Social Networks and Money

For the longest time, I didn’t quite understand why people are so crazy about social networking.  A recent Southpark episode (You have 0 Friends) made a really witty commentary about this fact.  But recently, I’ve gotten a lot more interested.  And if you’ve heard about a company called Zynga, you might be too.

In the recent article in Businessweek (“Zynga and Facebook.  It’s Complicated.”, Apr 26 — May 2, 2010), they estimate that this online gaming company that makes such social networking games as FarmVille and MafiaWars, will surpass $450 million in revenue for 2010.  $450 million!  Their business model is similar to a freemium model where they give away the games for free and make most of their money by selling virtual items in their games.  This is brilliant, selling a virtual item (i.e. nothing) for something that can buy you a non-virtual item (i.e. money).  The only caveat is that there is intense competition in this market.  In fact, Zynga spends $5 – 8 million per month for banner ads on Facebook.  It turns out that more advertising translates to more users in social networking games.

It’s amazing how much the internet has changed people’s lives.  Instead of going outside for a walk with a friend, they’re rather be inside visiting their friend’s virtual farm.  I don’t really get it, but that doesn’t mean there isn’t a huge potential for opportunity, no matter how ridiculous it may sound to me.