Why Did RockYou Raise a $50 Million Fourth Funding Round From SoftBank?

RockYou was one of the earliest big developers on social networks like Facebook and MySpace, and now it has raised a $50 million round fourth round of funding from SoftBank (the actual firm, not the venture arm). The company originally grew on MySpace, with simple widgets like photo slideshows, and then on Facebook, with apps for simple actions like poking and gifting.

While other companies have focused on building social games over the past year or so, RockYou has morphed into a sort of social advertising service, where it develops its own apps and games, and sells space in its own applications to other developers and to traditional advertisers. Zynga, for example, was at one point paying RockYou more than a million dollars a month, according to sources, to advertise Texas Hold ‘Em Poker and other popular applications. When we wrote about the money going through the social gaming ecosystem back in May, we heard RockYou was on track to make $20 million in revenue this year. Now, it says it is likely to make $30 million or more, apparently — the company has not confirmed this number with us.

We asked chief executive Lance Tokuda how its advertising business is doing, overall, as well as who the company is specifically working with. Here’s what he said:

We’ve exploded in reach hitting over 200 million users a month and business for us has been up and to the right. September was our best month ever and October was even better. Some of our top competitors with less reach have completely dropped out of the branded sales space so that has been an additional boost for our brand team. We’ve done campaigns with multiple brands.

But it still has its own applications, including some gaming ones like Speed Racing, Hero World, and RockYou Pets. It recently upgraded Zoo World, an animal world game, from a text-based interface to a virtual world one. It’s launching a gifting app on MySpace, tomorrow, that uses virtual goods. Virtual goods could create another revenue stream for RockYou. We also hear it’s been looking at, if not buying, gaming companies in Korea and Japan, although the company didn’t confirm that when we asked. However, “RockYou Asia,” a regional subsidiary, is live on Mixi in Japan, Xiaonei in China and Cyworld in Korea.

Separately, Tokuda says the company is planning to launch “a fully Facebook compliant offers platform for social games.”

Gaming is a strategy shift from where the company was at in its earlier days, and it is not alone in the move. Another early app developer, Slide — at one point RockYou’s rival for the top spot — focused on games much earlier this year. It is now starting to pump out new titles, that are seeing some traction.

RockYou currently has 39.5 million monthly active users and 1.90 million daily active users, so it has its work cut out for it if it hopes to become a leading social gaming company — it is now the twelfth-largest developer on Facebook in terms of daily active users, well behind market leaders like Zynga and Playfish.

Interestingly, SoftBank was the only investor in this round — although “there’s still a window for existing investors and we expect some additional investments,” according to Tokuda. None of the venture firms that have previously funded it participated in this round, which is usually not a good sign; those include DCM, Lightspeed Venture Partners, Partech International and Sequoia Capital. However, when we asked, Tokday said that “we are not in trouble, RockYou is still growing on reach and sales!  (Also, this was an up round),” meaning the company’s valuation has increased since its last funding.

The company has already raised $69 million in three rounds; another $50 million gives it more room to work on its ad business, and move deeper into social gaming. In the brutal struggle to build successful businesses on social networking platforms, this funding helps ensure that RockYou is still in the mix.