Zynga to make $500 million for Facebook in 2011

The 30-70 split for Facebook Credits gives the social network a huge cut of virtual good sales

Financial trends and news by Ronny Kerr
July 7, 2011
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$500 million.

No, it’s not how much a Web company just made in its IPO. No, it’s not some mega-round raised by top-tier investors. In fact, it’s just a fraction of the revenue Facebook will make this year.

But not just any fraction.

Zynga, far and above the most popular social gaming developer on Facebook, will bring in $500 million in revenue for Facebook this year, according to GreenCrest Capital Management LLC. That’s around 10 percent of Facebook’s total revenue.

All developers on Facebook are required to use the company’s currency, Facebook Credits, for in-game purchases. The singular payment model makes for a seamless experience on the user end, but the downside for developers is that they’re required to give Facebook a 30 percent cut of any revenue they make from those sales. (This model is akin to that in Apple’s App Store, where Apple gets a 30 percent cut of app sales.)

Since Zynga makes so much money from the sale of virtual goods, it will be handing over $400 million to Facebook just through Facebook Credits transactions. Added to the $100 million that Zynga pays to advertise, and you get $500 million: the amount Facebook reaps from a single developer on its platform.

If we quadruple Zynga’s revenues for the three month period ending March 31, as reported on its S-1, then the company will draw in $941.7 million in revenue this year. That’s barely double what they’re earning for Facebook. (For comparison, Apple says it has paid $2.5 billion to developers over the last three years. Taking into account the 70-30 revenue split, Apple has earned around $1.1 billion.)

Last week, at long last, Zynga filed with the SEC for its initial public offering, set to raise around $1 billion. The company has often acknowledged its reliance on Facebook for its business model, and has only relatively recently sought to supplement its social media offerings with another burgeoning market: mobile.

Last December, the company acquired Newtoy, developer of Words With Friends, a popular app similar to Scrabble. Though the amount was undisclosed at the time, Zynga’s S-1 reveals that a little over $50 million went toward the purchase. That’s a big investment in mobile.

Earlier today, Zynga debuted PrivacyVille, a “game” accessible not from Facebook but on the company’s main site. A sort of walk-through hybrid of text and a CityVille landscape, PrivacyVille is designed to teach users about their privacy and rights when interacting with Zynga games.

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Description: Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users.  Zynga’s games are avail...

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