$50 Mil Revenue from Virtual Goods Sales for Zynga in 2008

Zynga is a web-based social gaming company that develops free-to-play game and virtual world applications for a variety of different platforms, including Facebook, iPhone, and MySpace. It is one of the first Western social gaming companies to adopt a version of Eastern model of making money on virtual goods, selling them to players who've shown up to participate in otherwise free virtual worlds.

There's been speculation that the Asian model just wouldn't fly in the West, but Zynga is proving the skeptics wrong. A source close to Silicon Alley Insider reports that Zynga pulled $50 million in revenue in 2008, and the Economist previously reported that Zynga has been profitable since the company's first year of operations in 2007. This is a good sign for any company looking to survive on virtual goods sales as the economic climate turns harsh.

It's worth noting that Zynga's business model isn't strictly Eastern, despite descriptions to that effect. In most Eastern-model games, each individual game created by a publisher runs on one hardware platform as a singular community. Zynga instead has most of its major titles running simultaneously on as many major platforms as possible, allowing all users to interact with each other regardless of platform.

For instance, Zynga's free Live Poker app for iPhone allows users to play against any opponent playing Texas Hold 'Em in Zynga's virtual casino. This allows iPhone players to compete against all players currently active on the Facebook, MySpace, Bebo, and Hi5 social networks.

Zynga's business model may actually constitute a major improvement upon the traditional Eastern model's way of selling virtual goods. What gives virtual goods value is their ability to act like a social currency, but only relative to the perceived value of a given virtual community. By creating applications that bring together users from multiple platforms and social networks at once, Zynga effectively increases the possible social value of the virtual goods they're selling.

There's simply no reason for a buyer to go spend virtual currency on chips in an iPhone poker app that caters only to other iPhone users, when Zynga offers an iPhone user the opportunity to play the high roller as part of the exponentially larger Texas Hold 'Em community.

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