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Social Jujitsu: How Google+ Will Flip the Facebook-Zynga Alliance

By Jim Edwards

Updated on: September 21, 2011 / 10:01 PM EDT / MoneyWatch

Google+'s new game platform is a direct challenge to Facebook and could make its exclusivity agreement with Zynga look unworkable in the long run. Google (GOOG) is taking just 5 percent of any game revenue earned on Google+, compared to Facebook's 30 percent cut of Zynga's revenues. As Facebook and Zynga have an agreement giving Facebook exclusivity over certain games, Zynga now appears to be "trapped" on the less profitable social network.

Google's "5 percent" move looks like previous ones the company has used to dominate search, email and mobile phones. In each case, it has given away its best product for free (the Google search engine, Gmail and the Android operating system) to build a vast customer base. That base is a media environment on which advertisers can promote and sell their stuff. Google takes a cut only if they actually sell something.

The strategy works due to the high "switching costs" imposed on users. As I noted in a previous item about the way Google continues to promote Gmail despite its seeming ubiquity, once users come to rely on a Google service it can become very difficult for them to transfer all their "stuff" to a rival service even if they want to.

Google+ v. Facebook is, therefore, The Mother of All Switching Cost Battles. Facebook's obvious advantage is its built-in base of 750 million users. You and all your friends are probably on Facebook. Some of your relationships may be conducted entirely through Facebook, especially the ones with family members who live far away but want to see photos.

The downfall of Facebook?
Asking people to quit that environment for a new one with "only" 25 million users is a big ask. How can it be done? Well, as the Google+ 5 percent revenue cut indicates, you can make it a lot cheaper for businesses to use Google+ than Facebook. Don't be surprised if Google+ offers advertising rates that undercut Facebook's, too.

Google+ already has 16 games -- one of them is Zynga Poker, suggesting that Facebook's "exclusivity" demands are weaker than the language in Zynga's agreement suggests. The network only needs one or two new games to catch fire -- think of the way you played Scrabulous or FarmVille obsessively when they first came out on Facebook -- to become a serious contender. Those games could come from anywhere. Had you heard of Rovio before Angry Birds came out?

At that point, Facebook's weaknesses will come to the fore. It doesn't have email, calendaring or any of those other services, and its search offering is weak. The switching costs it must impose on its current users will have to become very high indeed. Don't be surprised if Facebook starts to make life inside its environment increasingly non-portable, for instance its recent change to photo galleries that prevents you from downloading your friends' photos. If Facebook is to survive, it must make the price of transferring your stuff as steep as possible.

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Disclosure: The author owns two shares of Google.