In a new disclosure, Zynga tells us it makes 90% of its revenues from gamers putting their own money into the system to buy virtual goods. This is in contrast to the 30% that Zynga had previously disclosed.
Prior to last month’s scandal about “scammy” offer revenue, Zynga says, only 10% of its revenues come from “offers” marketing, where sponsors agree to buy virtual goods for gamers, so long as those gamers agree to try a product.
Now, Zynga says, none of its revenue comes from offers, because the company has stopped using them in response to the scandal–at least temporarily.
The company also says a marginal amount of dollars come in from traditional advertising.
Zynga will reportedly reach $200 million to $250 million revenues this year. Multiple industry sources say the company spends tens of millions of dollars marketing its games on Facebook and elsewhere. In August, CEO Mark PIncus told us Zynga is profitable.
The reason that Zynga, a private company, is now offering new details about its revenue breakdown is that for weeks, it’s been battered by press reports suggesting as much as 30% to 70% of its revenues come from legit and illegitimate “offers.” Zynga and Facebook are also facing a class-action suit over “offers” marketing.
The controversy began with this volley from TechCrunch’s Michael Arrington in late October:
Most of these offers are bad for consumers because it confusingly gets them to pay far more for in-game currency than if they just paid cash (there are notable exceptions, but the scammy stuff tends to crowd out the legitimate offers). And it’s also bad for legitimate advertisers
A typical scam: users are offered in game currency in exchange for filling out an IQ survey. Four simple questions are asked. The answers are irrelevant. When the user gets to the last question they are told their results will be text messaged to them. They are asked to enter in their mobile phone number, and are texted a pin code to enter on the quiz. Once they’ve done that, they’ve just subscribed to a $9.99/month subscription.
is the company at the very end of the line on most mobile scams, and they flow it up through Offerpal, SuperRewards and others to the game developers.
Another scam: Video Professor. Users are offered in game currency if they sign up to receive a free learning CD from Video Professor. The user is told they pay nothing except a $10 shipping charge. But the fine print, on a different page from checkout, tells them they are really getting a whole set of CDs and will be billed $189.95 unless they return them. Most users never return them because they don’t know about the extra charge. Woot. Again, sites like Offerpal and SuperRewards flow these offers through to game developers. See here for more on the
After this first report, TechCrunch unearthed a video of Zynga CEO Mark Pincus telling fellow entreprenuers how he did “horrible things” in order to get Zynga revenue flowing as soon as possible. Watch:
Soon after these reports, Zynga indefinitely pulled “offers” marketing from its games as it tries to figure out a way to keep the more scammy lead-gen marketers out and good businesses like Netflix in.
The revenue ratio Zynga disclosed today — 90% user-pay, 10% “offers — represents a dramatic shift from the revenue ratio Zynga publicly disclosed as recently as November and, before that, February 2009.
In a February 2009 interview, Zynga CEO Mark Pincus told ThinkEquity that the company makes its money from “in-game ads, virtual item sales or what we call user pay, and lead gen that is offers from sponsors like Blockbuster.” Mark said that “the revenue mix is evenly distributed in all three categories.”
In November, Zynga cofounder Andrew Trader told the San Francisco Chronicle that Zynga makes a third of its money from offers.
We asked Zynga how its revenue ratio could change from 33% user-pay, 33% ads, and 33% offers in February and early November to 90% user-pay and 10% in late November.
Here are their answers:
- A Zynga spokesperson tells us Andrew misspoke that day he talked to the press. For the record, the San Francisco Chronicle story has now been corrected, and reads “the company makes almost half of its revenue from virtual goods transactions.”
- In February, Mark was working from old, previously disclosed, numbers that better reflect Zynga’s revenue ratio from 2008 than 2009.
- The difference between 2008 and 2009 is that Zynga began phasing out tradional ads from its games in 2008. By summer 2009, there were no ads in franchise games like FarmVille. There remain limited ads in smaller games like Scramble and Word Twist.
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