Zynga Inc., the largest developer of games on Facebook, will offer a version of "CityVille" in China, the world's biggest Internet market.

The free online game, named "Zynga City", will be offered through an alliance with Chinese internet service provider Tencent Holdings Ltd. The game will be launched in open beta on Tencent's Pengyou network in the next few days. The game will be later accessible on QZone, China's main social games platform. Tencent had about 101 million users for its Pengyou site as of May.

CityVille, a casual social city-building simulation derived from Sim City and Farm Town, is one of Zynga's most popular games on Facebook. In the game, players build dream cities complete with businesses, homes and landmarks and then invite friends to take up virtual residence. While playing the game is free, Zynga derives revenue from ads and virtual goods and other premium content purchased by players. CityVille is the most popular game on Facebook, with 80.1 million monthly average users, according to AppData.com

Zynga City will be offered in the Chinese language and feature elements inspired by Chinese traditional and pop culture, San Francisco, California-based Zynga said in a statement. Chinese Zynga City players will enjoy items, quests and other content that is heavily influenced by Chinese culture.

"Zynga is committed to building a truly local offering in China and the announcement today is a continuation of the company's overall international initiative of creating high-quality games that can be enjoyed across all cultures and languages," said the game developer, which is hoping to raise at least $1 billion in an initial public offering.

Facebook and other social networks are banned in China. The Chinese government controls internet use in China and has blocked sites that allows users to freely publish critical or negative social or political opinion online. But China is a lucrative market, already with more than 300 million internet users by the end of 2010.

Zynga's tie-up with Tencent is Zynga's first push into China and Zynga's plans to go beyond Facebook for revenues. Tencent is China's largest Internet service portal and biggest provider of online games. Tencent's online games include hits such as "Dungeon & Fighter" and "Three Kingdoms."

According to AppData, Zynga's games -- which also include FarmVille and Zynga Poker -- are played by more than 60 million average daily active users (DAUs) on Facebook worldwide. It has more daily active users than the next 30 social game developers combined.
Zynga said in its IPO filing on July 1 that revenue was $597.5 million in 2010, a fivefold increase from 2009. It recorded net income of $90.6 million in 2010, after a loss of $52.8 million the year before.

However, prior to the Tencent deal, Zynga has chiefly obtained its revenues from games on Facebook, which is currently the number one social network, with more than 800 million users. But Zynga needs to build on other platforms to minimize risks.

Zynga cited its reliance on Facebook as a risk factor for its business in the IPO filing, noting that substantially all of its first-quarter sales generated on Facebook. "If Facebook loses its market position or otherwise falls out of favor with Internet users, we would need to identify alternative channels for marketing, promoting and distributing our games, which would consume substantial resources and may not be effective," Zynga said.

According to Bloomberg News, Mirae Asset Securities Co. forecasts the social mobile-game market in China will more than quadruple to 27 billion yuan ($4.2 billion) by 2015.

"Tencent's strategy is to offer platforms with a wide variety of games and other services," said Jim Tang, an analyst at Shenyin & Wanguo Securities Co. in Shanghai, according to Bloomberg News. "They have a huge client base. If you cooperate with them, Tencent can guarantee a very large user base."

Due to its entry into the lucrative Chinese market, Zynga will likely get the billions that it had aimed for. But its whale hunting in China could end if and when China's strong Internet police find out that players in the poker tables or neighbors in the virtual cities start to talk about critical issues.

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