July 23rd, 2008
As recently reported in The Wall Street Journal and in a post on GigaOm, virtual worlds and social games are attracting increased attention from VCs these days. As GigaOm’s report noted:
“…in the first half of 2008, virtual worlds raised $345 million in venture investment, according to data from Virtual Worlds Management….
From World of Warcraft to relationships built on Facebook or MySpace to intensely personal blog entries, we are using the web to extend our real lives into virtual ones. It makes sense that an army of startups will follow us there, ready to supply us with tools that make our virtual lives more productive or enhance our virtual status. So even as Google struggles to monetize video advertising on YouTube and social networks pray for higher CPMs, there is money to be made selling virtual swords and trade show booths.
Given that gaming, all the way back to Dungeons & Dragons offline to World of Warcraft online, has long pushed the envelope when it comes to building virtual worlds, it’s easy to see why their players are among the most comfortable buying and selling binary-based goods. Since games are where a lot of this began, it’s where a lot of investment dollars continue to flow. Earlier this week, Social Gaming Network netted an investment, the value of which was undisclosed, from Amazon Founder and CEO Jeff Bezos’ personal fund. SGN creates games for social networks such as MySpace and Facebook, and makes some of its revenue from the sale of virtual goods…”
And, as The Journal notes:
Zynga Game Network Inc., which makes free poker, puzzle and other games for social-networking Web sites, has attracted backing from heavyweight investor Kleiner Perkins Caufield & Byers — a sign of investors’ growing interest in services that plug into social networks.
Facebook.com Kleiner Perkins Caufield & Byers is among the latest investors in Zynga Game Network, which makes a variety of games for social-networking Web sites.
…Mr. Doerr described the Zynga investment as “special and surprising” in part because the fund likes to invest at an earlier stage. But he was drawn to the fact that Zynga had “cracked the code” on how to develop engaging and viral games fast.
“This is not a hits business,” he said. “There is quite a science around fine-tuning the product.”
The moves are another sign of investors’ strong interest in the young industry of companies that create things for users to do on social networks, like play games, share travel plans and swap virtual gifts. While most entrants have yet to generate significant revenue, investors are being lured by their fast growth.
Gaming — an area that encompasses everything from playing virtual poker to selling likenesses of your friends as digital pets — is a hot sector within the group. Millions of users have downloaded games to their profiles.
Zynga, which in January announced its first $10 million round of funding from Union Square Ventures, Reid Hoffman, Peter Thiel and others, is showing signs of pulling away from the pack. The company, which earns revenue through advertising and selling add-ons for its games, said it has 18 million monthly visitors, and is growing at a pace of 450,000 new users a day.
…Mr. Pincus, 42 years old, said Zynga has taken off by keeping its games simple and by building in features that are consistent with how and why people use social-networking sites. Its poker game allows users to send fellow players a virtual drink. Its Scramble game, which resembles a digital version of Boggle, allows players to become virtual “friends” with one another. “Social gaming is a means to an end. It is like being at a cocktail party,” says Mr. Pincus.
To expand to new audiences and more sophisticated gamers, the company is looking to new platforms like cellphones, and more immersive games with richer graphics. The company recently acquired virtual world YoVille and is hiring developers from established gaming studios like LucasArts.
It faces fierce competition from a number of venture-backed competitors, including Social Gaming Network, Friends for Sale and professional gaming companies, which have stepped up their efforts to protect the intellectual property rights of their games. With some money in the bank, the larger companies are building a greater variety of games faster….”
![[Zynga]](http://s.wsj.net/public/resources/images/MK-AQ813_ZYNGA_20080722164620.jpg)
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