Who's Beating Groupon? A Company That Sells Virtual Goods


Farmville

This week, VentureBeat compares the numbers of start-ups Zynga (which makes the super-popular Facebook games like Farmville) and Groupon (which we all know by now as the daily deals juggernaut), and the results are startling to say the least.  Both are young companies headed for well-publicized IPOs — but while Groupon’s is expected to be enormous, it’s Zynga that’s actually making a profit.

Is this one of profit’s new faces?  The numbers seem to say yes.

Here’s the crazy part: while Zynga makes money by selling virtual (aka “nonexistent in the real world”) goods to gamers, Groupon’s profit model is based on taking a cut of the daily deals it offers to email subscribers — for actual products and services.  One sells virtual products, the other real, but Zynga’s profits were $90 million in 2010, while Groupon lost $456.3 million the same year.  To compare their revenue, however, it would appear both companies are doing great –  in 2010, Groupon’s revenue totaled $713.4 million, while Zynga’s was $598 million.

So what’s really going on?

Groupon employs almost 3,000 people (globally) and Zynga has 2,268 employees (as of May).  So no giant disparity there.  Yet Groupon’s administrative costs account for about 30% of its total operating costs, while Zynga’s are only about 7%.  And despite similar strategies enabling, and encouraging, users to tell one other about the companies’ services, Groupon spent $208.2 million on marketing in the first quarter of this year, while Zynga spent just $40.2 million.

Both of these fairly young business models expect consumers to act as brand ambassadors.  Addicted to Farmville?  Facebook will let you near-constantly advertise that fact to your friends.  Buying a good discount through Groupon?  The site lets you share it via social networking, plus deals aren’t valid, or “on,” until they reach a critical mass of purchasers.  Seems comparable — yet the huge discrepancy in their marketing budgets remains.

When it comes to revenue, the question isn’t really about popularity — both Zynga and Groupon have huge customer bases.  But these numbers demonstrate that there’s a real market for goods that don’t exist (or “exist,” but only in Farmville or other games).  The way these numbers look, when it comes to new ways for capturing consumer dollars online, it seems like Zynga, imaginary goods or no, may have more staying power than e-commerce giants that sell actual products.