To understand why Zynga Inc. is among the tech industry's hottest companies, consider how it gets people to buy a bunch of things that don't exist.

Last year, Zynga product managers for a videogame called 'FishVille' discovered something intriguing while sifting data that Zynga collects when people play its online games. Players bought a translucent anglerfish at six times the rate of other sea creatures, using an imaginarycurrency people get by playing the game.

The 'FishVille' managers had artists whip up a set of similar imaginary sea creatures with translucent fins and other distinctive features, says Roger Dickey, a former Zynga general manager who left the San Francisco company recently. This time, they charged real money for the virtual fish, and players snapped them up at $3 to $4 each, says Mr. Dickey.

Zynga is transforming the game industry. Traditional videogame companies create games they think players will like, then sell them. Zynga offers free games through Facebook Inc.'s social network, then studies data on how its audience plays them. It uses its findings to fiddle with the games to get people to play longer, tell more Facebook friends about them and buy more 'virtual goods.' At the heart of the whole process is Zynga's ability to analyze reams of data on how players are reacting to its games.

'We're an analytics company masquerading as a games company,' said Ken Rudin, a Zynga vice president in charge of its data-analysis team, in one of a series of interviews with Zynga executives prior to the company's July filing for an initial public offering.

Over 95% of Zynga's players never spend a nickel on its games. But its audience of 150 million uniquemonthly users is so large that the small percentage that buy $5 imaginary chickens in 'FarmVille' and $3 imaginary skyscrapers in 'CityVille' generate big bucks for the company. Some players spend hundreds or even thousands of dollars a month -- they're called 'whales' inside Zynga, the same term casinos use for high rollers.

Zynga's revenues rose to nearly $600 million last year from $121 million in 2009, according to the company's Securities and Exchange Commission filings for an IPO. While many tech upstarts are money pits, Zynga made a $91 million profit last year.

Recent stock-market turbulence has created uncertainty about IPOs and could force Zynga to delay and lower the valuation of its offering. When it filed for its IPO, the company was planning to seek a market value of as much as $20 billion, say people familiar with the matter. That would be nearly the combined value of veteran game publishers Activision Blizzard Inc. and Electronic Arts Inc.

Sales of traditional games are flat in the $10-billion-a-year videogame industry. And Zynga's success is attracting a wave of companies that develop free games supported by the sale of virtual goods. Walt Disney Co. and Electronic Arts both acquired Zynga rivals for hundreds of millions of dollars each. Electronic Arts launched a free Facebook version of 'The Sims,' a top-selling traditional game, a few weeks ago. The game already has nearly eight million active daily players.

No one expects traditional games to disappear. But momentum is shifting. Total virtual goods sales in the U.S. are expected to jump 50% to $2.22 billion this year, while retail sales of games are likely to rise only 1% to $9.7 billion, estimates brokerage firm ThinkEquity.

Whether Zynga's virtual creations will continue to be hits with fickle American consumers isn't clear. The retailing landscape is littered with products like the Beanie Babies dolls and Tamagotchi virtual pets that saw sales soar and then wither. Zynga has one big advantage: Because its creatures exist only on a computer, it's much easier for Zynga to keep coming up with new ones.

Facebook provides the social substrate that gives Zynga games much of their appeal: Players use friend connections on it to find other players. To complete the construction of a City Hall in 'CityVille,' people must send messages recruiting Facebook friends to staff administrative jobs in the building.

Zynga's dependence on Facebook for nearly all of its revenue is also a potential liability. Last year, the social networkcracked down on the ways in which companies like Zynga could send messages to Facebook members, many of whom had come to despise the come-ons to play various games as forms of spam. By the time of that change, Zynga had a large audience of players to whom it could promote future games in ways still permitted by Facebook.

'Zynga is a close partner and a great example of a developer that has built games that millions of people play with their friends every day on Facebook,' a Facebook spokesman said. By building its business on Facebook, Zynga has access to a deeper well of data about its users' online activities than ordinary websites do. When people install a game from Zynga or another Facebook developer, they give the companies permission to record their names, genders and lists of Facebook friends, among other information. Zynga can then use that information to figure out tactics to get people to invite friends to play its games, something a company with mostlyanonymousplayers can't do.

Zynga co-founder and Chief Executive Mark Pincus, 45 years old, has used the measurability of Facebook activity to shape games in a way that hasn't been possible in the past. He calls data the 'operating system' of Zynga.

Game industry executives salivate over Zynga's growth rates. But they sneer at the quality of Zynga's games, which they criticize for having crude graphics, lackingoriginality and requiring little skill beyond clicking a mouse button to feed chicks in 'FrontierVille' and to harvest corn in 'FarmVille.' Zynga has been the target of lawsuits by rivals alleging the company copied their games, and Zynga has initiated similar lawsuits itself.

Many say Zynga's focus on data analytics lacks the artistry of good game-making. 'Analytics would have taken Bambi's mom dying out of the movie,' says John Vechey, a cofounder of PopCap Games, a Seattle games company recently acquired by Electronic Arts.

Zynga executives respond that they design games to attract a broad audience, not just hard-core gamers that form the backbone of the traditional games business. In most of Zynga's games, players don't 'win' by blasting away an opponent with a gun. Instead, they seek status and fulfillment by having the most abundant farms or well-developed cities.

'We're making mass-market entertainmenteveryone can play,' says Brian Reynolds, Zynga's chief game designer and a veteran of traditional games companies.

All of Zynga's games go through what amounts to a giant ongoing lab experiment involving players. Zynga conducts hundreds of 'A-B tests' within its games, in which two sets of players see virtual goods on sale with, say, subtle color differences to see which color sells better.

A former Zynga employee who worked on 'Mafia Wars' -- a game in which players work their way up to mob kingpins from low-level thugs by committing various crimes -- says Zynga experimented heavily with different types of merchandise, including weapons and pets, that it thought would appeal to players.

When Zynga added gold borders to weapons, sales shot up, this person says. The 'Mafia Wars' team changed the color of tiger pets to white, and the same thing happened.

Sizhao Yang, a former Zynga executive who helped create its virtual farming hit 'FarmVille,' says his development team figured out by analyzing virtual-goods-sales data that 'people buy animals a lot more than tractors and other inanimate objects.' The findings led the 'FarmVille' team to more prominently feature animals in its online store, he says.

Another way to juice sales, the 'FarmVille' managers discovered, is by offering limited-edition merchandise, especially items connected to holidays: stars-and-stripes tractors for Independence Day, for instance, and heart-covered cows for Valentine's Day.

Kim Kennedy of Tulsa, Okla., is one of the many 'FarmVille' players who can't resist buying such items to decorate her farm. The 52-year-old estimates she spends close to $40 a month buying Clydesdales, mustangs and other horses, paying about $5 to $6 each for the steeds. Ms. Kennedy says she has bought special-occasion horses for Christmas, Mardi Gras and Valentine's Day.

'FarmVille' players can also buy horses in the game without spending real money by using a form of currency acquired by 'grinding' -- a term used at Zynga and elsewhere for performing repetitive game actions, like harvesting crops and tilling fields. Ms. Kennedy won't touch those 'FarmVille' horses though. 'They're the cruddy ones no one wants, not the spectacular, awesome ones with fairy wings and gypsy stallions with big manes,' she says.

Zynga was founded in 2007 by Mr. Pincus, occupying a former potato-chip factory he owned in an industrialneighborhood in San Francisco. Mr. Pincus was a serial Silicon Valley entrepreneur who had a mix of hits and disappointments in his career. His company at the time -- a social network called Tribe Networks -- was among the bombs.

Mr. Pincus says he 'built the wrong products' at Tribe, in part because he used too much guesswork in trying to figure out how to improve the site. 'I wanted to have a different approach to product development,' he says.

He found that different approach after starting Zynga. The company launched its first title, a poker game, on Facebook in 2007, along with versions for other social networks like MySpace. While there were other poker games on Facebook at the time, Zynga was the first to let people play with friends.

Stealing from the playbooks of Asian online game companies like Korea's Nexon Corp., Mr. Pincus sought to make money by letting players purchase virtual goods within the poker game, including chips or a round of drinks for others at their card tables

Zynga didn't make data analysis a priority, though, until Mr. Pincus hired Cadir Lee in late 2008. Mr. Lee convinced Mr. Pincus to give him six months to build a system for collecting data from players, analyzing it and using those insights to quickly shape Zynga games.

Last year, Zynga's Mr. Reynolds discovered a neat way to boost the visibility of a game while he was examining player data from 'FrontierVille,' the company's virtual homesteading game. He and colleagues noticed players were sending one message to their Facebook friends at far higher rates than others: a canned message commemorating their success in corralling a sheep.

Those friends then clicked or commented on the message far more frequently than normal. The reason: the message's artwork showed a cartoon girl pushing a sheep with bulging eyes, beads of sweat sprouting from the girl's head. Facebook users went wild over the image. 'Someone would post, 'What is that girl doing to that sheep?'' says Mr. Reynolds. 'All of a sudden there would be four comments on it.'

In response to its findings, Zynga created a series of new illustrations referencing various barnyard jokes that got similar responses from Facebook members. That attracted more people to download and play 'FrontierVille,' propelling the game to become one of the most popular games on Facebook.

The growing emphasis on data hasn't sat well with some inside the company. A group of nearly a dozen designers with traditional game backgrounds left Zynga in 2009 after clashing with data-analytics advocates within the company about how to make games, according to Messrs. Dickey and Yang, both former employees.

'There was huge tension,' says Mr. Yang. 'Basically the game designers were constantlysaying, 'This isn't the right user experience.' The analytics people from a traditional Web background would say, 'This is the data.''

Zynga executives last year decided that the pendulum had swung too far inside the company towards analytics and that it needed to bring in people with stronger game-industry credentials, according to several current and former employees of the company. The company hired heavily from Electronic Arts, including Steve Chiang, who oversaw many of its sports titles such as its Madden NFL franchise. Still, Zynga considers data to be its secret weapon.

'We are totally disrupting the traditional videogames industry,' says the company's Mr. Rudin. 'A huge portion of that disruption is the ability to use data.'

Nick Wingfield