Social gaming has changed the way we entertain ourselves, pay for that entertainment and socialize around it.  Zynga’s been a clear winner in the social gaming arena, but is their monetization a sustainable effort?  Not really, says Morning Star.  According to their recent report,  Zynga’s source of revenue is likely to also become its breaking point.

The social gaming titan has two sources of income: ads and virtual goods. However, with a free-to-play business model, less than 2 percent of the players actually represents 90 percent of the company’s revenue. In order to reduce risk, Zynga needs to introduce new games to high spenders. Only 2.9 million gamers paid for virtual goods in Q4 2011, which is only 1.6 percent of Zynga’s total unique players.

Moreover, while cross-promotion is working pretty well for Zynga right now, it may not be sustainable in the long run either. They have marketed a great deal of new games already, and “there’s a limit to how this marketing activity can scale,” says Morning Star. It won’t be an easy feat to reprise the viral marketing success that Zynga achieved on Facebook in the mobile scene.

Nevertheless, Zynga still stands as the largest social media gaming company on the largest social networking site in the world, with 5 times as many daily users than the its closest competitor. Social games are also an effective and deliver a cheaper marketing channel to drive adoption of new game titles, which is essential in keeping Zynga’s income flowing.

“The company estimates that the average gameplay is eight to 25 months, highlighting the need for the company to continue creating new games that are interesting to customers. Without a constant flow of stimulating games and stifled marketing efforts, it will be harder to justify more capital investments.”

Despite Zynga’s potential obstacles in staying fresh for mobile, social gaming’s monetization models are on the rise.  Spil Games’ 2011 State of Gaming Review released last month revealed that those who play free-to-play games actually end up spending $60 a month on micro-transaction to enhance gaming experience, with US players as the most active in online gaming.