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Zynga, an emerging empire of third party gaming applications on Facebook, announced a new ad network for developers a couple of weeks ago — and crossed swords with rival gaming company Social Gaming Network (our coverage).

Tonight, Zynga is launching this ad network, with more details on how it can work for developers. The subtext here is: Zynga’s goal is to work better than SGN.

San Francisco-based Zynga has grown large and even profitable through developing Facebook games like poker tournament Texas Hold ‘Em. Similar to Slide, RockYou and other third-party app conglomerates, Zynga advertises its new gaming applications within its already-popular games. So an ad for Sea Battle (like the board game Battleship) might appear while you’re playing Texas Hold ‘Em.

But Zynga has specifically introduced its own feature for spurring growth. At the top of each of its games, it shows a bar that tells you what Facebook friends are playing other games on the Zynga network. This bar also shows you other Zynga games you might want to play. If you click on one of your friends as they appear in this toolbar (see screenshot), you can go see what game they’re playing and — if they’re willing — even play a game with them.

This toolbar will now be used for third-party developers that choose to partner with Zynga. Here’s how it works. If you have a game, you include the Zynga toolbar at the top of your game. People who play your game will be able to see which of their friends is also playing any game within the Zynga network of games (so Texas Hold ‘Em, etc.). It’s more of a link-sharing agreement or other cross-promotional agreement than an ad network, as no money changes hands.

Zynga measures how many visitors click on the toolbar and use it to start playing other games. If Zynga sees that your game is driving significant traffic to other games, then it will feature your game more prominently in this toolbar — across the entire Zynga network.

In other words, Zynga is using its network to help independent third party developers gain more users. The reality of Facebook, as Pincus told me today, is that most developers want more users on their site all the time.

There are many different types of Facebook ad networks, such as the ones offered by RockYou, Social Media and others. The most obvious competitor is, as mentioned, SGN.

SGN is developing its own sort of gaming network. It offers an application called Gaming Hub that shows the top scores of SGN gamers who install it. The application features games from third party developers. Problem is, the application itself has less than 200 daily active users as of today — not much of a place to advertise your application.

Update: SGN and the commenter below have adamantly pointed out to me that SGN is also beginning to introduce its own toolbar, similar to Zynga’s, that will lead users back to its Gaming Hub. It will be interesting to see how these two companies differentiate from each other as they experiment with their competing efforts. At this point, I think they’re officially the Slide and RockYou of gaming apps. Why: They’re large, willing to criticize each other — and meanwhile hoping that a third (or fourth or fifth) significant competitor doesn’t emerge to challenge both of them.

Zynga claims to reach 1.4 million people who use its own applications on Facebook every day — people who see its toolbar — as well as additional traffic from other independent developers. SGN, as others have covered, also claims to reach many Facebook users. SGN said last week that its games are getting 700 million page views a month. I’m not going to get into the two companies traffic debate here (instead, you can read more here and here).

We’ve heard other dominant Facebook application companies also discussing the potential of games on Facebook, so expect competition among game developers to heat up in the coming year. And, if investing in the freewheeling world of Facebook applications is for you, check out Lee Lorenzen’s rather bizarre plan to collect a large pool of small investors, and build a union of Facebook applications — that will eventually go public (Techcrunch covers the details here).

Zynga actually makes most of its money from other applications that pay it to feature ads for their applications, as Zynga founder Mark Pincus said recently at a gaming conference (Dean Takahashi has more, here). And a recent example of the company eating its own dog food — it launched a game called Scramble that has already grown more than 500 percent since January, to more than 100,000 daily active users, through advertising in Zynga’s games.

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Tags: co:zynga, people:Mark-Pincus