One social-networking player making real moneyOctober 29, 2009: 1:11 PM ET
by Jessica Shambora
Are there green shoots of profitability in the land of social networking?
Last week Twitter announced deals with Microsoft (MSFT) and Google (GOOG) to make its posts available on the Bing and Google search engines--and this could be a reliable source of future revenue. Though as Adam Lashinsky writes in the current issue of Fortune, Twitter co-founders Evan Williams and Biz Stone are still less focused on making money than they are on doubling their user base of 55 million people.
As for Facebook, the other social-networking heavyweight, it now has positive cash flow, management says, along with 300 million users. Still, details have yet to emerge about how Facebook's advertising buildup is faring.
But hold on, green shoots really are appearing--from companies you might not expect. One of the hottest start-ups: Zynga, a creator of games that run on social networks like Facebook and MySpace (NWSA). The company is forecasting at least $100 million in annual revenues after just two years in business. Management says that Zynga has been profitable since September 2007, just two months after launching.
San Francisco-based Zynga creates games that allow players to interact with friends in their social network. These "social games" are free to play, but users pay to purchase virtual goods. Why spend real money on virtual goods? Because the virtual goods help you advance in the game more quickly.
For instance, in FarmVille, where you tend a virtual farm, Zynga collects money when you buy fuel for your virtual tractor. The virtual tractor enables you to build a bigger farm faster than a player who doesn't spend to invest. FarmVille happens to be the most popular social game right now. It has more than 61 million monthly users.
These social games are addictive. And while some people contend that this growing addiction is crazy, others say that buying virtual goods isn't much different from plunking down cash for a game like Microsoft's Halo 3. Would you spend real money on virtual goods? Let us know--and for more on social games, read my profile of Zynga in the new Fortune.