Search giant Google has reportedly invested up to $US200 million in social gaming network Zynga, the company behind the immensely popular Farmville game, in another sign the online gaming sector is beginning to heat up.
The deal comes just days after an Australian entrepreneur struck gold after his iPhone game development studio was acquired by Disney. While a specific sum has not been disclosed, similar deals have run well into the hundreds of millions.
The move comes as Google is moving into the social gaming scene with the development of its Google Games Network. It also comes as several sources state the group is building its own social network to rival Facebook.
TechCrunch has reported that according to “multiple sources”, Google has invested between $US100-200 million into Zynga. The social gaming maker has already raised $US500 in venture capital, and received $US180 million Russian group Digital Sky Technologies, along with Tiger Global, Institutional Venture Partners and Andreessen Horowitz.
DST is also a large investor in Facebook, after pumping $US150 million into the social networking giant last year.
The same sources also stated that Zynga’s revenue for 2010 will come in at an impressive $US350 million, with 50% of that being operating profit. Revenue for 2011 is estimated to be a massive $US1 billion.
The most interesting part of the deal is that it was reportedly made through Google, not Google Ventures, indicating the investment is of particular importance to the company.
This isn’t surprising, given that sources state a Google Games network is being prepared for launch later this year. Additionally, a Google social network, designed to rival Facebook, is also reportedly in the works.
Zynga was founded only three years ago by entrepreneurs Mark Pincus, Michael Luxton, Eric Schiermeyer, Justin Waldron, Andrew Trader, and Steve Schoettler. It claims to be the biggest social gaming network on the internet, and counts 1.3 million daily active users.
The company earns revenue mainly through in-game credits, which are bought through a commerce system using PayPal as the default payment option. However, TechCrunch suspects this could change to Google Checkout soon enough as the search giant begins to build a network of users.
While Zynga has dozens of games in its portfolio, Farmville has become one of the most popular apps, particularly on Facebook. The game, in which users create virtual farms and tend to livestock, sees users come back daily to upgrade their farms and connect with other users.
This has attracted a number of advertisers who want to tap into this huge user base. And it works – Microsoft Bing gained 400,000 Facebook fans from a single Farmville ad.
The deal is just another sign that social gaming, particularly online and mobile apps, are becoming a lucrative industry. Just last week, Australian entrepreneur Andrew Lacy sold his apps development studio, Tapulous, to Disney for an undisclosed sum.
The company was reportedly earning revenue of $US1 million per month. Based on similar industry deals, analysts suspect Tapulous may have sold for several hundred million dollars.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
