Businesses that sell anything online can learn a thing or two from Zynga, the fast-growing social-gaming company that has managed to create real markets for virtual goods. The San Francisco startup is best known for FarmVille, FrontierVille, and Mafia Wars–casual games that don’t require too much effort but encourage players to build up elaborate in-game identities over time. The company has raised about $300 million in investments from Google and Softbank, and some analysts expect revenue for 2010 to reach $500 million, mostly from players who pay for graphical products such as pink tractors or fighter helicopters. Technology Review recently spoke with CEO Mark Pincus about how Zynga does it.

TR: You weren’t the first company to offer games via social networks. Many of the early social games fizzled out, especially as companies like Facebook adjusted the way their platforms worked. Zynga, on the other hand, reports more than 100 million users. What has given Zynga’s games staying power?

MP: I think we were much more focused on social gaming from the beginning, and not social advertising or reach. We were really fundamentally interested in how to create game mechanics that can entertain people but give them new ways to connect and have more meaningful relationships with people that they’re already trying to network with in one way or another on Facebook.

TR: What kinds of game mechanics did you find that really engaged people?

MP: We think that there are three pillars of a great social game. One is it allows you to play with your friends. Two is self-expression: we want to give you ways to say something about yourself to your friends by the choices you make, whether decorating or strategy. The third is we want to give you the sense that you’re builiding equity in the game over time, like the way you’re invested in a good book.

TR: Some of that investment is financial, right? Zynga makes money by selling “virtual goods,” which are items within a game that can be used to decorate or speed up a process. What makes people spend money on these items?

MP: What happens is you start spending time playing a game, and if we do it well, you find that you care about it for any host of reasons. At some point, you may see that by spending some money you can save yourself a bunch of time. At some point, you may see that by spending some money you can get something that has status or changes your friends’ view of you. You get to stand out from the crowd, differentiate yourself in some way. We first did that with poker, where we saw that the way the game is designed, you can play for a month and grind your way up to getting to a couple hundred thousand poker chips and then play with better players who have all got the higher-level tables. Or you can just pay money. Twenty dollars and you get to the higher-level table right away. So it seems like once people get engaged in a game, if they’re spending a lot of time on it, then it’s highly likely that some percent of them will be willing to spend money.

TR: How do you keep people interested over time? The premise in a lot of these games seems very simple.

MP: As we found games that people connected with, we invested more and more in them. We wanted to bring out new user-facing features every week. I think we turned our games into something more like episodic TV, where you know every week there’s going to be a new twist or turn. I spent time talking to people like J.J. Abrams, who was one of the creators of Lost, because I thought there were so many similarities between the way he structured Lost, and its plot and character evolution, and the way that we try to structure games. In both cases, we’re creating short and long arcs of aspiration. A long arc of aspiration in FrontierVille might be finding your spouse or unlocking the Gold Rush territory, and a short arc that you need to do to achieve the long arc is something like building a cabin that then requires other short arcs like cutting down trees.

TR: People are dedicated to following their favorite TV shows. How do you turn someone into a dedicated social gamer?

MP: I think more and more about “How does social gaming deliver on this fundamental promise of giving people a five-minute break from their day?” What I think about is how we get the session times down. I feel like we need to deliver what I call a better social return on investment. I don’t like it when I find out that people are averaging long session times in any of our games. All of the newer games that we bring out are trying to reduce those session times. One of the biggest reasons people don’t play games is they say that they don’t have the time. I want to address that by making the game so that you can play a session in five to 10 minutes. I want to address people saying it’s a waste of time by giving you something back for that time besides just the entertainment.

TR: And what is that other element?

MP: I think it opens up a new dimension, not just for play, but for you to be social. So what I mean by that is I think we need more light ways to touch each other. There’s something like over 200 million gifts a day sent back and forth between players. Social gaming in a way could be more fun than instant messaging. I know they sound like oddly different activities, but people spend time hanging out on a social network because they want to connect with each other. But it takes a lot of presence and engagement to say things that are either interesting or funny. Games can give you this easier way to just make that connection without having to be a brilliant conversationalist.

TR: You’ve recently been making moves to spread Zynga’s games to more networks and more devices. Are you trying to escape being dependent on one particular network, such as Facebook?

MP: It’s less about independence and more about wanting to bring social games to the people or let people access social games. On the Web, anything that’s driven a lot of engagement and revenue ultimately has to be offered on every portal and every service. If social gaming continues to be popular, you should start to see it pop up in a lot more places.