Why Social Kingpins Facebook and Zynga Decided to Bury the Hatchet -- For Now
For the last couple weeks rumors had been building that Zynga, the world's largest casual gaming firm, was going to abandon Facebook, the world's largest social network. But yesterday the two firms announced the opposite, signing on to partner for five years, the Internet equivalent of eternity. The lengthy deal highlights just how dependent on each other these two kingpins of the social Web have grown.
The primary dispute between the two firms revolved around exclusivity and revenue sharing. Facebook wanted Zynga to take payments only through Facebook Credits, which typically means Facebook gets a 30% cut. According to Michael Arrington over at Techcrunch, this led to a dispute and Zynga was considering breaking off to become a completely independent entity. But a quick look at how entangled the two companies have become shows why they chose to work it out.
Zynga has 5 of the 10 most popular applications on Facebook, including number one Farmville. In total, Zynga's applications have over 200 million active users, roughly half of Facebook's entire population. Even if Facebook doesn't take a significant cut of revenue flowing through Zynga, getting such a large portion of users to open accounts with Facebook Credits would be a coup, since they are likely to use their credits on other applications as well.
These numbers would make it seem like Zynga has the upper hand at the bargaining table. But porting all those users to an independent site would be difficult, especially since much of the appeal in Zynga's game comes from the social element. As a study of social gaming by professor A. J. Patrick Liszkiewicz put it,
The secret to Farmville's popularity is neither gameplay nor aesthetics. Farmville is popular because it entangles users in a web of social obligations. When users log into Facebook, they are reminded that their neighbors have sent them gifts, posted bonuses on their walls, and helped with each others' farms. In turn, they are obligated to return the courtesies.Splitting up now would cost both these companies dearly, although the announced deal offered few details, meaning the sparring will likely continue in private. As both firms continue to experience strong growth, it will be interesting to see if this balance of power holds.