Zynga Moves More Ads In-House

Zynga is moving more of its burgeoning ad sales business in house as it prepares for a mega IPO.

The Sillicon Valley gaming darling has ended its relationship with Appssavvy, a company that initially built its name selling ads in iPhone applications. Over the past few years, as Zynga dipped its toe into the advertising business, Appssavvy has helped sell in-game brand integrations to advertisers. For example, earlier this year the company helped facilitate a campaign that saw T-Mobile providing players with free shovels inside the Zynga game Treasure Island.

Zynga also works with SocialVibe to create sponsorship opportunities outside its games, such as the beverage company Brisk’s recent promotion providing free farm cash to FarmVille players. That relationship continues unaffected, according to SocialVibe.

But Zynga is clearly looking to build its own capabilities as a media business. In mid-2010, Zynga brought on Manny Anekal, formerly of Electronic Arts, to serve as global director of brand advertising. Anekal has recently begun looking to hire more sales people to handle in-game ad opportunities, per sources.

Zynga’s games are mostly uncharted territory for advertisers for the obvious reason that Zynga doesn’t need advertising. It has made a mint instead off selling virtual goods, relegating advertising programs to little more than an afterthought. For the time it would take to create a brand program, the same engineering and design resources could be used to create a virtual good that would garner far more money.

Still, Zynga’s ad business is growing rapidly but is still small compared to the company’s booming virtual goods business. According to Zynga’s recently filed S-1 form, advertising accounted for about $3 million in revenue in Q1 of 2010 — surging to nearly $13 million during the same quarter this year.

Yet that figure represents just 5 percent of Zynga’s total revenue — a percentage the company would surely like to increase to help diversify its business and even lessen its reliance on virtual goods. Zynga has also been beefing up its business leadership, bringing on former EA COO John Schappert in June to serve in the same capacity.

Zynga was unavailable for comment. According to sources, Appssavvy had been feeding Zynga a large number of leads, few of which converted into real business. Some inside Zynga were concerned that Appssavvy was also potentially diluting Zynga’s pricing, since the company represents several second-tier social networks that offer brands much lower pricing.

In addition, per sources, Zynga was growing increasingly concerned about the possibility of creating channel conflict in the marketplace, confusing buyers and advertisers about just which company handled its in-game ad business.

For its part, Appssavvy tells a far different story. According to chief marketing officer Robert Victor,   has over the last year been working towards reinventing its business by building a scalable social game advertising product. Plus, the company desired to become less reliant on Zynga’s brand.

“We chose to distance ourselves from that relationship. Not the other way around” said Victor. “We were already making a transition toward this incredible new product, and working with Zynga would only have diluted our position in the market. We didn’t want Appssavvy to become the company that reps Zynga.”

Victor denied that Appssavvy had failed to deliver Zynga a reliable number of leads. “We were responsible for massive deals for Zynga,” he said. “We had a great run together.”