Empires & Allies is setting a strong pace in its fourth week after launch. While its monthly active user and daily active user growth numbers are so far coming in below where Zynga’s last big launch on Facebook was — CityVille, back in December — it is the clear leader in the strategy genre of social game.

By the traffic numbers in our AppData tracking service, it’s already the third-largest game on Facebook by MAU with 37.7 million, and with 6.73 million DAU about to pass Texas Hold’Em to reach third by that metric. This growth is in turn boosting Zynga’s overall Facebook traffic numbers to 54.8 million DAU and 269.2 million MAU.

The context here is that some people have questioned Zynga’s ability to keep producing hits on Facebook as development and marketing costs go up. The company is occasionally lumped together with other newly successful technology startups as an example of an internet bubble especially given reports that Zynga is looking to public in the next couple of the months.

Other developers who build these types of city-building-plus-army-battling games for hardcore gamers have reported very strong revenues per user. Given Zynga’s experience with monetization, we expect it is doing quite well for itself now, and in the filings will reinforce Zynga’s argument that it is reshaping the gaming industry through social connections.

The strategy genre wasn’t the focus for most social game developers until the last year or two. Pioneered by Kabam (which just raised a big new round) and smaller developers, the strategy genre recently expanded to include entries from larger companies. Digital Chocolate’s Army Attack — launched a week ahead of Empires & Allies — uses a different game mechanic in its synchronous building and fighting simulation, and it’s been growing well despite Zynga’s offensive. Playdom’s own military-themed strategy game, City of Might, is due out soon.

For Zynga, however, the competition is also about beating its own records and the expectations of investors as much as it is competing with other strategy game developers. A solid launch on Facebook like this shows that it can continue to produce hits, despite the many changes Facebook has made to communication channels in games. The question is how much Zynga is profiting despite increasing development and marketing costs. The production value of the game is high, and prices on Facebook advertising have gone up as more companies of all sorts have begun using it.

However, Zynga has reportedly been making nearly 50% profit as recently as last year, according to some reports, which pegged total revenue at $850 million and profit at $400 million, and it could show even better numbers when it files to go public.

We’ve covered the gist of Disney chief executive Bob Iger’s on-stage interview yesterday at D9, but here’s the video of it for those who want to dig in more. As the owner of Playdom, Iger is arguably the highest-ranking executive in social gaming.

At least aside from Zynga CEO Mark Pincus, who was also supposed to speak at the conference but withdrew last week, shortly after organizer Kara Swisher broke the story about the company planning an IPO soon. The withdrawal, along with various recent reports, makes a near-term Zynga IPO look more probable than ever.

Anyway, here’s the transcript of Iger’s main comments about Playdom and gaming, in which he reaffirms Disney’s interest in the business. Note that some other parts of the interview, including his mentions of the focus on new Playdom intellectual property, as well as Disney’s marketing efforts on Facebook, didn’t make it from the raw conference footage into this more polished video.

We still view gaming as a growth business for us. We’ve made some mistakes, which we’ve admitted: some on the creative front, some on the strategic front. We were putting too many eggs in the console games basket, for instance, and we’ve seen tremendous diversity in terms of game-play from casual games online to obviously social games.

What Zynga has done is extraordinary. We took a five-month break to retool because we felt our game wasn’t good enough — sort of a pun — our games were not good enough creatively, and we had some issues with the technological infrastructure at Playdom that we wanted to improve — and we’ve done that.

And we’ve since released a game called Gardens of Time, which is a top 10 game on facebook. One which, unfortunately, I’ve gotten addicted to. I think we’re on the right path, I’m a big believer in the space. I think it’s a great place for Disney to be and I’m optimistic about us being there.

All Things D limits the size of video embeds, so you can find a larger version of the video here.

Although Disney is still taking accounting charges for its $763.2 million acquisition of Playdom last year, the social game developer is doing well, Disney chief executive Bob Iger said today at the All Things D’s D9 conference in Rancho Palos Verdes, Calif.

“We took a five month break [from launching games]. We had technical infrastructure issues that we needed to fix, but now that’s improved,” he told D’s Kara Swisher during an on-stage interview.

Going forward, Playdom will be introducing new games with original intellectual property, he said, not just with existing Disney IP. He highlighted the recent success of Gardens of Time, an original-IP hidden object game that Playdom launched in early April.

In less than two months, it has reached 12.8 million monthly active users, according to our AppData tracking service. That makes it the 12th largest app on Facebook, and the fifth largest game. Going by daily active users, its 2.68 million people make it the 13th and seventh-largest app. Although it has seen a normal post-launch decline in in its DAU/MAU “sticky” ratio, the number is still hovering above a healthy 20%.

The developer has also been pushing out smaller titles, like Deep Realms, that might not pull in the masses, but could still monetize very well with smaller serious-gamer demographics.

Disney bought Playdom for a variety of reasons, as we explored in this investigative piece last year. It wanted to get in on another area of gaming, as it struggled with console titles. It wanted a new distribution channel for promoting its existing IP. It wanted the experienced executives and metrics-driven product teams.

The focus on original IP today is a bit of a change from previous explanations of the deal. But as long as Playdom continues to build new games, and grow and make money, it’s going to be an important asset for Disney as it transitions its businesses to the web.

Today, Playdom has 28.3 million MAU and 4.51 million DAU. It’s still not close to market leader Zynga, but it’s continued to be one of the largest social game developers on the platform.

Most developers on Facebook have many ups and downs, with an emphasis on the downs over the last 12 months or so as Facebook has cut back on viral channels. Zynga stands out not just for dwarfing the rest of the market, but because it has managed to keep traffic so high for so long.

A look back at the past few years of data provides a quick explanation of Zynga’s story, that will get the attention of investors trying to decide how to value it when it reportedly files to go public later this year.

The Data Timeline

At the end of 2008, Zynga was in a pretty good position. It had figured out how to monetize through virtual goods in its first hit, Texas Hold’Em Poker. It was in the process of launching Mafia Wars and a long line of other text-based role-playing games on Facebook, MySpace and other social networks. It was on its way to dominating that category through copying the competition, then using a careful combination of aggressive viral tactics, gradual but consistently improving game quality, back-end scaling expertise to handle the incoming traffic at the right times, and everything else that would eventually become the so-called “Zynga Playbook.”

It had 23.9 million monthly active users.

(Note that you can access the full data history for Zynga and its games, in our AppData Pro tracking service.)

Almost all of its growth since then came in 2009. It moved into the simulation category with the launch of FarmVille in June of that year, with the tailwind of Facebook’s spammily-designed Twitter style of news feed pushing the game far and wide across the social network. It also had capitalized on Facebook’s increasingly sophisticated advertising tool to cheaply and effectively reach users before most other developers (or other advertisers) were. Well-timed investments into all parts of the company, including fast hiring of experienced leaders in gaming, and in business and technical fields in other parts of Silicon Valley — a story that the company hasn’t talked about much yet.

Zynga had already managed to double MAU traffic when FarmVille launched in late June of that year, to around 44 million. From there to the end of 2009, it grew to by more than five times that size, to 239 million. On top of FarmVille, it rushed out other increasingly polished simulations including Café World, PetVille and FishVille. All three games took on and matched or beat established competing titles.

We began tracking daily active users around the time of FarmVille’s launch — the company in total had 6.16 million at that point. It ended the year at 63.7 million, an increase of more than ten times. Daily active user numbers over time more clearly signify revenue generation, because people who come back every day have more time and generally more desire to buy goods in a game. Zynga had been doing well before, but by this point it was well into the hundreds of millions of dollars in revenue, according to all reports and these numbers. Its “sticky factor,” the DAU over MAU and a good benchmark for the health of a game, has stayed solidly above 20% for most of the time that we’ve been following the company.

But that fall, Facebook reverted its home page to the algorithmically-driven structure it had previously had, in what proved to be the first of many reductions in viral channels over 2010. Users who don’t play social games, and don’t want to know that their gaming friends are doing on Facebook, may have breathed easier. But Zynga went into defensive mode, cutting back on the number of launches and trying to improve the games that had already grown.

Its 2010 launches, which started off with the failed Poker Blitz and going into the successful but not mind-blowing-traffic-wise simulations Treasure Isle and FrontierVille, helped make up for some traffic losses. But it continued to hang on to millions of users.

Before the launch of CityVille at the beginning of December, its MAU total had fallen to below 200 million and its DAU count was down to 43.4 million. The city-building simulation brought everything back up. Today, its monthly active user count — generally a better measure of marketing efforts, total possible reach, but not revenue — to 244 million. Its DAU is meaningfully staying in better shape, at nearly 52 million, and flat.

Looming over the rest of Zynga’s plans has been Facebook’s Credits virtual currency, which will possibly get more users paying but has also come with a 30% fee instead of the single-digit cuts Zynga has had to pay out to PayPal and other companies. After a bitter fight with Facebook over the last couple years, it said last year that it would do what Facebook required, and make Credits the single way to pay for virtual currency or goods in its Facebook games.

Zynga’s Stock: Obviously Valuable

Today, Zynga seems to be especially focused on mobile. Although virtual goods revenue hasn’t been making as much on any mobile platform compared to what Zynga has done on Facebook, it is an obvious growth opportunity. And although Zynga’s past efforts in Apple’s App Store and elsewhere have been on the experimental side to date, the company has been busy building a dedicated mobile team. It will be in charge of the mobile versions of big games (like CityVille), rather than the main social studio handling as they have in the past.

So for those investors thinking about buying Facebook, it’s not clear how big of a growth opportunity Facebook will be for Zynga in the future. But the company has shown that it can hang on to users and successfully launch new games in hard times or easy ones. And do so with a serious profit. Revenue grew last year, with the help of its ongoing attention to the guts of payments operations, to $850 million, almost half of which was profit, according to The Wall Street Journal — although AllThingsD says that “the filing will reveal much more robust numbers.” Given Zynga’s strong 2009 growth, we’re also interested to see how much cash the company has stored up.

In sum, Zynga may have maxed out its original market opportunity on Facebook (or maybe not), but now it’s big and just as aggressive. It can hold what it has and expand in any direction it wants, whether that means launching a new site for all of its games, or launching all of its games on other platforms.

Kabam has made a big new bet on its hardcore social gamer thesis, today announcing an $85 million fourth round of funding co-led by Google Ventures and Pinnacle Ventures, with Performance Equity and SK Telecom Ventures as well as existing investors also participating.

We’d reported the gist of this story in early April, although Kabam didn’t comment at the time.

The company has transitioned over the years from making lightweight apps for sports and television shows to building hardcore games. Although it’s not at the top of the charts in terms of traffic, the developer is widely believed to be making a healthy profit from serious gamers who want the social interaction and the relatively access that Kabam offers through the Facebook platform.

As of today, it has a stable 954,000 daily active users and 7.17 million monthly active users, according to our stats tracking service, AppData.

Previous investors include Canaan Partners, Redpoint Ventures and Intel Capital. The company has already raised nearly $40 million in venture funding.

Following reports in February that Zynga was raising a new round of funding of up to $500 million at a $10 billion valuation, a new filing has emerged showing what appears to be a sale of $490 million in Series C Preferred shares, that had been slated to take place in early March.

The filing, discovered by financial analysis firm VC Experts, could indicate a post-money valuation of $9.1 billion, so within the range of the reports — that’s assuming the full amount of new funding is in, and that all of the authorized shares have been issued.

All Things D, which reported that Zynga was raising up to $500 million in February, named institutional investors including Morgan Stanley, T. Rowe Price, Fidelity Investments, as well as venture firm Kleiner Perkins as participants. The New York Times reported in April that T. Rowe Price is now holding $71.8 million worth of Zynga stock.

One caveat: Zynga’s legal paperwork has taken a tortuous path over the last several years, and it’s not entirely clear what this document is showing. As of today, the company’s stock table includes: Series A Common, Series A Preferred, Series A-1 Preferred, Series B Common, Series B Preferred, Series B-1 Preferred, Series B-2 Preferred, Series C Preferred, and Series Z (which is oddly priced at a penny per share), according to filings.

Zynga’s filings have also come at odd times, oftentimes not corresponding to the dates and amounts of publicly announced fundings. To add to the complexity, there’s been other buying and selling of Zynga stock that has not been officially confirmed. Early investor Union Square Ventures has sold at least a large portion of its stake in the company, according to an industry source, while Google has also reportedly bought a large amount of Zynga stock (which the companies have never confirmed).

We’ve asked Zynga for comment and we’ll update with any further information.

Zynga April 2011

New Company Shadow Government Aims to Model the Real World for Social Gaming — In what promises to bring together real-world data and gaming features, the startup is hoping to help predict actual events. It has $1 million in backing from angel investors, and a partnership with The Millenium Institute, which sells government-modeling software. “Now, for the first time, anyone with an iPhone or Android can ‘play’ at what it’s like to simulate running a real country,” chief executive Margaret Wallace said in a press release. “Let’s see if, using the model provided by The Millennium Institute, this Shadow Government can do a better job of managing actual events and world crises compared to our real-world counterparts.”

Playfish CoFounder Now EIR at Index Ventures — Sami Lababibi wasn’t the best known of Playfish’s four cofounders, but he was its technical leader, overseeing the company’s rapid growth on Facebook, and the first phases of its integration into acquirer EA. Having left last month, he’s now an entrepreneur-in-residence at Playfish backer Index Ventures.

Capcom Opens Subsidiary in Japan to Develop New Mobile Content — The established developer intends for the new organization to create original intellectual property game, and focus on developing its mobile social gaming market outside of the US, witha a special focus on Japan and Asia. More details from the company here.

Zynga Closing Mafia Wars on MySpace — Other developers have shut down some games on the struggling social network, as we’ve been covering. Now Zynga, which so far has only closed one game, is ending formative hit Mafia Wars (the Facebook version is meanwhile still going pretty strong despite a gradual long-term decline).

Hi5 Recategorized as Gaming Site by comScore — It is now the sixth largest such property in the world, with 21.7 million unique visitors — a far smaller user base than when it was a social network, but still something to work with as it continues its positioning as a social gaming platform.

FooPets Maker Raises Second Round — Rivet Games, formerly known as FooMojo has added a $5 million second round to its initial funding of nearly $10 million, as it plans more social and mobile games. The money is from existing investors Softbank, Baseline Ventures and Floodgate.

It has been an intense week for freemium game developers on Apple’s iOS platform — and the drama has yet to be resolved, as we’ve been covering over on Inside Mobile Apps. By last Sunday, a number of service providers for iOS developers were reporting odd changes in Apple’s top apps rankings in its iTunes App Store.

Some apps rose to the top after months of lower rankings for no apparent reason, while others were buried. Facebook, for example, suddenly became the most popular top free application on iOS despite not having made any recent changes and not having been #1 since at least July 2009 — which suggested that daily and monthly usage could be newly important factors. At the same time, some games lost their ranking spots. But as of Tuesday, the rankings changed back to favoring new games that apparently had high downloads rates. It’s not clear what factors Apple is considering now in the rankings.

Meanwhile, developers began receiving rejection notices starting late last week from Apple for new submissions that contain offer walls where users can get rewards for downloading other developers’ games. The rejection notices argue that offer walls have an “excessive influence” on the chart ranking.

Apple has been mum and many service providers have also gone quiet as they try to come to up with solutions. We’ll be covering these changes as we learn more, over on Inside Mobile Apps.

In the meantime, we’ve been leading coverage of the issues over the past week. In case you’ve missed it, be sure to check out the following articles, in chronological order:

• Apple May Have Tweaked App Store Ranking Algorithm, Making Downloads Matter Less
• Facebook’s iPhone App Vaults to #1 on Suspected Ranking Algorithm Changes
• Apple Appears to be Cracking Down on Incentivized Installs
• Odd Rankings Fluctuations Continue in Apple App Store
• Mobile Game Developers Grapple With Apple Crackdown on Incentivized Installs
• Pocket Gems’ Tap Pet Hotel Scales to #2 on iOS Free & Grossing Charts, Offer Wall Conspicuously Absent

Having begun life as a photo-sharing app on MySpace in the middle of last decade, RockYou rose to become one of the largest app developers on Facebook in the early years of the platform, before being overtaken by Zynga and other social game developers.

Meanwhile, the company has widened the scope of its business, launching an advertising network and a subsidiary in Asia.

Following this range of efforts and mixed results, the company is now refocusing all parts of its business around social games.

Lisa Marino is leading the transition. A revenue development executive who joined the company in 2008, she has moved up over the years, serving as RockYou’s chief revenue officer where she managed its media business, before taking the chief operating officer role last year. Yesterday she was named the company’s new chief executive. It’s now her job to make all the pieces fit together, a challenge we explore in the interview below.

Inside Social Games: You’ve been with RockYou since 2008, and you’ve been heading up operations since last August. Walk me through the transition process that brought you to today.

Lisa Marino: I became COO in August. At that time, our games and ad businesses both reported to me. We had a lot of work to get done in terms of bringing in new talent that would allow us to build games effectively.

First, We brought in Jonathan Knight [from EA] in October, and he’s been the lynchpin of rebuilding our games. Lance [Tokuda] chose to step down in late September.

Shortly after Lance stepped down, we made a lot of tough decisions to get the business on track and focused on social games. Then, we cut cash burn by 60% at the end of last year, which put us in a situation from a cash perspective where we had 2 to 2.5 year run-rate. After that, we went after some big problems that had been low-hanging fruit. For instance, JK cancelled the games pipeline, because they weren’t going to be successful, and instead started a new games pipeline from scratch. Last, we also completed two acquisitions in Q4 — Tirnua and Playdemic — which brought us terrific gaming talent as well as a live game.

Additionally, we continued hiring more creative gaming leaders with much more traditional gaming DNA. JK and his team have been able to attract a pretty experienced group — Steve Cartwright, a 30 year gaming veteran, and John Yoo from Zynga were early key hires.

Then in Q1 we started rebuilding the executive team, which has been in place for the last 5-6 weeks. We brought on Julie Shumaker, our GM of Media, who has been in media gaming for a very long time and Katrina Osio, SVP of Marketing, another gaming and media vet.

Our tough decisions taken recently have yielded quick results. We ended up beating revenue Q4 2010 revenue projections by 40%, and at this point the gaming investments we made are near launch — including Zoo World 2 coming out in May.

ISG: That’s a whole new game, right? Not just an expansion?

LM: Definitely a new game — new art, simplified mechanics and a revamped economy. There are some screenshots and forums and fan pages. We’re super excited. The focus groups have been pretty positive so far. [The official Page is here.]

ISG: And you have a Loot Drop game coming?

LM: Yes, we have [John] Romero’s game. We’ve worked really hard to build a quality games pipeline and partnering with proven game makers was part of a strategy where we evaluate content more broadly.

Besides Zoo and Loot Drop, we are more generally a two-studio company now — the Playdemic team in the UK and our headquarters here in Redwood City.

ISG: You’ve repositioned to social gaming, but you’re keeping your ad business. Can you tell me more about how the pieces of the company fit together at this point?

LM: We’re the only company that can combine the ability to make gaming content as well with the very powerful incremental monetization that our media business brings.

Our media business is still incredibly large: 300M impressions a day on our ad network, 170M uniques a month — it’s a great engine for user acquisition. We also do brand sales, including ad integrations into games.

We’re able to increase ARPU 25% to 30% every single month because of our brand sales initiatives — when we’re buying users on Facebook, that makes a lot of difference for life time value. [Ed. You can check out RockYou traffic data on AppData, our tracking service for top apps and developers on Facebook.]

As a social gaming company, that doesn’t mean we just make games. We focus on games, how they’re built, distributed, and monetized.

ISG: Can you explain more what you’re providing to other developers now?

LM: We’re still selling installs for other developers. The inventory of ad network is almost all Facebook — it’s app inventory, games, quiz apps, video apps, poking apps.

The core of our business is not necessarily to take the app ad network and grow it to compete with Lifestreet. It’s really about leveraging the asset for distribution, as well as monetization within those apps.

We’re building out our brand team to really boost up monetization within games. Ad content for us doesn’t necessarily mean we’re just selling for games that we build at RockYou. It may mean that we sell brand ads for other developers’ games.

ISG: Are you moving more into publishing as well?

LM: The Romero deal is a very classic old-school gaming publishing deal. We own the IP when the game launches.

We’re having lots of conversations about publishing other peoples’ games — it’s something we’re starting to look at more seriously.

ISG: Can you tell me more about how your brand ad sales work?

LM: When we think about brand side, we don’t run a lot on our ad network. It’s more more ad units within a handful of partner games; our deal of the day unit is terrific and as of 15 months ago WAS industry leading for in-game innovation.

We do a lot of other types of brand ads — page takeovers, branded virtual items, or other custom branded experiences.

When you think of the value brands add in a game, one must remember that 1% to 2% of users actually pay, but everyone wants to level up.

ISG: As a social game developer, you’re competing with Zynga and everyone else. But who do you see as your competitors in the publishing and cross-promotion parts of the ecosystem — would you consider 6 Waves a competitor, for example?

LM: We think of publishing in a very different way from 6 Waves. We only want to be supporting 4 to 7 titles at a time as a company. This includes our owned and operated games. Think of us publishing a game as one of our main shots on goal for the quarter — we’d just take on 1-2 per quarter. It’d be targeted, opportunistic and because we love the game and fits in to portfolio.

For the brand ad network, it’s separate from our publishing operations. But just as we’d be incredibly targeted and focused on a game we might publish, we’d also be that way about who we sell brand ads for.

ISG: You also have RockYou Asia, and co-founder Jia Shen is heading it up — how is that organization fitting in with everything else you’re doing?

LM: RockYou Asia is majority owned subsidiary. We launched it a couple years ago. We’re excited about what Jia is working on. RockYou Asia is focused on mobile, particularly in Japan but Asia more broadly as well. Jia and his team are a main part of RY family. He and I connect regularly as to what’s going on, although they’re independent. We have supported it with funding, coordinating around image, marketing, and brand presence.

There’s a fair amount of cross-pollination, but we’re much more Facebook focused, while they’re much more mobile.

We’re looking forward to next the few months, as he gets more launches under his belt, and as he and the rest of us learn more about what works in Asia.

ISG: How are you looking at mobile within the main RockYou business?

LM: We don’t think social gaming is defined just as Facebook any longer. For anyone, mobile needs to be part of the business. I think that within 12 to 18 months, there’ll be one or two more venues — platforms that we can be on as well.

During Q2 we will flesh out our mobile strategy, but honestly, my number one goal is to continue growing and expanding our Facebook presence. We’ve done a lot in last 60 days in terms of rising through rankings. On the MAU side, before we were 14 or 18. We’re number seven in MAU and are about 4 million away from the number four spot on game launches.

ISG: Circling back to your RockYou’s nearer term social gaming plans, what are you seeing in the industry now.

LM: Production quality on Facebook games is going to keep going up in the next 12 to 18 months. There are new demographics, more hardcore gamers coming on. We’re still bullish on the platform.

In terms of current games, although costs have gone up for CPI over the last few months, we’re buying profitably on Gourmet Ranch.

We’re also moving on to Facebook Credits. For us, Credits have been neutral or a net positive on Gourmet. The demand that Facebook has talked about for awhile is starting to play itself out. At the end of the day, you have to have good games in order to positively arbitrage. Otherwise you won’t make it.

You need to have a mix of cash, cross-selling, and a good game.

In the latest indicator of Zynga’s maturation as a technology company, it is hiring veteran information tech executive Debra Chrapaty to be its new chief information officer.

Chrapaty has an extensive background at big tech companies, including a three-year stint as president of E*Trade in the late 90s, seven years as a corporate vice president at Microsoft, and mostly recently a year and a half as the senior vice president of collaborative software at Cisco.

While Zynga has been hiring veteran technologists since its early days, and has been especially successful in building out its own infrastructure to supports its many large games, the CIO position is to our knowledge new. And we don’t have much more information about what Chrapaty is doing (although we’re asking Zynga to share more, and we’ll update if we hear back). A press release sent to us by the company says that she’ll report to chief technology officer Cadir Lee, and it includes her official statement about the job:

Through its focus on leading technology, Zynga is redefining how we look at play. My job will be to make it easier for our employees to design and build for play. I am looking forward to tackling Zynga’s unique technology challenges and helping develop infrastructure systems to ensure that we have the most scalable, secure, and reliable systems in place.

Zynga has been busy showing off its ability to attract top talent this week. On Monday, it announced that DreamWorks chief executive Jeffrey Katzenberg is joining the company’s board of directors.

[Image via All Things D.]