Zynga Acquires Newtoy

Continuing its aggressive push into mobile social gaming, Zynga has acquired Texas-based Newtoy, makers of the popular Scrabble-like Words With Friends.

Zynga announced the acquisition Thursday during a teleconference with reporters. The online game maker did not release financial details.

Zynga, which has been on a buying spree all year, bought Newtoy because of the popularity of its Games With Friends franchise. Words With Friends and Chess With Friends enable people to play against others using their Apple iPhone, iPod Touch and iPad. The games come in paid and free versions and have more than 5 million active users.

That number is enough to convince Zynga to launch a new development studio for the franchise, called Zynga With Friends. Newtoy chief executive and co-founder Paul Bettner is VP and general manager of the studio, while his brother and co-founder David Bettner is studio director. Michael Chow, director of operations for the 23-employee New Toy, will lead the development team.

Zynga's plans to make money with the new studio will likely be linked to advertising, which already runs on the games. Paul Bettner says selling virtual items for game play will also be added at some point. "It's something we're very excited about," he says. According to Bloomberg Businessweek, Zynga is expected to surpass $450 million in revenue this year, with most of it coming from selling virtual items for its games.

For now, Zynga plans to leave the Newtoy executives alone in their new studio, figuring there's no need to fix what's working. "We're not looking to alter any of the success we've seen with that company, we're looking to extend it," David Ko, senior VP of Zynga's mobile operations, says.

Leveraging Newtoy's early success in the mobile market is what Zynga hopes to get in the acquisition. Zynga's roots are in the PC world, where it rode piggyback on Facebook's success. Zynga's Mafia Wars, Farmville and other games are played by roughly half of the social network's 500 million users each month.

Zynga has adapted its Facebook games for mobile devices and has made it clear that while the PC has been good for the company, the bigger rewards in the future is expected to be mobile gaming, especially those games that enable multiple players. The number of new PC buyers pales in comparison to the growth in smartphones and the expected growth in tablet computers, a market jumpstarted this year by Apple's iPad.

Zynga will face stiff competition going forward from companies like Electronic Arts, which bought Playfish in late 2009 for $275 million, and Disney, which bought Playdom over the summer for $763 million. Google is also expected to jump in at some point, but it's unclear how that will affect companies like Zynga, which could become a supplier. Google has reportedly invested $200 million in Zynga this year.

Zynga's strategy to date has been less about developing brand new games and more about acquiring them. The company has used its war chest to buy a total of at least six social gaming companies this year, including Unoh, Serious Business, Challenge Games, Conduit Labs, XPD Media and now Newtoy. All the acquired companies have built social games. Newtoy is the first to focus exclusively on mobile social gaming.

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