
Zynga Lays Off 15% of Its Workforce - pje
http://techcrunch.com/2014/01/30/zynga-layoffs-2/
======
h2s
Eagerly looking forward to the explanation for this weird juxtaposition.

[http://i.imgur.com/huUv09m.png](http://i.imgur.com/huUv09m.png)

~~~
ChuckMcM
Its not that weird. They had 200M in revenue last quarter[1] with about 2000
employees. That is about $100K/employee, since employees probably cost more
than that at the median, its not really a sustainable strategy. Swap out
employees who are making more $/employee to boost the average and maybe you
have a going concern.

[1]
[http://investor.zynga.com/releasedetail.cfm?ReleaseID=800274](http://investor.zynga.com/releasedetail.cfm?ReleaseID=800274)

~~~
meritt
That's $100k revenue per employee in Q3 but employee expense is much lower
than that[1]. Probably a median annual salary+bonuses of $100k + 15% in taxes
& benefits, we're still looking at maybe $30k/employee/quarter.

[1] [http://www.glassdoor.com/Salary/Zynga-
Salaries-E243552.htm](http://www.glassdoor.com/Salary/Zynga-
Salaries-E243552.htm)

~~~
wyager
You are _severely_ underestimating the overhead costs of employing someone.

Depending on the business, expect 50%-150% additional costs on top of salary.
HR, health insurance, benefits, taxes, payroll management, etc.

~~~
samstave
So, I've never run my own company - but I have always been suspicious of this.

I was working as a consultant for small firms I have a salary of X - my
billable rate was ~3X.

The company had shitty insurance of which I was paying a large % of my check
each month to cover my end.

I absolutely refuse to believe it "costs" a small consulting company several
hundred thousand dollars per year to employ a person making 100K per year.

~~~
patio11
Here's the math. I'm going to arbitrarily assign a typical intermediate
Rubyist's salary for your X, to make it feel concrete for people.

Employee thinks: "I make $8,000 per month. My chargeout rate is $6,000 per
week. What gives?"

Consultancy thinks:

Gross revenue of this employee is $18,000 per month, not $24,000. We only
count on sustaining a 75% utilization rate. We can burst to higher numbers for
short periods of time, but overhead, scheduling issues, breaks/vacation/etc,
and productivity counsels us to shoot for 75%.

A salary of $8,000 per month costs us +/\- $12,000 for direct costs of
employment. This includes healthcare, our portion of payroll taxes, 401k
contribution, and the usual perk suite.

We further incur overhead, which we estimate as approximately 20% of our gross
revenue. This includes rent, capital expenses (laptops/etc), professional
services (accountants/lawyers/etc), marketing and sales, the fully-loaded cost
of non-billable employees like our office manager, recruiting fees, etc etc.
Allocating this overhead on a dollar-per-dollar basis to the gross revenue
you're producing, we come up with $3,600.

This means that our anticipated profit, pre-tax, on your services is
approximately $2,400 per month. The economic justification for this is that it
is a premium you essentially pay for insulating you from scheduling risk, non-
paymen risk, market risk, and all the other forms of risk which we absorb on
your behalf. [+]

If you would like to capture the risk premium for yourself, you have a simple
option to do so: quit. Hang out your own shingle. Start charging $6k per week,
or more, for your services. Many former consultants have done this, and many
will in the future. It's probably how we got started, too. You may find after
starting the firm that the math was very different from what you had
anticipated. It probably happened to us, too.

[+] Weird thing about starting consultancies: the type of people who can
successfully manage a consultancy take a pay cut when starting a multi-member
consultancy, since it cuts into their billing efficiency. You can model an
employed consultant at 75% efficiency, but principals rarely get above 50%,
and in many cases they're totally unbilled (100% utilization on business
management, rainmaking, etc). This results in employees #1 through #4ish
actually being a net drain on the principals' income as compared to just solo-
consulting. After roughly employee #5 it starts getting really, really
lucrative again.

~~~
samstave
OK, so that's a great explanation made on some assumptions; let me give you
some actual experience though which is what gives me my bias:

I worked for a company that was already established as a design consultancy...
so all the above that you lay out was already calc'd in their overhead...

They went after a contract for a large project and they didn't have the
expertise in house to land the project.

They poached me to be able to gain the contract. They made several million on
this contract, which they would have been incapable of getting without me
joining and actually doing the work.

They billed me out for exceedingly profitable work; I did 100% of the work,
their overhead for all the shit you mention did not increase, and they piled
more work onto my efforts which they billed for.

they promised me a multi-tens-of-thousands bonus based on all this work and
met with me on five separate occasions to go over documented revenue/bonus
projections and confirm this amount (this was with the CEO) -- then when it
came time to pay; they paid me 8% of the promised, documented bonus. and made
excuses that "they weren't being paid by the client" \-- and later had a
seperate manager (known as "the snake") come in and tell me "tough luck - the
CEO's calcs were wrong"

So, While your story sounds all nice and whatever... I can guarantee that it
is not true in all cases.

David Marks; if you read this - Fuck you.

~~~
djt
There are a few things here that I can see are overhead.

\- It was an established design consultancy, that takes time and money to
create.

\- They charge the customer 3x what they paid you, but you dont know if the
customer paid up. The had a contract, but then so did you, and you only got 8%
of the bonus. You got pad your wage regardless of if they got paid.

\- The pulled in the big client, this is almost important as a solo
contractor, its their reputation on the line if you mess up. Its really hard
to get those contracts or you need to have a contact. It's not uncommon for
sales people to make 30% on big sales to land the contract on good terms.

\- You did all the work, but could they have employed someone else, or are you
the only person that could do it?

\- Did they pay for health insurance, sick days etc?

\- Have you thought about suing for your bonus?

~~~
danielweber
> Its really hard to get those contracts or you need to have a contact.

Tech people often view this almost as an abstraction problem, or one that
rightly wouldn't/shouldn't exist if nerds ran the world. I don't know if it
would or wouldn't if us nerds ran the world, but in our actual world, finding
and maintaining those relationships is very hard and very valuable.

------
Zigurd
Schadenzyngafreude: The good, but somewhat guilty feeling of pleasure in being
right about an overhyped venture in what everyone knows is a rotten market
segment.

~~~
jrs99
only people that hyped zynga were investors that had never played a single
video game in their lifetime.

everyone else was like "This is a bad investment" two seconds after hearing
about it.

~~~
_random_
Buy -> inflate hype -> sell. It was a good investment.

------
ergoproxy
Did Zynga lay off 15% of its workforce to recoup the $527M investment it made
in NaturalMotion? See
[https://news.ycombinator.com/item?id=7153395](https://news.ycombinator.com/item?id=7153395)

This article says they'll take a $17M charge this year on the lay off and then
save about $33M/year. Discounted at 6% per annum that works out to $533M. See
[http://www.wolframalpha.com/input/?i=-17+%2B+Sum%5B33%2F1.06...](http://www.wolframalpha.com/input/?i=-17+%2B+Sum%5B33%2F1.06%5En%2C%7Bn%2C1%2Cinf%7D%5D)

The other article says Zynga has "about $1.2 billion in cash and marketable
securities on hand." But a dailyfinance article suggests companies aren't
really as cash rich as they seem; their money is locked up in offshore tax
havens; they can't repatriate it without paying tax on it:
[http://www.dailyfinance.com/2011/07/25/why-are-rich-
companie...](http://www.dailyfinance.com/2011/07/25/why-are-rich-companies-
laying-off-poor-workers/)

~~~
sethhochberg
Question for those with a little more tax acumen than I have - if moving large
sums of money offshore is frequently a one-way street due to tax penalties
when that cash comes back into the country, what are companies using (or able
to use) that cash for?

~~~
jmcphers
Buying stuff that's also offshore. For instance, it's rumored that Microsoft's
acquisition of Skype was much less expensive than it might have been because
Microsoft was able to purchase Skype with funds already overseas--if they had
wanted to purchase a US company, they'd have had to move the funds back to
America, with all of the tax consequences such a move implies.

------
gboudrias
Only 15%? They're doing better than I expected!

------
lowglow
Serious: Why are people still working for this company?

~~~
tomasien
I have a family member there, it's because he's highly unlikely to be fired
(even as they fire lots of folks) and he's looking for the right position
elsewhere.

~~~
lowglow
> he's highly unlikely to be fired

Yet.

Also, out of respect for the entire sustainability of the sector, why
perpetuate a company that treats engineers like disposable commodities?

~~~
Macsenour
They generally go hand-in-hand... those execs who treat game engineers poorly,
think they can replace those same engineers in a day or so.

After 30 years of seeing this over and over, I left the game industry.

~~~
lowglow
At the first sign of this I tend to leave a company. I just can't, in good
faith, participate in treating people like this.

I managed to learn a few things (no particular order):

1\. work for an engineer ceo 2\. work on a product that requires engineers
(not just sales) 3\. work for yourself

maybe I'll add these to [http://truth.techendo.co/](http://truth.techendo.co/)

------
bhartzer
Could it be that some of the people who are a part of NaturalMotion are
redundant, so they chose to keep the NaturalMotion employees rather than the
Zynga employees? I'm not defending them or laying off employees, but there
could be more to it than what we are actually seeing here.

------
james33
So, it appears they laid off 15% of their workforce to make room for
NaturalMotion's workforce.

------
yetanotherphd
Firing people is a natural part of doing business. Decision should be judged
(morally) on the margin. If I fire 100 people, I haven't resulted in 100
people never being able to work again, I have simply shifted them to their
next-best option.

~~~
netrus
As I am young, I often get the chance to start at a company that just laid off
many old employees (because most companies know they cannot stop hiring at
all, because I am cheaper, and because I'm educated in recent technology). But
do I want that? I'll be one of those old employees one day. So I will go to
the company that treats its aging staff (or people from unsuccessful business
lines, etc.) right. Don't forget that effect when you choose hire&fire over
educating your internal staff.

~~~
yetanotherphd
being "cheaper" is not in itself an advantage. You personally might benefit
from having a lower cost of living, for whatever reason, but your employer
never sees this. All they see is the value you provide when you are at work.
If two people offer the same value, they will offer the same wage, regardless
of the cost of living of those individuals. Now the person with the higher
cost of living might find this wage too low, and be forced to take a job with
more hours/stress in order to achieve the income they require, or to adjust
their lifestyle. But none of these things change what a company is willing to
pay.

The rest of your post is premised in the idea that firing someone is
inherently immoral. It is not something that should be taken lightly, since
there are big adjustment costs for both sides, but as I said before, it only
moves a person to their next-best option. The action of firing someone
shouldn't be viewed as depriving them of a job for life* (which is made up for
by a virtuous company providing them with a job for life). The same argument
applies to many other cases. A school teacher cannot say "if it weren't for
me, these children would have had no education, see how valuable I am" because
if it weren't for that teacher, someone else would have done the job.

*Here life = the average time a person spends at a company and the argument remains the same.

~~~
netrus
Just to clarify, I meant that I am a cheap alternative for the employer,
because I only get an entry salary, the employer gets my up-to-date education
for free (instead of paying for professional training) and because young
people are less ill.

I don not claim that firing someone is immoral. I just say that I do not want
to be fired, and I will prefer an employer that likely won't fire me.

I am German, maybe that explains a cultural gap between us - I wouldn't mind
working within the same company (but not the same job!) for the rest of my
life.

------
munificent
Just got word from a friend that the entire Zynga Seattle office is being
closed. :(

[http://www.geekwire.com/2014/zynga-closes-seattle-
office/](http://www.geekwire.com/2014/zynga-closes-seattle-office/)

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mathattack
Am I the only one that thinks 15% could be too low? Unless they are rapidly
investing in new games, it seems like they're on a "Milk what you have, and
buy what you don't" strategy.

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magoon
No matter how you rationalize this, it's still a loss of 1500 jobs - their
replacements financed by the very profit those employees helped generate.

~~~
EpicEng
1500? They are (were) a ~2,000 employee company and the laid off 15%.

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philgr
Woah. I'm surprised they still have a workforce.

