambridge, MA.

Zynga announced the acquisition in a press release. Conduit, headquartered in the Barron Building at 614 Massachusetts Avenue in Central Square, will now be known as “Zynga Boston” and its team will be “immediately integrated into Zynga’s workforce,” according to the announcement. Zynga isn’t saying how much it paid for the startup.

Conduit Labs was formed in 2007 by Nabeel Hyatt, formerly chief operating officer at MIT spinoff Ambient Devices. Backed by $8.5 million in venture financing from Charles River Ventures in Waltham, MA, and Prism VentureWorks of Westwood, MA, the startup first gained notoriety for Loudcrowd, a casual gaming community launched to the public in March 2009. In Loudcrowd, players created customized avatars and competed for points in animated dance games requiring a combination of listening skills and eye-hand coordination.

Loudcrowd demonstrated Conduit’s programming chops, and even attracted the attention of Massachusetts Governor Deval Patrick, who played a few rounds during a visit to Conduit’s original Cambridge Innovation Center home. But the game predated the huge boom in social games facilitated by Facebook’s growth, and failed to gain a large user base. Conduit shut down Loudcrowd on July 29 of this year to focus on its two Facebook game titles, Music Pets and Super Dance (the latter of which drew heavily on art styles and game play developed for Loudcrowd).

Now those two titles will become part of Zynga’s existing Facebook lineup, which includes the breakout hits FarmVille and Mafia Wars as well as a number of lesser-known titles, such as Cafe World, Fashion Wars, FishVille, FrontierVille, PetVille, Pirates, Special Forces, Treasure Isle, Vampire Wars, and YoVille.

In a March 2009 interview with Xconomy, Conduit’s Hyatt said that Loudcrowd, which was designed in part as a vehicle for music promotion and sales, represented “10 percent or less” of the potential for the company’s social games. “It became very obvious very early on that the potential for this product was that it was a multi-billion-dollar company, if we executed it right,” Hyatt said. He compared Loudcrowd to MTV, which, he said, “had a worse path to market and a worse monetization model than we have. This thing is ours to screw up.”

But as it became clear that Facebook, with its built-in viral user acquisition mechanism, would be a better platform for social games than the open Web, Conduit pivoted. Its Facebook games have done fairly well—Super Dance has 483,000 monthly active users, and Music Pets has 362,000. But the startup never approached the levels of success achieved by social gaming juggernaut Zynga; FarmVille alone has some 61.8 million monthly active users.

As things have turned out, Hyatt will get to be part of a multi-billion-dollar social gaming company, but it will be Zynga, not Conduit. Founded around the same time as Conduit Labs by Mark Pincus—previously the founder of Freeloader, Support.com, and Tribe.net—Zynga has raised more than $500 million in financing from a who’s who of angel investors, venture firms, and strategic investors, including Reid Hoffman, Peter Thiel, Brad Feld, Kevin Rose, Union Square Ventures, Avalon Ventures, Foundry Group, Kleiner Perkins Caufield & Byers, Andreesen Horowitz, Softbank, and Google. The company currently has a valuation estimated at $3 billion to $5 billion.

In a statement, Mike Verdu, Zynga’s senior vice president of games, said that acquiring Conduit was a good way for Zynga to gain a foothold in the Boston game development scene. “Boston is an epicenter for technology and has a strong talent market, making it an ideal location for us to expand operations,” Verdu said. “As one of the most prominent social game companies in Boston, the Conduit team shares a similar culture and drive with Zynga, and together we anticipate great successes from our new studio.”

With its huge valuation, Zynga has valuable shares and options to throw around, and it’s likely been using them to sweeten its offers in a string of recent acquisitions. Zynga bought San Francisco-based Serious Business in February, Austin, TX-based Challenge Games in June, and Japan’s Unoh Games this month.

Along with a recently announced joint venture with Softbank to launch Zynga Japan, the Conduit acquisition “continues to extend the company’s footprint worldwide, creating more opportunities for Zynga to connect the world through games,” Zynga said in its announcement today.

Aside from today’s release, Zynga isn’t commenting on the Conduit acquisition, and Conduit employees have been instructed not to speak with the press. Hyatt referred all questions about the acquisition to Dani Dudeck, Zynga’s general manager of corporate communications. At press time, Dudeck had not responded to Xconomy’s e-mailed request for additional information.

Update: Hyatt published a blog post this morning with additional details about the acquisition. In a surprise twist, Hyatt says his group will abandon Music Pets and Super Dance to focus on building its next Zynga title. Here’s the text of the post:

“Today is an exciting day for us at Conduit Labs as we announce we are becoming part of the Zynga family. We have always had the desire at Conduit to build something ambitious, and we recognized that sometimes the best way to achieve these dreams is with a partner who can bring amazing resources to bear.

“We started Conduit in 2007 to broaden the world of gaming. Our goal was to bring people together online in the ways that games do offline, from poker nights to pickup basketball on a Saturday afternoon. During the process of the last few years we’ve had the luxury of doing that for millions of players. For the next stage of our growth, it was really a perfect choice to partner with a team that is similarly driven to be the best in any category they compete in.

“While this is an exciting day for the team, we also had to make a tough decision. In order for us to be able to focus our energies on our next product, we decided that we would need to bring Music Pets and Super Dance to a close. Despite the countless hours we’ve spent working on them, and last month being our best revenue yet, we failed to make these products commercially successful enough. We had to make the decision to focus on what was working, and we think once you see what we’ve got next, you’ll agree it was the right choice.

“And so we invite all our players, partners, and friends to join us in our next chapter. If you’ve liked our games so far, just wait till you see what we’ve got coming.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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