Zynga’s Betting the Farm

Is social gaming giant Zynga ignoring the ad market at its own peril?

Just as advertising demand for social games is poised to explode—eMarketer predicts spending will surge 33 percent in 2011, to $192 million—the company behind monster hit FarmVille seems not to care. That could allow an opening for more experienced media companies like Disney, Electronic Arts and WildTangent to swoop in and grab the lion’s share of business.

Some say that Zynga’s engineer-heavy culture just isn’t that interested in advertising. Others argue that the company, which should earn $500 million in revenue this year from the sale of virtual goods alone, simply doesn’t need the money.

“They’re probably not going to move as fast as the others,” said Matt Story, director of Publicis’ Denuo Group. “They have no cash flow issues.”

Still, many note that Zynga, which has worked with just a handful of big brands, will need to make advertising a priority sooner or later, since most social games are only able to sell virtual goods to 1 to 3 percent of their audience. Even if Zynga, whose games are played by 45 million people daily, slightly exceeds that average, “not monetizing 95 percent of your audience isn’t necessarily a great business,” as one gaming exec put it. Especially as Zynga’s growth is slowing.

Speaking last week at the Social Gaming Summit in New York, Zynga’s director of brand advertising Manny Anekal listed several of the company’s recent ad successes, including a campaign for General Mills that resulted in 5 million user engagements.

Yet critics note that these sorts of custom, deep brand integrations are hard to replicate; there’s still a need for an easy-to-buy ad standard. This fact has led several second-tier social game developers, including Disney’s Playdom and CrowdStar, to implement WildTangent’s BrandBoost platform, which provides users with free virtual goods in exchange for engaging with an ad. WildTangent, which in just a few months has rolled out 25 BrandBoost campaigns ranging from $50,000 to $1 million in price, also recently inked a deal with Digital Chocolate for its game MMA Pro Fighter.

“We hope to work with all the significant players,” said Dave Madden, WildTangent, evp, sales, marketing and business development. So far, Zynga’s not on the list. Some wonder whether giving away too many virtual goods on behalf of brands could prove dangerous to Zynga, which has trained so many gamers to fork over real cash.

In the meantime, advertisers say that Disney—which acquired Playdom for $763 million in July—is still integrating its ad sales teams, while EA, which bought Playfish last year, is moving faster into the gaming ad market. Both companies can claim an advantage over Zynga: recognizable intellectual properties.

“One of the things that really hit me when I got into this business was that everyone has a mafia game, everyone has a pirate game,” said Bill Young, head of ad product for EA. Not everyone has Mickey Mouse or Madden Football.

However, given that Zynga claims seven of the top 10 games on Facebook (one of which is about the mafia, and another about buried treasure), the company is impossible to ignore. “Zynga isn’t the 800-pound gorilla of the category. It’s the 8,000-pound gorilla,” said Michael Cai, an analyst at the research firm Interpret. “And advertisers follow eyeballs.”