Facebook and Zynga “Enter Into Long-Term Relationship”

Although the two companies are both closely tied and also recently at odds, Facebook and Zynga have just announced this morning that they have agreed to a “five-year strategic relationship that increases their shared commitment to social gaming on Facebook and expands use of Facebook Credits in Zynga’s games.”

Zynga, by all accounts, has been resisting using Credits, Facebook’s virtual currency, as the company would be required to pay a 30% fee as part of it — even as Facebook’s many initiatives to make Credits profitable are still not fully proven. That has not been the only issue, though. Facebook’s anti-virality changes over the last half a year have hurt Zynga’s traffic. Meanwhile, Zynga’s aggressive behavior on the platform have earned it a negative reputation.

The social game developer was even threatening to launch its own web site, called Zynga Live, that could possibly exclude any integration with Facebook, or Credits.

We covered these problems, and more, in an article last week; we concluded that the two companies would probably work things out. Zynga needs Facebook users; Facebook needs Zynga to help it push Credits forward.

We’ll be following up with more coverage later. In the meantime, here’s the press release, verbatim:

FACEBOOK AND ZYNGA ENTER INTO LONG-TERM RELATIONSHIP

Palo Alto and San Francisco, Calif., May 18, 2010 – Facebook and Zynga announced today that they have entered into a five-year strategic relationship that increases their shared commitment to social gaming on Facebook and expands use of Facebook Credits in Zynga’s games. The agreement provides a solid foundation for both companies to continue to work together to provide millions of people with a compelling user experience for social games.

“Facebook was a pioneer in opening their platform in 2007 and in just three years tens of millions of Facebook users play our games every day, from FarmVille and Café World to Treasure Isle and Mafia Wars,” said Mark Pincus, founder and chief executive officer at Zynga. “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,” said Sheryl Sandberg, chief operating officer at Facebook. “We look forward to continuing our work with Zynga and all of our developers to increase the opportunities on our platform.”
Zynga is currently testing Facebook Credits in select games and will expand to more titles over the coming months.  Terms of the agreement between Facebook and Zynga were not disclosed.

About Facebook
Founded in February 2004, Facebook’s mission is to give people the power to share and make the world more open and connected. Anyone can sign up for Facebook and interact with the people they know in a trusted environment. Facebook is a privately held company and is headquartered in Palo Alto, Calif.
About Zynga

Zynga has over 230 million monthly active users playing its games. These games include FarmVille, Treasure Isle, Zynga Poker, Mafia Wars, YoVille, Café World, FishVille and PetVille, which are available on Facebook, MySpace, Yahoo! and the iPhone.  Through Zynga.org, Zynga players have raised over $3 million for world social causes.  Zynga is headquartered in Potrero Hill in San Francisco.

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20 Responses to “Facebook and Zynga “Enter Into Long-Term Relationship””

  1. Kristal Barnett says:

    Don’t know who to contact but i started playing Bubble Island and got to the second mountain and now the game don’t work. I love this game and want to play. Please help me!

  2. DPH says:

    In other words…

    “Chancellor Palpatine, who has been building a clone army, successfully lured a young Anakin to the dark side. Anakin (nee Darth Vader) now hates privacy and will use the clone army to force rebels to use FB credits.”

  3. Facebook Issues First-Ever Press Release Reassuring the Market It’s Still Working With a Platform Developer says:

    [...] of the times, Facebook and Zynga this morning issued press releases announcing that they plan on working together for a long time. It’s the first time Facebook has ever issued an announcement of this type, as the company [...]

  4. James says:

    We all knew this would happen.. Zynga doesn’t have the balls to leave facebook.. all off their eggs are in the same basket.. leaving would be completely moronic. Facebook – I understand the good parts of the credit system.. but 30% jesus christ.. what are you Apple now?

  5. Lee Lorenzen says:

    Eric,

    The key point here is that Zynga doesn’t have to leave the Facebook platform to avoid almost 100% of the impact of the 30% Facebook Credits tax.

    Based on stats from other top games, only 2% of the users are payers. Of this group 80% of the revenue comes from the top 30% of payers. That means that only 0.6% of a given game’s user population (i.e., the whales) account for 80% of the revenue.

    So, for Farmville’s 80 million users, only 480,000 whales generate 80% of the revenue in the game. This means that if Zynga fully embraces Facebook Credits for the 98% of users who pay nothing and the 1.4% of users who pay a little, its bottom line revenue will not be hurt that much (i.e., about 6% = 30% tax * 20% revenue).

    The key is to ensure that as Zynga’s small payers (i.e., minnows) begin to become whales (based on their repeat purchases over time) that they are lifted out of the Facebook ocean and placed in the Zynga lake (i.e., FarmVille.com or zyngalive.com).

    The great thing is that by making Farmville.com or ZyngaLive.com an exclusive place that is ONLY for whales, Zynga can actually get folks to pay more in the game to gain access to all of the extra perks available to whales. This is just like in Vegas where the whales get comp’ed rooms, meals, show tickets, cars, etc. as long as they stay loyal to a given casino and gamble $500K a day at the tables.

    So, in reality Facebook doesn’t have a stranglehold on Zynga’s business model because they don’t need to coax 80 million people off of Facebook (which would be hard). The key is that only 480,000 Farmville players really matter from a revenue point of view. Once these folks are extracted, Facebook Credits could charge the full 30% or higher tax and it wouldn’t materially hurt Zynga’s business model.

    So, it makes sense that Zynga and Facebook have reached in accommodation where both parties walk away winners. The most interesting play will come when Facebook allows Facebook Credits to be used on 3rd party web sites and creates the first micro-payment solution with enough user adoption to convince a critical mass of web sites to support it.

    The ability for advertisers to reward targeted Facebook users with Facebook Credits for watching video ads and providing their e-mail address to the advertiser (either inside of Facebook.com or on a web publisher’s site using Facebook’s upcoming AdSense killer) will give Facebook yet another way of increasing the CPC and CPM rates for their ads. It will also dovetail nicely with the existing TV advertising format of 30 and 60 second video spots and the ad agency infrastructure that goes along with it.

    Thanks,
    Lee

  6. cut says:

    Would be interesting to know what the cut is between them. For sure Zynga is pushing the 30% downwards.

  7. Facebook и Zynga помирились « socialplay.ru — блог об играх для социальных сетей says:

    [...] итоге сегодня Zynga и Facebook объявили о заключении стратегического соглашения о сотрудничестве сроком на пять лет. С одной стороны, [...]

  8. Should FTC file Facebook Antitrust? : Marty's Mind says:

    [...] platform to force its way into other businesses that rely on that platform.   We are also seeing preferential back room deals and purported arm twisting being used with Zynga to force adoption.  Simultaneously Facebook also [...]

  9. DPH says:

    I’d be interested to know who these “whales” are that spend thousands of dollars (or some ungodly amount) on virtual farms. Like, what is their clinical diagnosis?

  10. Like Buttons and Email Prompts in FarmVille Tighten Zynga’s Connection to Users says:

    [...] even now that it has a new five-year contract with Facebook, it seems likely that Zynga will continue to emphasize its own sites on the side — both for [...]

  11. Yahoo to Run Zynga Games Across its Properties says:

    [...] there are other reasons to not read too much into today’s announcement, besides the fact that Zynga and Facebook recently announced a five-year partnership. Zynga has already been busy making partnerships with other developers, most notably with [...]

  12. MySpace Offers Developer Services Program Along With New Platform says:

    [...] months. Facebok has been taking some measure to ease the process, like signing on to a “strategic relationship” with Zynga (full terms were not disclosed), following tense negotiations around the largest [...]

  13. As Facebook Continues Testing Credits, Some Developers Worry About Costs says:

    [...] getting special deals to mitigate the costs of Credits. Zynga, the largest social game developer, agreed to commit long-term to the platform last month — some believe that this was in exchange for a [...]

  14. Playdom Signs Five-Year Contract With Facebook, Will Exclusively Use Credits says:

    [...] biggest developers on the Platform, Zynga and Electronic Arts – although Facebook did sign a five year “strategic relationship” with Zynga two months ago. Both offer Credits as payment options in their games, but Zynga also handles payments itself, [...]

  15. Zynga Switching to Facebook Credits says:

    [...] will happen sometime before the end of the year, and possibly as soon as the next month or two. When Zynga signed its five-year contract with Facebook in May, Credits exclusively was part of the deal — the two companies just didn’t say [...]

  16. Vädret i Phuket says:

    Att hoppas på bra väder när man åker på semester till tex Berlin är alltid bra, för om det är dåligt väder är oftast semestern eller turen inte lika rolig.

  17. With a Focus on Monetizing Mobile Apps, Tapjoy Leaves Its Scamville Past Behind says:

    [...] as dire as originally thought. Although Facebook launched its own virtual currency Credits and secured a string of five-year deals with the biggest game developers to use it, Credits is not yet the universal currency the social network envisions it to [...]

  18. Social Games: Is There Hope for MySpace and Gaming? | Game Industry News, Interviews and Videos | Game Theory says:

    [...] Facebook’s gain. As long as social gaming remains popular, and as long as Zynga and Facebook remain paired up, the popularity of both should stay pretty secure. Facebook isn’t all about gaming, but its [...]

  19. Zynga Shows Off Strong Financials but Questions Remain Around Impact of Credits, Off-Facebook Revenue says:

    [...] move to using Credits exclusively as of this past April, having begun in June of 10, shortly after Facebook required it to sign on to the virtual currency. In one section, it says that “[t]he increase in online game [...]

  20. Investors Push Zynga Stock Up 10%, Because Now It Can Make Money On Ads And Publishing | TechCrunch says:

    [...] let’s back up to Credits — Zynga has to use them because of an exclusive five-year deal that Facebook made it sign back in 2009. Part of the terms required that Zynga use Credits in [...]

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