What do you call a meeting between Zynga CEO Mark Pincus and Facebook Founder Mark Zuckerberg? "Words with Frenemies."
A previous post on Overheard pointed to Zynga’s dependency on Facebook as a reason why Zynga’s stock had been punished by Wall Street. Yet, ever since Facebook revealed that Zynga constitutes an astounding 15% of the social network’s revenue, the question has been who needs who more?
It would appear that Zynga needs Facebook more, after all, Facebook provides the platform that Zynga operates on. Yet, that point of view underestimates the pressure on Facebook to show impressive finances as it goes public. Zynga gives Facebook a generous 30% cut of all of its virtual goods revenue. Plus, Zynga’s games drive billions of page views on Facebook – which translates into an enormous chunk of ad revenue. As Facebook’s IPO nears, it must look to nurture the virtual cash cow that is Zynga.
Meanwhile, Zynga has been taking steps to lessen its dependency on Facebook – heavily investing in Zynga.com as an independent gaming platform. Unlike Facebook, Zynga.com is dedicated to a gaming ecosystem – making it an attractive platform for aspiring developers to find an audience. From a business perspective, Zynga aims to strike rev-share deals with these third party game developers, calling the venture Zynga Platform Partners. Zynga hopes the site will emerge as a sort of app store, except exclusively focused on gaming. Since launching in March, Zynga.com has seen an impressive uptick in traffic – reaching 2.8 million MAUs (monthly active users).
Zynga was careful not to attract the ire of Facebook and is using Facebook Credits as the currency of Zynga.com. Not that Facebook is too worried: Zynga reaches an eye-popping 272 million MAUs on Facebook, rendering Zynga.com immaterial for now. Facebook's leverage is more in focus when you consider that Facebook provides Zynga.com gamers with a connection to their friends and family – you know, the whole “social” part of social gaming. “Words with Strangers” doesn’t exactly have the same appeal. Still, Zuckerberg and team will be wary of Zynga cornering the burgeoning social gaming space.
At the moment, both Zynga and Facebook are content to remain “frenemys” but Zynga is definitely taking steps to find incremental revenue streams. In addition to the launch of Zynga.com, Zynga is aggressively pursuing mobile and gambling. We’ll take a look at those in a later post.
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