Social gaming powerhouse Zynga has built a business potentially worth north of a billion dollars. And it doesn't sell anything. Real, that is.
By some estimates, the company will reportedly pulls in over half a billion dollars in revenue this year selling virtual goods, such as virtual tractors and furniture, that are used in social games that are played by hundreds of millions of people each month on social networks like Facebook.
The virtual goods Zynga sells may not be real, but they're now available at major retailers in the U.S. such as 7-11, Target and Best Buy thanks to new prepaid cards Zynga hopes will encourage more consumers to play its games and buy virtual goods. The prepaid cards come in two denominations -- $10 and $25 -- and can be redeemed in-game to fund the purchase of the virtual goods that power Zynga's booming business.
Zynga's prepaid game cards highlight just how mainstream social gaming has become, and demonstrate that there are still plenty of untapped opportunities to drive growth in the virtual goods market. As I wrote at the beginning of the year, this market "is one train that shows no signs of slowing down".
Already, payment companies that are involved in social gaming have struck deals with retailers similar to that announced by Zynga. For instance, PayByCash.com sells an Ultimate Game Card at major retailers which can be used across more than 1,000 online games. And some MMORPG operators offer prepaid cards as well.
But social gaming companies like Zynga arguably have the most to gain from these cards. That's because their games are truly mainstream and can be accessed via the world's most popular social networks, namely Facebook. Some of Zynga's games, such as Mafia Wars and Farmville, are also brands in their own right, in theory making Zynga's prepaid cards more appealing.
If Zynga and others can successfully peddle prepaid cards to consumers, the reward is not insignificant: increased revenue and higher margins. While companies like Zynga are already raking in big money selling virtual goods that have no marginal cost, virtual goods payment transactions are often comparatively expensive. Popular third party payment providers (like PayPal) and CPA offers networks get a cut of many transactions, and mobile payments come with hefty carrier fees that can't be avoided.
If prepaid cards come to represent even a relatively small fraction of virtual goods payments, it could have a non-negligible impact on the bottom line of companies like Zynga. These cards give unbanked players a way to purchase virtual goods and may well be sold in denominates that exceed average transaction sizes. And as an added bonuse, many of the cards sold won't be used in full, and some won't be redeemed at all.
In short, there's still plenty of room for growth in the virtual goods market, and we can expect to see more of the major players in the space reaching out to consumers via offline channels in an effort to turn unbanked players into paying customers and to boost margins at the same time.
Photo credit: Rusty Boxcars via Flickr.