Zynga’s Next Gamble: An Ad Platform

Zynga is building its own advertising platform that it plans to make available to third-party developers that work with the gaming company.

For Zynga, which has struggled to develop a new hit game recently, the strategy has two aims. Obviously, it wants to generate more ad revenue. But, just as important, it wants to give game developers a reason to work with its CEO and founder, Mark Pincus.

Multiple sources familiar with the company’s plans say the platform is still under development, but some of the components could launch by the end of the year. It may not be available to third-party developers immediately. A Zynga spokesman declined to comment.

Up until now, the social game maker has been slow to adopt advertising, opting instead to rely on the sale of virtual goods for the bulk of its revenue.

The advertising efforts will be a part of its push into third-party publishing and will be used as another way to attract developers looking for a complete package when it comes to bringing games to market. Sources said the initiative is being headed up by the company’s long-time CTO, Cadir Lee, who has also been in charge of other major platform projects, including the build-out of its own cloud network.

Over the past year, Zynga has been slowly ramping up its advertising efforts. Recently, it announced a deal where Words With Friends players were rewarded for using Honda-related words on their game board. Another example: A virtual State Farm blimp that players used in FarmVille to revive crops.

Last quarter, ads generated $41 million for Zynga. That’s up 170 percent year over year, and represents 12 percent of the company’s overall revenue.

The spike in advertising over the past year likely has a lot to do with the acquisition of OMGPOP, which was generating massive amounts of ad inventory at the peak of its hit game Draw Something.

But it’s not enough. Earlier this month, Zynga updated its full-year guidance, saying that revenue will fall below previous expectations for the second time this year. Zynga will report final results for the third quarter on Wednesday.

So, what could a Zynga-built advertising platform look like?

The platform could enable the company to expand beyond brand integrations and sponsorships into more lightweight experiences, including banner ads, interstitials, video pre-rolls and incentivized downloads. While it will span both Facebook and mobile, it will likely focus more on mobile games, since Zynga has repeated over and over again that they don’t bring in as much revenue as its social games.

To bolster its efforts in the space, back in April Zynga hired Julie Shumaker (formerly of RockYou and Electronic Arts) to be the VP of global ad sales. Since then, sources say, Zynga has hired a few more direct ad sales employees, and lists several more job openings on its Web site, including roles for sales managers and directors.

It is not entirely clear why Zynga is choosing to compete with so many ad platforms that already exist today, but according to sources, there are a few benefits that may outweigh the costs.

For starters, it will keep more of the revenue that way, without having to work with a middleman — important for a company that has been forced to give 30 percent of its virtual-goods revenue to Facebook.

Another theory is that Zynga wants to ensure that it owns all of its own data. Zynga has an incredibly large audience — roughly 300 million monthly active users — and a lot of rich information about them in terms of their behaviors and their social graph.

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