Could Zynga and Facebook be parting ways?
Three years ago it seemed a match made in heaven. Facebook had tens of millions of users and Zynga had the games like Facebook Texas Holdem Poker and Mafia Wars to keep them coming back and continually draw in new users. Fast forward to today and the symbiotic relationship between the two internet pioneers is a drastically changed one.
A few months back Facebook announced that they were rolling out their own Facebook credits system, which would allow players in games to to purchase virtual items with a single universal currency rather than dealing with the payment gateways of each individual game. Regardless of whether a player wanted to buy facebook poker chips or yoville coins, they could simply use the facebook credits in their account to do both, eliminating redundant fees to payment processors like Paypal.
So how could reducing transaction fees and creating a universal virtual currency be bad for Zynga? Well, for their efforts Facebook is asking a hefty 30% commission for their system of credits. Considering that Zynga’s revenue for 2010 is estimated to be around $400 million dollars, that means Facebook will be getting a $120 million cut in what pretty much amounts to a gigantic “mafia protection fee” for Facebook. This is in addition to the tens of millions that Zynga already pays to facebook in ad fees.
On the other hand, gamers won’t just be limited to buying facebook poker chips or farmville cash from Zynga with the new credits. As the number of developers in the social gaming niche continues to grow at a viral pace, this new credit system will allow players to buy virtual items in just about any game they desire, whether from Zynga, Playfish, Playdom or any other developer. A universal virtual currency would be similar to what the Euro did in 2000 with the elimination of individual countries’ currencies in exchange for one single currency, only this credit system would not be limited by any geographical boundries.
According to Techcrunch, Zynga CEO Mark Pincus announced to employees during a meeting:
that Zynga was going to launch a social game network called Zynga Live. The Zynga Live initiative was a social gaming network. Facebook and Zynga has been negotiating on Facebook Credits and the talks turned for the worst. In the negotiation process, Facebook shut off Zynga’s feeds and threatened to shut down games. Zynga in the process threatened to completely leave Facebook and prepared to do so in the previous upcoming weeks.
It would seem that the two companies that once sent each other cupcakes celebrating their mutual success are now at odds with each other about which one has more of a command over their user’s time and attention and just how much this command should be worth. Would Zynga really consider leaving Facebook to avoid giving up a 30% cut in transactions for facebook poker chips and farmville items or is all this drama just a negotiation tactic to scare facebook?
It’s unlikely that we will see a complete split of the two companies in the immediate future, but Zynga has already started to hedge their bets by allowing gamers to play farmville on Farmville.com in addition to logging in via their regular Facebook accounts. They’ve also been gathering email addresses of players in games such as Facebook Texas Holdem Poker and Treasure Island, perhaps in order to communicate better with their users in the event that they decide to one day break away from Facebook. At the very least, it will be interesting to watch how the two old friends sort out this issue over the course of the next few months.
