Rumor: Zynga making more than $50 million on virtual goods

April 3, 2009 | Eric Eldon | Comments |

While Asian web companies are making millions if not billions of dollars on virtual goods, it hasn’t been clear how the business model is panning out in other parts of the world. So here’s another data point. Maybe.

We’re hearing a rumor similar to one a few months ago that San Francisco-based social gaming company Zynga is doing quite well for itself. Specifically, it’s making between $50 million and $60 million annually in revenue, mostly from virtual goods like poker chips in its Facebook poker application, according to an industry insider.

[Update on 4/6/09: A new source tells me that this number may be at least two times too high, although the information this source heard was from a month or two ago.]

Last January, reports surfaced that suggested the company was making between $30 million and $50 million. Zynga wasn’t commenting then, and it’s not now. But what founder Mark Pincus has said at conferences and to the press in the past indicates things are going well. It has been break-even or profitable nearly every month since September of 2007, and it currently has 195 full-time employees with 30 or so more contractors. Assume the company is paying its workers full benefits — for an average of around $100,000 per person — one can guesstimate roughly $20 million in costs on that front. And then there’s infrastructure expenses like servers and bandwidth. In other words, the latest rumor doesn’t sound too far off.

To put that in perspective, the exemplars of virtual goods money-making are companies like the China-focused Tencent web conglomerate, which made more than $1 billion last year, mostly from virtual goods. And yesterday, Chinese portal Sohu.com successfully spun off its ChangYou gaming division to be a publicly traded company based on revenues of more than $200 million from virtual goods.

I’ve also heard that Zynga rivals like London-based Playfish and Silicon Valley-based SGN are also doing quite well for themselves. Except we haven’t heard specific revenue numbers — so if you know more, email me: eric (at) venturebeat (dot) com.

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About the Author, Eric Eldon

Eric currently covers digital media technology and business news, especially what's happening on social networks and their platforms. He also writes and edits stories about venture capital, and lots of other stuff, too. He started at VentureBeat in the spring of 2007, half a year or so after Matt Marshall left his reporting job at the San Jose Mercury News to found the site. Eric previously cofounded a startup called Writewith, that was building editorial software for newspapers and other groups of writers. The startup didn't work out, but he learned a lot.

  • Heron Nouma
    This is not virtual goods but gambling, no?
  • igniman
    no it's not gambling per se, i.e. people cannot win money, they can only buy virtual chips
  • Eli Gromon
    What games are generating a lot of revenue for SGN? Zynga has poker, Playfish has a number of top games on Facebook. What does SGN have? Nothing on FB and it is not clear that any of their iphone games generate material revenue (and I'm talking material for a company that has $15M+ invested in it)...
  • Wow, that's a lot of money.. but, let me think about it first.
  • Q
    A top line of $50M doesn't mean you're "making" $50M. If Zynga were actually "making" $50M (that is, in annual profits) they would be primed for an IPO or in the acquisition crosshairs of ERTS, ATVI or tech buyout firm.
  • April Dahlenburg
    Zynga also has the mafia wars, yoville, games and others. People purchase chips for the poker games but also virtual items like houses, pets, clothing and special collector edition items, weapons or tools for their characters. Their games are social networked so the larger you grow your crew the more money and items you make etc., Some games are level games with up 500 levels to reach. These are essentially RPG role play games (except the poker) and RPG is highly addictive. I personally have spent money on virtual goods/weapons etc., to get an edge in gameplay. Don't underestimate the seriousness of gamers. Gaming is a multi billion dollar industry with Xbox and Wii games, just console sitting home alone, so it does stand to reason that interactive online gaming 24/7 with other human beings would fare just as well. As an avid Zynga gamer though they deifnitely have infrastructure issues, to the degree I have considered filing for refund of money purchased on virtual goods because of system bugs and frequent server outages etc. (dropped connections heads up at poker tournament) or misassigned levels in mafia wars, (you are level 110 but they pop you into level 130 to fight - disadvantage) and a slew of problems that is not acceptable for "paid" game play.
  • That's a lot of money!