Zynga has confirmed that it plans to move into online gambling.
The games company said earlier today that it is in talks with potential partners about adding real money gambling to its current range of freemium games.
Zynga already operates the world’s largest online poker game – 7m people play every day and over 30m play each month.
A spokesman told AllThingsD: “We know from listening to our players that there’s an interest in the real money gambling market. We’re in active conversations with potential partners to better understand and explore this new opportunity.”
Online gambling would appear to be an obvious route to start making some serious money from its massive user base, but it will be a long process due to the licenses and security requirements that it will have to meet.
Zynga’s freemium games model relies on users buying virtual currency – an industry that is predicted to be worth $4.8bn by 2016 – and it is currently profitable, making more than $30m in 2011 from revenues exceeding $900m.
But there are issues with its business model – Zynga’s Farmville and Cityville games rely on Facebook’s continued strength to bring in gamers, as 94% of its users come through Facebook accounts.
While it has 152m monthly users, only 6.7m of them provided its revenue during the first nine months of 2011 – meaning only 4.4% of Zynga’s users think the games are worth paying for.
Following its $1bn IPO in December the company is now valued at $7bn, which is impressive but some way off the $20bn valuation that was predicted early in 2011.
And while the IPO is good for the bank balance, the company now has shareholders to please so new revenue streams are integral if Zynga is going to maintain investor confidence.
Gambling could prove to be a hugely lucrative source of revenue, particularly as Zynga’s games have proved to be quite addictive even without the added enticement of playing for real money.
Whether Facebook will be happy letting Zynga reap profits by turning the social network into a gambling platform is doubtful – AllThingsD quotes a Facebook spokesperson as saying: “We don’t have any plans to get into real-money gambling.”
To further muddy the waters, though online gambling is currently illegal in the US the Obama administration said in December that federal law technically only outlaws gambling on sporting events, so state legislatures are now responsible for outlining their own operating procedures.
So by exploring the potential for online gambling now, Zynga is making sure it is in a good position to take advantage of any law changes in the near future.
The quickest way to do that would be to partner or acquire a company that already has experience, and potentially the licences, to run an online gambling operation. With $1bn in the bank, that shouldn’t prove too difficult.