Bootstrapped CrowdStar Chasing Funding-Flushed Zynga and Rovio

The U.S. social gaming market is expected to grow at 28% in the current year to $1.1 billion and another 21% in 2012 to reach $1.32 billion. Zynga leads the segment with more than 360 million users accessing its gaming properties. But smaller players such as CrowdStar are giving it worthwhile competition.

CrowdStar’s Financials
CrowdStar was founded in 2008 by Suren Markosian and Jeff Tseng to develop games for Facebook. CrowdStar recently shot to fame with gaming titles such as Happy Aquarium, Happy Pets, Mighty Pirates, and the It Girl. CrowdStar boasts of more than 70 million monthly active users across its properties.

CrowdStar earns revenues from the sale of virtual goods. While games are free, users can buy add-ons such as food for pets, decorations, and other customization aspects using virtual currency. For every virtual dollar spent on its products through Facebook, CrowdStar shares 30% with Facebook. The U.S. virtual goods is a big market expected to grow 40% over the year from $1.6 billion to $2.1 billion in the current year. Significantly, CrowdStar has stayed away from advertising revenues. The absence of ads generally makes for a better user experience, and CrowdStar claims to counterbalance the loss in revenues by staying lean.

CrowdStar’s financial figures are well hidden, but the company aims to be one of the “leanest and most profitable” social gaming players in the market. Happy Aquarium alone is estimated to have earned up to $1 million in profits a month last year. The company has been growing through internal funding and a $100,000 funding from incubator, YouWeb. Last year, there were market rumors that Microsoft was looking at acquiring CrowdStar for $200 million.

CrowdStar’s Expansion Plans
CrowdStar is expanding not just in social games but in the mobile space internationally to compete with players such as Rovio, featured on Technology Stocks yesterday. CrowdStar has successfully launched mobile versions of the Happy Aquarium and the iPhone and iPad version of It Girl. The apps are free to download and rely on virtual currency for revenues. The company is developing other games that will be customized to take into account the user’s location using a phone’s geolocation features.

CrowdStar is also focusing on expanding in other regions. According to the company’s CEO, Peter Relan, in the U.S., social games generate $3 to $5 per user per year. However, in Japan, that number is close to $25 per user. Reports peg the Japanese social gaming market at $900 million in 2010 and estimate that it will grow to $1.4 billion in 2011. To serve the Japanese market, CrowdStar tied up with Yahoo! Mobweb to launch its mobile game versions in that country.

According to the latest App Data report released yesterday, Zynga, valued at $10 billion, reigns the social gaming market with over 269 million monthly active users across its 55 apps, most of which are gaming properties. The gaming publisher, Electronic Arts, with a market capitalization of $6.3 billion, is a distant third with 36.4 million monthly active users across its 39 gaming apps. CrowdStar is ranked fourth with its 32.3 million monthly active users across 20 gaming properties. That is a significant achievement for a company that has funded its operations by itself.