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Summary:

Zynga and Facebook have had an extremely symbiotic relationship to date, but after Facebook tried to use its weight to hold Zynga captive the social gaming company is mad as hell. Zynga is reportedly moving forward with efforts to launch its own social gaming network.

Zynga and Facebook have had an extremely symbiotic and mutually lucrative relationship to date, but after the social network tried to use its weight to hold its leading social gaming application maker captive, Zynga looks to be mad as hell.

Let’s quickly recap how, up until this recent turn of events, co-dependent Zynga and Facebook have been:

* Zynga’s FarmVille and other social games have given many users a reason to join and spend enormous amounts of time on Facebook;

* By dedicating nearly 100 percent of its energy to building Facebook games, Zynga got tremendous traction that built on itself and through viral channels;

* Zynga’s ad buys have accounted for a significant portion of Facebook’s revenue for the last couple of years;

* Zynga was able to monetize and grow to a formidable status in the social gaming market in an incredibly short time (it was recently estimated to be worth $5 billion);

* Zynga CEO Mark Pincus himself was an early Facebook investor and Zynga, like Facebook, has significant investment from Facebook investor Digital Sky Technologies.

Zynga CEO Mark Pincus

But the social network and the social game builder have hit a rough patch. Zynga is by all reports not going to take it any more. Facebook wants to unite payments across its platform with Facebook Credits, from which it takes a hearty 30 percent cut. Zynga and other social game developers feel that’s usurious. And this was after Facebook altered its messaging channels, directly impacting Zynga’s ability to connect with its users and recruit new ones.

After negotiations with Facebook over credits and a firmer long-term relationship turned ugly, Zynga is now moving forward with plans to become a gaming platform of its own, reports TechCrunch, which published this email from an anonymous source:

Pincus announced at a 5pm meeting yesterday at Zynga that Zynga was going to launch a social game network called Zynga Live. The Zynga Live initiative was a social gaming network. Facebook and Zynga has been negotiating on Facebook Credits and the talks turned for the worst. In the negotiation process, Facebook shut off Zynga’s feeds and threatened to shut down games. Zynga in the process threatened to completely leave Facebook and prepared to do so in the previous upcoming weeks.

If you want to know what Zynga’s gaming network might look like, check out our story on Pincus’ keynote from the Inside Social Apps conference a couple weeks ago, a call to arms for app developers to preserve the integrity of their “app economy.”

Pincus said he thinks a proper application economy will require tools that create a consistent social gaming experience as users move between applications on the web. First, an “app bar,” would follow users around, enticing them to navigate back to their games — like the one from Meebo (which is tying up with other social web services through XAuth), the “social games bar”launched today by Heyzap, or the one expected to be launched by Facebook soon. Pincus said such efforts have the added benefit of increased engagement and revenues for publishers and networks who use the bar.

Second, apps need properly tuned user communication channels, Pincus said. These should be open enough to allow apps to grow through reaching out to their users, but closed enough to prevent obtrusive and annoying communication.

Third, an app economy would require universal social feeds that follow users around the web. This would allow users to connect feeds between destinations and activities, for instance sending activity in one game to a narrowcasted group of their friends on a certain network. When Zynga tested narrowcasting, or enabling users to share updates with a certain group of their friends, sharing increased 400 percent, Pincus said.

Facebook CEO Mark Zuckerberg

Pincus’ rallying cry for the app economy can be directly contrasted with Facebook CEO Mark Zuckerberg’s announcements at his company’s f8 conference the day after. Zuckerberg hardly paid lip service to on-Facebook applications at f8 — he instead laid out Facebook’s plans to colonize the rest of the web. I talked to one app developer in the parking lot who noted that there wasn’t a single session directly relevant to him throughout the whole day.

Zuckerberg’s new focus was also completely off-topic for Zynga’s interests. It seemed as if Facebook used Zynga to get to its current scale — remember, before the Facebook platform launch in 2007, the network had only 24 million active users! — and now has little reason to give it favorable treatment. But even so, Zynga is not going to go independent anytime soon. Dropping Facebook would be dropping its whole business. This is about diversifying.

Please see the disclosure about Facebook in my bio.

  1. I am not surprise this is happening. Zynga is why a lot of people started using Facebook, and they could easily survive on their own. Facebook may push too far

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    1. Considering Zynga super spams Facebook, I am not surprised that Facebook wants 30 percent. All of these apps have used Facebook and paid very little. No, Zynga does not bring a lot of people to Facebook. Most join Facebook and then they join Zynga once they see the game posts all over the feed. If Zynga leaves, then we will at least be able to see other posts and such without them taking over the feed constantly. No, I won’t start over on FarmVille if Zynga decides to split. That would mean getting neighbors all over again…etc. I would just wait until an FV replacement came along.

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      1. SachielRising Friday, May 21, 2010

        Chris, When Zynga leaves, how much time will you spend on Facebook reading your friends boring play by play status updates in your Zynga free feeds? Sure we all started playing the games AFTER joining Facebook but we all spend at least 80% of our Facebook time playing the games and the other game apps dont compare to Zynga apps. I have about a hundred FB friends added that I know personally, the other 4000 ‘friends’ are for the Zynga games I play. Before I started playing the games (almost 2 yrs ago) I might have signed into Facebook for 3 mins once a month, but because of Zynga I spend 30 mins-2hrs everyday on Facebook. There is NO reason for me to check into Facebook more that a few mins a day if Zynga isnt there. I can see why Zynga is pissed, they have over 100 million active users on Facebook and we know many of them are setting on Facebook for hrs throughout the day because of the games. Surely Facebook advertisers will take notice that Facebook user traffic will be cut in half and that half will spend about 80% less time signed into Facebook if Zynga takes its ball somewhere else. … maybe those advertisers will follow their consumers over to Zynga as well.

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  2. Face-book has beaten the Orkut in INDIA…Let’s see more about zynga when it comes in to India

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  3. Very good article, thanks! It is very difficult to forecast which way the power struggle will turn. I personally believe it comes down to simple economics – which way the mega-developers like Zynga will get most users with least money (e.g. via referrals elsewhere than Facebook plus paid online adverstisin, vs Facebook domain).

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  4. Really good report. I enjoyed the recap.
    That being said, Liz, do you think there’s a chance Zynga is looking for a sweeter deal with say, MySpace or even Orkut( hah, that’s only in case they want more Brazilian users to play their games)?
    Facebook of late has had some issues, what with the privacy brouhaha and now this one. Their dominance has ensured a smooth ride for Zynga so far and vice versa. But for Zynga, a lot of people would spend less time on FB.
    I’d ideally like them to work something out. What are the chances of that happening? From the tone of your article(which is very fair, but does give a feeling that Facebook might have been Apple-ish), I gather Zynga faces a tough choice.
    Thanks for a great article. Much appreciated.

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    1. Thanks Harish. The problem for Zynga is nobody can give them a sweeter deal. That’s why they’re talking up starting their own thing.

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  5. This reminds very much of the Premium SMS industry and the carriers who prevent the passing on of MSISDNs to stop scamming / billing subscriptions.

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  6. It’s not in Zynga’s best interest to really fight this one. This 30% is going to become fairly standard, now (it’s what Apple gets from every sale and in-app microtransaction, also). Facebook is where the people are and I’d rather get 70% of a billion than 100% of a hundred.

    Zynga’s best bet is to be everywhere: Facebook, Apple devices, Android, PC Downloadable. Users will probably not switch platforms for these games, but Zynga could certainly gain more users by being ubiquitous on any platform. Remember that their “high road” is still to make and sell games that can’t be won unless the user spends real money on fake tractors, horses etc.; I think they know what this money grabbing thing is about.

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    1. That seems inevitable to me. I think the hard part will be how far can they move off FB’s identity system. Zynga has already started a push to get user emails but it would be difficult to create as much value as FB has given them with the social graph and viral channels.

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  7. Zynga is better off with a deal with Google. Google needs a foot in the social graph search to stomp Facebook. A deal like that would trounce FB plans. I think FB is better off paying Zynga at this point.

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  8. While the premise of the article is possibly right, doesn’t it strike you as a bit odd that if Facebook threatened to shut them down and if they are now mouthing Zynga Live to everyone, maybe Facebook would actually carry out it’s threat now and leave them in transitional trouble?

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  9. [...] Facebook vs. Zynga: The Turf War Zynga and Facebook have had an extremely symbiotic and mutually lucrative relationship to date, but after the social [...] [...]

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  10. MyLocator (tm) Saturday, May 8, 2010

    Their jus’ posturing. Simple case of who’s your daddy? “Lets Make a Deal” when Mark plays Monty? LiveTribe sounds good to me.

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