For nearly two years, the world has been watching for signs of trouble in the relationship between one of the world’s largest social networks and its largest third-party developer. Seventeen months ago, there were spats about Facebook Credits integration, sudden platform changes that curbed viral growth for social games, and even rumored threats that Zynga would quit the platform.

Since that time, however, Zynga has gone on to launch four more social games for Facebook, as well as a series of mobile games that leverage Facebook Connect. True, the company also launched an off-Facebook player reward network and put some of its games on Google’s competing social network games platform. But in all this time, Zynga hasn’t actually done anything to cut ties with Facebook.

If anything, the ties are deepening as Zynga prepares an initial public offering based mostly on the strength of its revenues from Facebook players. According to statements made by Pincus and Zynga COO John Schappert at today’s Unleashed event in San Francisco, Project Z is enabled with Facebook Connect at a level of integration so deep that Facebook is actually a “launch partner” for the network. Zynga also supported Facebook’s launch of its mobile platform with three HTML5 games based on its most popular franchises. And with each new game release, Zynga seems to showcase more and more of Facebook’s newest social game features well before other social game developers even begin to experiment with them. It seems that the special relationship referenced in S-1 documentation filed by Zynga continues even as Zynga expands its reach to other networks.

Even if Project Z launched tomorrow and Zynga’s IPO were delayed into Q2 2012, the idea that Zynga could somehow be completely independent of Facebook by that time is ridiculous. Facebook is Zynga’s primary source of traffic and no other social network or games portal in the United States is in a position to cut Zynga any kind of deals that would yield comparable numbers. There is the idea that Facebook could abruptly change its terms of service with social game developers in a way that would hurt Zynga’s revenues — but why would Facebook do that when it has spent the last year trying to rebuild and nurture its social games ecosystem? Why wouldn’t Zynga stick by Facebook if the platform continues to grow on a global scale?

It seems as though, at this time, Project Z is only a supplement to the Zynga experience on Facebook. Yes, the service asks players to create a new virtual identity using Ztags, but it’s affiliating that with a player’s Facebook identity via Connect. This creates a divergent experience where, on Zynga’s network, you’d have your game-life with your game-friends and publicly displayed in-game achievements. Meanwhile, on Facebook, you’d have your actual social graph — which might include Zynga game activity.

The only factor that could count as a tie cut with Facebook is whether or not Project Z would introduce a platform currency that could compete with Facebook Credits. Right now, Zynga Facebook games accept only Facebook Credits as a means to purchase in-game currency in keeping with Facebook’s July 1 policy change. Currently, Facebook does not require Facebook Connect-enabled games to make Credits a payment option; but it does require games that run both on Facebook and other networks to enforce price parity between games. If Zynga offered a paid currency only for use in Project Z games, it would be a step away from the social network and toward actual financial independence.

Project Z does not have a release date at this time. Facebook users can sign up for a Ztag virtual identity in advance of its launch here.

They both were very active in building cocos2d, an iOS gaming library that’s used by large game developers like ngmoco, South Korea’s Gamevil and Atari.

Zynga has actively been trying to improve its performance in mobile gaming. It not only hired Yahoo executive David Ko to run its mobile division, but it’s also made a series of mobile acquisitions in the last year including Words With Friends maker Newtoy and the U.K.’s Wonderland Software.

> Continue reading on Inside Mobile Apps.

WebGL is part of the HTML5 Canvas, but isn’t necessarily one of the technologies that’s being referred to when HTML5 comes up. That’s partially because it’s not widely available. Firefox and, since early this month, Chrome both offer it on the web, but Internet Explorer does not; for mobile devices, only Firefox can use it.

But WebGL has been getting plenty of attention lately, especially following a post this Wednesday on the Facebook Developer Blog. Savage has favored the idea for much longer, though – Sibblingz has been working for over a year with a sister technology, OpenGL, to build its own proprietary system for cross-platform porting of games.

The initial focus is on moving Facebook games coded in ActionScript for Flash to mobile versions. In the view of most developers, that process is more trouble than it’s worth – usually, the game is just remade. Savage says Sibblingz can use 95 percent of the original code, with a shell of Objective C around it for iOS, or Java for Android.

Sibblingz tested out the technology with Happy Island, a game developed by YouWeb sister company CrowdStar. “The proof that works is that the day the Samsung Galaxy tablet came out in the Verizon store, we went, launched it on the tablet, and it worked. It’s gratifying to say, we wrote the software and it works on devices we never knew existed,” Savage says.

Beyond code, graphics are also key. While some web developers are trying to move beyond the vector graphics that characterized many of Facebook’s earlier hits, Savage thinks that vector art will be dominant even on mobile devices, where games like Infinity Blade have already wowed users with console-style graphics.

Sunday, January 23rd, 2011

• Facebook Agrees to Change Friend Finder in Response to German Privacy Complaint

Monday, January 24th, 2011

• Facebook’s North American Ad Rates Rose in December 2010, Traffic Stayed Flat
• Badoo, RootMusic, LivingSocial Top Among Applications That Grew the Most This Past Week
• Facebook Sets July, 1, 2011 Deadline to Make Credits Sole Canvas Game Payment Option
• Facebook Launches Page Citing Statistics and New Incentives for Adopting Credits
• An In-Depth Look at the Social Gaming Industry’s Performance and Prospects on Facebook
• Facebook Campaigns: Microsoft Hong Kong, Transportation and Topps
• Facebook’s Sponsored Stories Turns News Feed Posts Into Home Page Ads

Tuesday, January 25th, 2011

• Top 20 Fastest Growing Facebook Pages: Zynga, Harry Potter, MTV, Ronaldo, Music
• ISA 2011: Live Blogging The Future of Social Gaming Panel
• ISA 2011: Fireside Chat with Facebook CTO Bret Taylor
• Facebook Acquires Hyper-Local Mobile Advertising Startup Rel8tion
• Facebook CTO Bret Taylor: “Mobile is the primary focus for our platform this year.”
• ISA 2011: Live-Blogging New and Alternative Social Platforms Panel
• ISA 2011: Facebook Announces Buy With Friends and Frictionless Micropayments
• ISA 2011: Live-Blogging Growth and Monetization on Mobile Social Platforms
• ISA 2011: Sony Ericsson to Preload its Android Devices with Facebook Login at Startup

Wednesday, January 26th, 2011

• Yahoo and Badoo Rhyme Their Way to the Top on This Week’s List of Fastest-Gaining Facebook Apps by DAU
• Facebook Combats Image of Insecurity with HTTPS and Social Authentication
• Highlights This Week from the Inside Network Job Board: Facebook & Meteor Games
• Facebook Tests Voice Chat, Could the Facebook Phone Run on VoIP?
• Facebook Increases Application Requests Limite: More Virality, More Spam?
• ISA 2011: Roundup of Press Coverage

Thursday, January 27th, 2011

• Facebook Career Postings: Payment Operations, Sales, Mobile, Engineering and Data Centers
• Facebook Runs Survey to Assess User Perceptions of Credits
• ISA 2011: Growth and Monetization on Facebook — The Credits Panel [Video]
• EHow.com to Delete its User Profiles and Switch Entirely to Facebook Login
• Facebook Ups Application Security with Roles, Whitelists, and Notifications

Friday, January 28th, 2011

• Dating and Pictures Appear on This Week’s List of Emerging Facebook Apps
• ISA 2011: Facebook CTO Bret Taylor on The 2011 Facebook Platform Roadmap [Video]
• Facebook Confirms Removal o fSuggest to Friends Feature from Pages, Reducing Virality
• Platform Update: Developers Sit Reorganization, Deprecations Reminder
• Facebook’s Redesigned Page Creation Flow Helps Admins Choose a Category
• Facebook Roundup: Prineville, Zynga, Android, Verizon, Egypt, Tunisia, Japan, Zuckerberg and The Oscars

Last night a domainer blog called Fusible caught the site launching. For now, it’s just a splash page with a popup, on an attempted login, that says RewardVille is coming in the next few weeks.

However, there are bits of information. On RewardVille’s front page it lays out the idea: play Zynga games, and you’ll earn something called zCoins, which can be used toward virtual goods.

[Update: Zynga's statement. "As a company focused on innovation we're constantly testing new products and features. When experimenting with new products we take the feedback we receive and apply it to deliver the best possible user experience. We look forward to hearing how our users like RewardVille." The company is going to slowly roll it out to a small group of users in the coming week.]

Fusible found a little more info on Zynga’s customer help website — more than Zynga wanted to release, apparently, as the page now appears to be gone. Here it is:

What are zPoints?

Zynga writes: zPoints are points you earn for playing Zynga games. You can earn a maximum of 80 points per game per day, with a maximum of 300 points across the entire Zynga network each day. As you earn points you increase your zLevel and earn zCoins. Currently, you can earn zPoints for playing the following games: FarmVille, FrontierVille, Mafia Wars, Treasure Isle, Zynga Poker

What are zCoins?

“zCoins are awarded when your zLevel increases. zCoins are redeemed in RewardVille for in-game items.”

How do I sign up for zPoints?

“You automatically earn zPoints for playing all Zynga games. To redeem zCoins in RewardVille, you must register for a Zynga account.”

RewardVille looks like it might be a new iteration of the ideas Zynga tested with zLotto, a promotion lasting a few months in which users who came back to play the lotto every day could win limited-edition virtual goods. The catch was that you might not get items in the game of your choice; Zynga could thus get zLotto users to visit games they wouldn’t otherwise try to redeem prizes.

For RewardVille, the idea becomes even more clever: players who want to max out the rewards in their game of choice will have to play games they might not otherwise want to, every single day. To get all 300 points, one would presumably have to play all five games.

Zynga has put more effort into figuring out cross-promotion and retention than any other social game developer so far, so moves like this are worth watching. We’ll keep an eye out for when RewardVille launches.

One of the most frequent questions we are asked is ‘How much will it cost to acquire users for my Facebook game?’ The answer to this question depends on many factors.

A brand new casual game targeting both genders and all ages in Indonesia can pick up tens of thousands of users very quickly, for pennies per user. On the flip side, a poker application with a large existing user base and a laundry-list of permissions, targeting 40-year old American males, can pay several dollars per user. Important background information on the many factors that affect pricing is discussed in our longer white paper – this post instead examines an interesting sub-topic around user acquisition. We dig deep into the rising cost of user acquisition over the length of a campaign, and why this occurs.

On average, for every 100,000 users you attract to your application via Facebook Ads, you can expect your cost of user acquisition to increase by 10%. Before examining why this happens, we’ll first take a closer look at click-through rates (CTR) and how Facebook makes money on a cost-per-click ad campaign.

CTR and its value to Facebook

If you were to bid and be charged $1 per click with a CTR of 0.01%, you then have an effective cost per thousand users, or CPM, of $0.10 to Facebook. For every 1,000 times Facebook shows your ad, they are only making 10 cents.

If you can double that CTR to 0.02%, your ads will have the same value to Facebook, even if you’re paying only $0.50 per click. By increasing your CTR, your ads can be much more valuable to Facebook, allowing you to significantly drop your bid.

The screenshots below highlight a target market in the US and compare the suggested bid for a new ad versus a proven high CTR ad. In the case of the high CTR ad, we can get a fair amount of clicks even at $0.10!

Why does the cost of user acquisition increase over time?

Once we look at why the cost of user acquisition increases over time, you’ll understand why we started by examining CTR. But first, remember that user acquisition pricing and volume goals go hand-in-hand. For the same application, you may be able to acquire users for $0.30 or $3.00. For the purpose of this discussion, we’re going to assume that the daily volume desired stays consistent – while other factors need to be changed to sustain this volume.

Let’s say we build a brand new city-building game on Facebook application and decide to launch a Facebook Ads campaign. We have several good things going for us. There are a ton of users who are ‘low-hanging fruit’ which we can go after – the subset of hard core Facebook game players who are constantly looking for the hottest new game to play. We can also leverage interest targeting and go after players who are fans of other city-building games. The game and the creative in the ads are brand new, and hopefully spark interest in those users you’re targeting.

Given these favourable conditions, a click-through-rate (CTR) of 0.15% and a conversion rate (CVR) of 65% is very achievable. If you’re willing to pay $0.50 per user given these metrics, you should be able to bring in 15,000 users per day in the prime English speaking countries – US/CA/GB/AU. The question now is, how long can this last?

As you continue your advertising campaigns, a few things are happening. Users are starting to get tired of your ads, despite an attempt to keep refreshing new images and copy. More importantly, the most hard core game players are starting to dry up.

The market of active targetable users who are interested in other city games is starting to diminish, and in order to keep the volume of users up without increasing the rate, we must open up keyword targeting on the users. While these other keywords / interests also work well, the CTR will not be as high as when specifically targeting city-building games. Gradually there’s a drop in CTR across the campaign. (Click the image below for a higher resolution.)

From the anecdote above, we saw the effect a drop in CTR can have on the value of that ad to Facebook. On an aggregate level across our ads, we’re now getting fewer impressions for our same CPC bid. Additionally, the conversion rate (CVR), or the percent of users who end up clicking on allow and entering the game post-click, also begins to drop, having a direct effect on our cost of user acquisition.

As CTR and CVR gradually declines, and if we want to maintain a consistent volume of new users, we eventually have no choice but to increase the price we’re willing to pay per user. Our cost of user acquisition begins to rise roughly at the rate mentioned above – 10% for every 100,000 users we bring on.

Is this always the case?

Every application is different in terms of its appeal and the size of its target market – hence, the speed of its CTR and CVR erosion. With constant refreshing of creatives, an appealing application, and a commitment to finding the target markets that work on a granular level, it’s quite possible to fight off the rising cost of user acquisition. We’ve worked with applications that were able to drive half a million US users at $0.50 within a relatively short period of time, without having to increase the CPI rate. But even in these cases, the market forces eventually win, and in order to sustain volume CPI rates must be increased.

NOTE: Please join me on January 25th at Inside Social Apps for a lunchtime roundtable discussion “Purchasing Facebook Ads – user acquisition pricing & strategies” and provide your feedback on this article in person. Look forward to the open discussion.

Although Zynga’s use of AppStrip is something of a surprise — the social game giant has a huge network of its own to cross-promote within — Tapjoy declined to comment on the relationship. Instead, the company told us that it has doubled both the impressions and clicks on its network since the acquisition.

AppStrip is also adding features and upgrades: the company is improving the management console and reporting, as well as working on click fraud and an optimization engine, and will continue to invest in the bar throughout this year.

The cross-promotion landscape is becoming truly interesting. While Applifier was the first large bar, and set up the exchange model now being used by others, it’s having to fight off AppStrip and, since late December, Digital Chocolate’s VIP Games Network.

It’s fairly obvious why Tapjoy is so interested in the space; besides helping developers monetize, it also wants a piece of the distribution network on every platform. On Facebook, its best way in may be through AppStrip.

Tapjoy also announced a new raise of $21 million this morning, in large part based on its strength in the mobile market; we’re covering that over on our new sister blog Inside Mobile Apps, where we also recently posted in-depth coverage of TapJoy’s transition between markets.

CoinWhale takes inspiration from sales sites like AppSumo to offer a package deal on virtual currency to Facebook game players. But since any developer can offer a deal on currency in its own game, CoinWhale is bundling together games in threes.

The idea is to get three developers, who all have similarly-sized apps, to work together to lure in paying users. When a user of one of the games comes in to buy discounted virtual currency for that game, they’ll get a matching amount for free in the two other games.

If the sale works, the three games will share their pool of motivated, paying customers, which is typically only a tiny fraction of the overall playerbase. The developers will split the proceeds from the sale based on traffic to the sale from banners, in-game incitements and emails, with CoinWhale taking 10 percent off the top.

Existing cross-promo schemes mostly rely on a 1-to-1 exchange of traffic, and there’s no guarantee that CoinWhale can offer that here — one game could end up sending more of its precious, paying users out than it receives in return.

There are two arguments in favor of doing the deal anyway. Brad Mills, one of CoinWhale’s co-founders, says that there’s a pool of spending users who regularly try out new games, the way cinephiles go to a new movie every week. Those users will try out new games anyway; they might as well be directed.

The second, and more important argument, is that small developers need a way to replicate the cross-promotion schemes that much larger developers can use within their own networks of games, a feat that they can’t replicate without taking some risks and working with other companies.

And CoinWhale’s initial test of its concept showed fairly positive results. Testing with three small games that had a total of about 20,000 monthly active users, CoinWhale received 2,500 unique visits, of which the games drove about 1,500. User referrals and other traffic brought in the remaining 1,000.

Of that pool of 2,500 people, 550 registered as members of the site, and 163 purchased the $20 sale, bringing in $3,260. Overall, the conversion rate from visitors to buyers was 6.5 percent, with revenue of $1.30 per user.

CoinWhale is looking for more companies to try out its service; you can contact them here.

Ryan had just joined News Corp in July, and was working on a new gaming unit; he will now report to Ethan Beard, the director of the Facebook Developer Network.

Before his previous position, Ryan had served as the chief executive of Meez, a virtual world turned social gaming company, and as the founder of prepaid card company Zeus Research. The report notes that Facebook had been pursuing him before he joined News Corp, and since that time it has had an open listing for the position he is now filling.

So, this hire has been a long time in coming.

Note that we’ll be getting his perspective at our Inside Social Apps conference in San Francisco later this month.

Ryan makes an especially interesting choice for developer relations. In the past, he has been critical of Facebook’s evolution as a gaming platform, and has encouraged developers to seek out alternatives. Last April, we ran an opinion piece from him lauding the Google-led OpenSocial standard:

I’d strongly recommend producing a great OpenSocial version of your game and trying to strike deals with a set of SNS not named Facebook – there are lots of them around the world with 10 million or more monthly unique users, many of whom are going to adopt the social games that are put in front of them if they’re good games and if they can play them with their core friends on those smaller networks. There is a theory going around that gaming works best on Facebook because it uses real world profiles, but the data from the other social networks shows that tight relationships can form with only online profiles, so that won’t be an issue with gaming. The revenue share idea seems expensive on the surface, but given the resulting increased promotion and reduced competition from other similar games on these sites, it’s absolutely worth it, especially versus the increased costs and worsening odds on the Facebook platform.

Of course, the industry has been changing quickly since then, with Facebook both continuing to gain market share, and also giving more and more positive attention to app developers.

In September, it kicked off a series of changes for developers, including new discovery stories and an announcement that it would put more effort into third-party relationships. The company’s efforts to win over developers may have helped woo Ryan, too.

His addition could also relate to a new round of changes; rumors are afloat that Facebook is continuing work on game discovery and promotion.  We haven’t heard back from either Facebook or Ryan yet about the news, but we’ll be updating when we do.

The first third-party cross-promotion bar to grow large was Applifier, which was followed by AppStrip. Both use the same exchange model, in which developers get 0.9 clicks back for every 1 they send out; the extra clicks left over are sold by the service.

VIP Games Network is undercutting the competition by starting as a straight 1 to 1 exchange. It will also offer analytics and ad optimization tools to measure the results.

The negative side to this model, at least for some developers, is that the network will be selective, only accepting games that meet Digital Chocolate’s quality standards.

The advantage to Digital Chocolate seems fairly obvious. If it can pick and choose which games go on the network, the company can tailor the selection to be beneficial to itself, including only games with desirable players who may not have been exposed to Digital Chocolate’s games before.

Self-interest on the part of Digital Chocolate shouldn’t hurt other developers who are accepted to the network, since they’ll have an equal opportunity to reach high-quality players who haven’t been exposed to their games before.

Of course, Applifier, the largest cross-promotion network, has also been selective in the developers that it accepts, and most developers using it have reported good results. The real advantage to the VIP Games Network will be the straight 1:1 exchange; Digital Chocolate can forgo profiting from the network indefinitely, since it has its own lucrative stable of games.

The analytics tools could also prove valuable, and Digital Chocolate COO Jason Loia says that the network could eventually extend to other platforms.

Look for competition to heat up in the cross-promotion space in coming weeks. Most developers will only want to run one cross-promo bar, but Applifier is unlikely to go down without a fight, and AppStrip was recently acquired by TapJoy, which will likely work to capture a new clientele with the bar.