Zynga Was PayPal’s Second-Largest Merchant in 2009

A surprising fact came up at last week’s 2010 Media Summit in New York. An eBay spokesman said that Zynga was PayPal’s second-largest merchant in 2009, following eBay itself. Overall, PayPal processed about $500 million in virtual goods payments last year, according to the estimate of Citi analyst Mark Mahaney, who wrote a recap of the summit.

It’s not clear whether Zynga came in second based on the number of transactions or the total amount processed, but it’s probably the latter. Either way, the company is leading a whole new market onto PayPal.

The payments company’s total volume is over $60 billion per year, by the way, much of which comes from eBay — the auction site is still huge, despite its problems in recent years. Much of the rest of PayPal’s income probably comes from hundreds of thousands of much smaller sources, so it’s no surprise that Zynga could reach number two so quickly.

But it’s interesting to consider how Zynga became so big on PayPal, so quickly. Some of its most successful games were launched in 2008, and their quick growth helped prove to the world that virtual goods and virtual currency are a viable market. Texas HoldEm Poker and Mafia Wars were both launched in the latter half of 2008, so they already had a presence in 2009.

The caveat is that neither reached their full potential until part of 2009 was past — Zynga started 2009 with fewer than 15 million players. Then there are the many games that Zynga launched in the second half of 2009. Its two largest games today, FarmVille and Café World, were launched in July and September of 2009, respectively. FishVille was even later, showing up in November.

Those games alone represent over half of Zynga’s current 240 million monthly active players, but they were barely present for most of the period that PayPal was measuring.

Zynga’s growth has leveled out this year, but it’s possible that it will experience another growth spurt before 2011 arrives. Could it ever become PayPal’s largest seller? Well, that’s still pretty far off. By our estimates, Zynga’s revenue is still only on the low hundreds of millions. eBay, PayPal’s top seller, has revenue of several billion dollars.

However, it’s not inconceivable that virtual goods, as a category, could outgrow eBay within a few years. Our own Inside Virtual Goods report estimates that the virtual goods market will grow to about $1.6 billion this year, and it’s still a young market.