Zynga’s Surging Revenue Shows Online Gaming’s Increasing Clout

6735_110500212090_683847090_2715127_968184_n Recent negative press about FarmVille developer Zynga has done little to rock the financial prospects of the "social gaming" giant, recent reporting by CNN and CNET reveals.

In fact, Zynga is poised to outdo the previous quarter's impressive performance before posting even more impressive financial figures amid a global recession and market turmoil.

Pixels and Policy investigates why Zynga has weathered the publicity storm, and why gaming companies are thriving in one of the largest economic contractions in decades.

A Bumper Crop of Cash

Zynga recently posted an impressive $150 million in revenue from real-to-virtual currency transactions and advertising to FarmVille's 56 million users. Figures for other Zynga titles – like the popular iPhone poker client or original gangster Mafia Wars – are not reported, meaning there's no way of knowing if Zynga's total revenue is even higher.

Every new pop-up window seems to offer an opportunity for Zynga to draw in new revenue. Poker chips can be purchased from the App Store for anywhere from $2 to $34 and busy social gamers can rush their progress in games like FarmVille after purchasing Farm Dollars.

Zynga even tried its hand swapping "free trial offers" for in-game currency, much to the chagrin of pundits at TechCrunch and other industry blogs. Each of these avenues – from experimental currency to trial offers – generates a huge revenue stream for Zynga and, by extension, Facebook.

But Zynga isn't alone. Online game developers are outperforming the battered stock market, with Chinese developer Shanda among the year's most successful IPO's. Activision Blizzard, developer of the behemoth World of Warcraft, is up over 33% for the year – double the Dow's gain.

Online Gaming and the Information Economy

Online gaming has evolved over the years, surging over both technological and cost bottlenecks. Consumers can now be active consumers in Second Life or play through an entire month of World of Warcraft for little more than the cost of one movie ticket.

Computers capable of running these expansive graphical worlds are much less expensive than they were ten or even five years ago. These are significant advances.

Dire predictions about gaming's commercial decline by 2009 – as predicted from the distant past of 2005 – proved overblown. If anything, online gaming is settling in as a direct competitor of the ever more expensive film industry, and for the first time gaming overtook DVD sales and the Hollywood box office. Developers of successful projects are seeing their corporate stock grow accordingly.

This is the environment into which Zynga entered with its low-overhead, high-profit Facebook games. Zynga's flash game model is easily duplicated, and as a result several similar companies have faced heavy lawsuits from Zynga over suspected theft of game design and intellectual property.

The next great hurdle of social gaming, it seems, will be deciding who survives.