Bloomberg News

Zynga Plots Freedom From Facebook With ‘Project Z’ Game Site

October 11, 2011

(Updates with analyst’s comment in fourth paragraph.)

Oct. 11 (Bloomberg) -- Zynga Inc., the online game developer that is planning an initial public offering, anounced a new service geared toward reducing its dependence on users of Facebook Inc.’s social network.

The site, called Project Z, will include social networking, Chief Executive Officer Mark Pincus said today during an event at the company’s San Francisco headquarters. It’s part of a larger corporate strategy, dubbed Zynga Direct, that is aimed at building “a direct relationship with consumers whether they are on the Web or mobile,” Pincus said.

Founded by Pincus in 2007, Zynga has made “substantially all” of its $1.25 billion in sales from Facebook, the company said in its prospectus to investors. As it nears an IPO, the game maker has expanded to new platforms including Apple Inc.’s iPhone and Google Inc.’s social network, Google+.

“It does make sense for Zynga to explore opportunities outside of Facebook in order to grow their revenue base,” said Rich Tullo, director of research at Albert Fried & Co. in New York. “How much of their success is the actual games, how much of the success is because they distribute on Facebook? We don’t know.”

Zynga didn’t say when Project Z would become available. Customers can sign up to have a unique name, or “zTag,” on the service by visiting Zynga’s site.

‘Most Connected’

“It will be the most connected social gaming site in the world,” David Ko, chief mobile officer, said at the event. “You can start a game on Facebook, you can continue it on Project Z, and vice versa.”

The company also announced new games, including “Zynga Bingo,” “CastleVille” and “Hidden Chronicles.” CastleVille will be the first social game to include an original orchestral score, the company said.

Zynga games are free to play, with the company making money from selling virtual items within applications, such as a townhouse in “CityVille” or a shipyard in “Empires & Allies.” The worldwide virtual-goods market will more than double to $20.3 billion in 2014, from $9.28 billion last year, according to ThinkEquity LLC, a San Francisco-based research firm.

Facebook currently gets 30 percent of all virtual-goods purchases made within games, through a payment system called Facebook Credits, which was rolled out across the social network last year. Facebook and Zynga forged a five-year agreement to use Credits exclusively in most games.

‘Deterioration’

“Any deterioration in our relationship with Facebook would harm our business,” as well as stockholders, Zynga said in a regulatory filing. The company said specific risks include Facebook limiting the access of game developers, modification of terms of service, favorable treatment toward Zynga’s rivals and the possibility of Facebook building its own games.

Zynga said in July it would seek to raise $1 billion in an IPO. The company reported net income of $90.6 million last year, its first profit.

--With assistance from Ari Levy in San Francisco. Editors: Lisa Rapaport, Nick Turner

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.


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