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