Ad Insights From Zynga's IPO Filing

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Ads represent a small but growing piece of Zynga's business, the company revealed in its IPO filing today. That will surprise few, since the company's revenue from virtual products is known to be huge by comparison to its nascent ad business.

But that ad business shows signs of breaking into the big time, as the S-1 filing demonstrates in today's first official glimpse into the social gaming giant's operations.

In 2010, advertisers spent $22.8 million with Zynga on a range of ad types including premium brand integrations such as what the company has done with McDonald's, Bing, and Farmers Insurance. For comparison, that puts Zynga's ad sales at one-fifth that of Pandora, which also recently filed for its IPO.

Zynga's non-advertising revenue by contrast was $574.6 million last year - more than twenty times what it takes in for ads.

Interestingly, Zynga's ad revenue actually fell last year as the company's user growth skyrocketed. The reason: the social gaming giant decided to reduce the number of "in-game offers" in a bid to improve the user experience.

The decline in ad revenue seems likely to reverse itself this year. In the first three quarters of 2011, Zynga's ad revenue grew again compared to Q1 2010 - hitting $13 million, up $9.9 million over the $3.6 million in the year-ago quarter.

Zynga claims 60 million daily active users and 232 million monthly uniques in 166 countries. Its ad types include:

-Engagement Ads, in which players can field questions about brand preferences and purchase behavior in exchange for in-game currency. For instance, a user might answer questions about her American Express card.

-Branded Virtual Goods, in which a brand ties advertising deeply into game play. The best-known examples are Farmers Insurance in FarmVille, Bing, Coca-Cola, and McDonald's. Paramount recently launched a campaign in CityVille offering an in-game item to drive awareness of Kung Fu Panda 2.

-Mobile Ads, which are served into free versions of Zynga mobile games like "Words with Friends" and "Hanging with Friends." Advertisers have included Amazon, eBay, and HBO, while Zynga has used the space to cross-promote other mobile games.