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Article from SF Gate.

“Zynga Game Network Inc.’s estimated worth surpassed Electronic Arts Inc.‘s stock-market value, a sign of the ascendance of social-networking entertainment at the expense of traditional video games.

Zynga, the maker of such games as FarmVille and FrontierVille, is valued at $5.51 billion, according to SharesPost Inc., an exchange for shares of privately held companies. Electronic Arts, the second-largest game publisher by sales, is worth $5.22 billion on the Nasdaq Stock Market.

Started by Mark Pincus almost four years ago, Zynga has become one of the fastest-growing technology companies by using Facebook Inc.’s social network to distribute games. It makes money by selling virtual goods, such as vehicles and weapons that help players advance in games. The company has grabbed about a third of that market, which is worth $1.6 billion this year, according to Inside Network in Palo Alto.

“The valuation is not that crazy, given what’s going on in the market,” said Atul Bagga, an analyst at ThinkEquity LLC in San Francisco, who estimates the virtual-goods market may reach $3.6 billion in three years. “It’s not that terribly expensive seeing the growth prospects.”

Electronic Arts, meanwhile, faces declining retail sales of gaming hardware and software. Before Tuesday, its shares had dropped 7.4 percent since March 1. Zynga’s estimated value has more than doubled in that period.

Electronic Arts was the world’s biggest video-game publisher until 2008, when Activision merged with Vivendi SA‘s gaming business to form Activision Blizzard Inc.

Dani Dudeck, a spokeswoman for San Francisco’s Zynga, said the company doesn’t comment on its valuation. SharesPost bases its number on data from trades of private shares, research estimates and venture-financing valuations. Jeff Brown, a spokesman for Redwood City’s Electronic Arts, didn’t immediately respond to a request for comment.

Zynga is the largest maker of games on Facebook, with more than 210 million monthly active users, according to AppData.com, part of Inside Network, a research firm.

Zynga’s value on SharesPost was $2.61 billion in March. That’s when SharesPost introduced a new index for venture-backed companies, including Facebook, Twitter Inc. and LinkedIn Corp.”

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Here is an article from SF Gate.

“Susan Choe, head of the San Francisco-based online video-game startup Outspark Inc., figured she’d found the right strategy when a family of four spent $35,000 for virtual goods on her site.

“We actually called their bank to make sure they could afford it,” said Choe, 40, who serves as chief executive officer. “Apparently they can.”

Outspark offers free Internet games and then makes money by selling extras, such as $2 magic potions, $200 rings with special powers, and even $5 licenses that let players get married virtually (divorces are free). Several hundred families have now spent tens of thousands on the site.

The company is tapping into the so-called freemium model, where people play for free but shell out for premium features – an approach that is spreading to the United States after taking off in Asia. Outspark is relying on a different tack than Zynga Game Network Inc., the maker of freemium titles like FarmVille and Mafia Wars, by offering more involved games that coax individual users into paying bigger amounts.

The average paying Outspark customer spends about $55 a month, or as much as $400 during the life of a game. That compares with the $10 to $20 that paying customers typically spend monthly for a game like FarmVille, the most popular title on Facebook, said Atul Bagga, an analyst for ThinkEquity LLC in San Francisco.

Though most freemium players don’t spend a dime, the less than 5 percent of gamers who do buy items will generate revenue of $1.6 billion in the United States this year, said Justin Smith, founder of Inside Network, which tracks social games and virtual payments. That’s up 55 percent from last year.

“The virtual goods market will be a multibillion-dollar industry,” Smith said.

Outspark’s titles, such as Fiesta and Fists of Fu, rely on elaborate fantasy quests to keep players engaged. Customers also tend to be more hard-core gamers than those who play most Facebook games, meaning they’re more likely to spend money enhancing their characters or improving the chance of advancing.
Stiff competition

Outspark is competing for online gamers against larger companies, including makers of traditional video games. Electronic Arts Inc., the world’s second-largest game publisher, expanded into the market last year by buying Playfish Inc. for about $400 million. Last month, Walt Disney Co. agreed to buy Playdom Inc., another maker of online games, for $563.2 million.

Zynga, which is also based in San Francisco, leads the market for social-networking games. It may record more than $450 million in revenue this year selling virtual objects, ranging from tractors for FarmVille to machine guns for Mafia Wars, according to people familiar with the company.”

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