14 DAY TRIAL // Social gaming is one of the fastest growing segments online and is becoming one of the most profitable. Zynga, the biggest name in social gaming, has risen from nothing to become a company worth billions of dollars and with revenues in the hundreds of millions of dollars due to the success of its games on social networks, Facebook on particular. This success has been a double-edged sword for Zynga. On the one hand, it’s one of the hottest companies in Sillicon Valley, on the other, its dependence on Facebook leaves it at the mercy of the social network.
Relations between the two players have been growing cold for the past few months and there were even rumors of Zynga leaving, or being forced to leave, Facebook. The issue at heart is Facebook’s move to require app developers to use its own virtual currency, Facebook Credits. The downside for developers is that the social network takes a 30-percent cut out of every transaction.
For a company like Zynga that is completely dependent on selling virtual items, it meant a huge reduction in profits, and the game maker was not ready to give up such a huge portion of its revenue. Being the largest third-party developer on Facebook and responsible for many of the most popular games on the social network, it was in a position to fight back. Zynga has been intensifying efforts to become more independent, but it is still largely reliant on Facebook for revenue and users.
The two companies have now come to an agreement ensuring that Zynga games will be on Facebook for the next five years. What’s more, the game developer has agreed to use Facebook Credits in more of its titles. The details of the deal were not disclosed, but both companies seem to have gotten what they wanted.
The rumor is that Zynga was not able to get Facebook to agree to a smaller commission for Facebook Credits transactions, which is what the company pushed for. Still, Zynga got something out of the deal and speculation is that it managed to get lowered rates on advertising. Zynga is already one of the biggest advertisers on Facebook, so this could amount to significant cost savings.
"Facebook was a pioneer in opening their platform in 2007 and in just three years tens of millions of Facebook users play our games everyday, from FarmVille and Cafe World to Treasure Isle and Mafia Wars," Mark Pincus, founder and CEO of Zynga, said. "We are excited about Facebook's long-term commitment to social gaming and Zynga, and look forward to working with them and other platform providers to bring the best social gaming experience to users worldwide."
"We are pleased to enter into a new agreement with Zynga to enhance the experience for Facebook users who play Zynga games," Sheryl Sandberg, Facebook COO, said. "We look forward to continuing our work with Zynga and all of our developers to increase the opportunities on our platform."