“If the IPO were timed to price around mid-2010 or later, our expectation would be for a billion dollar or greater valuation,” said Schallich, who is based in Portland, Oregon.

That could make San Francisco-based Zynga the third-largest US video-game publisher by market capitalization, bigger than Take-Two Interactive Software Inc., the maker of crime-game franchise Grand Theft Auto. New York-based Take-Two had 2008 sales of $1.54 billion and has a market value of $909 million.

Zynga will have revenue of $210 million this year and $355 million next year, according to Justin Smith, founder of the industry-tracking Web site Inside Social Games. The figures are based on estimates of Zynga’s revenue per player across all its games and its number of daily active users, Smith said.

“It is a real business and has huge momentum,” said Todd Greenwald, a games and Internet analyst at Signal Hill Capital Group LLC in Baltimore. “There would definitely be an appetite” for a Zynga initial public offering.

Zynga’s investors include Kleiner Perkins Caufield & Byers and Institutional Venture Partners, both based in Menlo Park, California; Union Square Ventures in New York; and Boulder, Colorado-based Foundry Group.

Chief executive officer Mark Pincus, 43, said he has no immediate plans to take closely held Zynga public and that doing so would be a “distraction.”

“Our mission is to accelerate our product development and business plan,” Pincus said in an interview.

The US market for games played on social networks including Facebook Inc. and News Corp.’s MySpace will triple to $2 billion by 2012, according to ThinkEquity LLC. The growth contrasts with a 12-percent drop through October in the market for console games, such as those played on Nintendo Co.’s Wii, said industry researcher NPD Group Inc.

Redwood City, California-based Electronic Arts, the second-biggest game publisher, paid $275 million in cash for London-based Playfish, plus another $125 million in performance and retention incentives. That’s equivalent to three to four times Playfish’s revenue, Electronic Arts chief financial officer Eric Brown said on a conference call.

Zynga and its rivals offer free-to-play games and generate revenue when players pay to add new features like a $3 chicken coop in FarmVille. The game, which lets people manage a virtual farm, has more than 65 million users. That compares with more than 52.6 million units sold worldwide for the Wii, the most among consoles.

One risk to Zynga may be that, relative to Playfish, it gets a higher percentage of revenue from companies that pay for the ability to offer online movies, credit cards and other items to game users, said Eric Goldberg, an industry consultant and managing director of Crossover Technologies, a developer of online games based in New York.

Some of those offers on Zynga games have turned out to be misleading. An example is when a player is offered to receive more game currency in exchange for filling out an IQ quiz. A user will enter a mobile number to receive the survey’s results and unwittingly sign up for a subscription that will be added to their monthly bill.

Palo Alto, California-based Facebook temporarily removed Zynga’s FishVille from the Web site this month because of problems related to promotions.

Pincus said in a November 8 blog posting that misleading ads were being offered in Zynga’s games and that the company is working with offer providers to ensure they don’t continue.

“We recognize it is our responsibility to ensure that offers which generate a bad user experience are not shown with any of our games,” he said. All offers have been removed “until we can control their inclusion and presentation.”

Promotions account for less than 20 percent of the company’s revenue, Pincus said earlier this month. Of that amount, a “very tiny portion” is from bad offers, said Shernaz Daver, a Zynga spokesman.

In a statement Monday, Zynga said 1 million of its 200 million active monthly users are buying virtual goods and the company now gets about 90 percent of revenue from those purchases.

Playfish said it receives less than 10 percent of its revenue from promotional offers and only works with offer providers it says are reputable.

Some analysts caution that the companies are new—all three of the biggest social game makers have emerged since 2007—and the games may be a fad.

“Consumers’ appetites in these worlds change rapidly,” said Divnich of Carlsbad, California-based Electronic Entertainment Design & Research. “Somebody can be playing FarmVille for a couple of weeks and then get bored and they are gone. It’s one click away.”

Zynga’s $1-billion valuation makes it less likely to get bought than Playfish, said Atul Bagga, a San Francisco-based analyst at ThinkEquity. He said Activision Blizzard Inc. is the only game company that could afford that amount and isn’t likely to make the investment because it already has a strong online game presence with World of Warcraft. A large media company also could buy Zynga, though he said that was unlikely because of the cost.

Activision chief executive officer Bobby Kotick, the head of the world’s largest game company, said two weeks ago that social games will be a “great area for growth.”Original article

http://www.socialnetworkingconference.com/

In a Sky News interview posted online this week, he said “There’s not enough advertising in the world to make all the Web sites profitable. We’d rather have fewer people coming to our Web sites, but paying.”

Meanwhile, social game maker Playfish, with estimated revenues of up to $75 million from selling virtual goods in its games on Facebook and other platforms, has been acquired by Electronic Arts in a deal worth up to $400 million.

The company is not alone in turning virtual goods into gold: Playfish rival Zynga reportedly brings in over $100 million in revenue (a proportion of which, admittedly, is driven by schemes in which users receive virtual currency when signing up for questionable special offers).

Even The New York Times is heralding the “real paydays” being delivered by virtual goods on Facebook; such stories run counter to the common wisdom that social networking sites are difficult to monetize.

Facebook’s Emerging Payments Platform

Facebook is establishing itself as the purveyor of numerous digital transactions. When a Facebook friend has a birthday, users are encouraged to spend $1 on a gift, posted to their profile page for all to see.

Altruistic members, meanwhile, might ask friends to donate to their favorite charities using Facebook Causes, once again drawing users into the world of Facebook micropayments. Not to mention the millions who are already at ease buying virtual fences and barns in Zynga’s hugely popular FarmVille.

It doesn’t take a great deal of imagination to connect the dots: Facebook is well-positioned to be a content payment platform for the open Web.

Media Sites Already Integrate Facebook

The puzzle pieces are already in place: media properties have jumped upon the Facebook Connect bandwagon, realizing that users are more engaged when they’re able to connect to their friends on content sites.

In September this year, Hitwise observed: “The number of Web sites participating in Facebook Connect has grown quickly to over 15,000 Web sites [globally] including CNN.com, NBC.com, ABCNews.com, Hulu, WashingtonPost.com, The Huffington Post, and others.”

Even Murdoch’s own WSJ.com, often cited as the poster boy for paid content online, allows users to sign in with Facebook Connect.

Better than Free?

A powerful argument against paid content is the abundance of Web-based media: Build a paywall around your property and readers will simply hop over to the hundreds of other news outlets publishing broadly similar news and opinion.

Niche Web publishers like myself would rub our hands with glee if Murdoch were to pursue such a strategy: It would only mean more readers and ad revenue for these smaller, more efficient outlets. Or would it?

Could there be a price point and convenience level that would make micropayments feasible? iTunes famously struck upon a $0.99 price and tight integration with the iPod to make an offer that was “better than free“: a service so much simpler than braving BitTorrent sites that consumers jumped aboard.

What is the price point for journalism? Could we postulate a world in which Google indexes everything, content is largely free and the hard-to-produce stuff so cheap that we don’t notice?

Abundance and the Challenge of the Open Platform

While paying for Web content remains a matter of debate, we’ve established that content consumers will pay for the convenience of device-specific digital media. Whether it’s iPhone apps, iTunes music, movies from Netflix or Kindle books, these platforms combine content scarcity with ease-of-access.

Even Facebook games create value through scarcity within a self-contained economy. On the open Web, however, content is abundant and time scarce: Hopping over to the next Web site is often preferable to climbing over a paywall. If we’re to pay for Web content at all, the value proposition must be “cheaper” than hunting down other sources: scarce content at a low price and a transaction process that’s effortless.

Can publishers build a paywall so low that readers will step over it? Only if they leverage existing platforms and established behaviors. And while Google, Amazon, PayPal and countless others yearn to be that platform, I’d wager that Facebook stands the best chance.

Original Article