Execs Leaving Zynga, More Trouble Ahead?

Throughout the week it’s often the big Internet companies making news. Google has a new update, Amazon introduces a new service, Apple leaks some info about a new product; you get the idea. Lately there has been a lot of news about how Facebook’s stock is falling and the company is not being as profitable as Wall Street demands it must be.

Today a smaller company tied directly to Facebook is making news. Zynga, one of the biggest social media gaming companies in the industry has been running into troubles of its own lately. This is simultaneously troubling for Zynga itself and for Facebook, the service Zynga relies on to promote its games.

What’s Up at Zynga?

Things might be taking a turn for the worse at Zynga. Douglas MacMillan of Bloomberg New reports, “At least four Zynga Inc. manager have departed this month.” The likely cause of this is slow growth and a stock market price that “has declined 68 percent since the company’s December [IPO].” That means that Zynga has suffered even worse than Facebook has at the hands of Wall Street.

This is bad news for both companies. Facebook somewhat relies on Zynga games to encourage and promote long sessions on the platform. The more time people spend on Facebook itself, the more likely they are to click advertisements. That means more money for both parties. With 900-plus million users on Facebook, there is a promising market for social games on the platform. And for quite a while it was working well. Both companies developed a sort of symbiotic relationship, with Zynga paying fees to Facebook while also racking in millions from their gamers. The relationship will likely be changing in the future however.

Competition and Zynga’s Future

Lately, Zynga has taken issue at how Facebook has taken more control over its gaming ecosystem. Alex Pham, of the Los Angeles Times reports that last month Zynga “blamed a downturn in its finances on a “challenging” environment.” Facebook has recently made changes to help promote some of the smaller game developers to provide more diversity on the network. If you’re Zynga, of course you’re unhappy.

On top of that, Zynga is charged 30% on the money it earns by Facebook. Talk about a hefty tax. This is why as Alex Pham Writes, “companies with aspirations to be larger publishers—Kabam, Kixeye, even Zynga—are moving aggressively off the Facebook platform to mobile and the open web.” As Facebook clamors to figure out ways to please Wall Street, an exodus (or at least a reduction) in these gaming developers from exclusively using Facebook is a hard blow to take.

Zynga alone has revenues in the hundreds of millions of dollars. A 30% cut in that is significant. Last year it “accounted for 12 per cent of Facebook’s total annual revenue.” Someday soon you might able to get your favorite Zynga games as standalone versions likely integrated with—not part of—Facebook.

Of course, the move is a smart one for Zynga and similar companies. It allows them to avoid paying fees to Facebook after building a name for themselves on the very same platform. As a gamer myself, I always dismissed Facebook games as boring and unchallenging. I’ll likely never play games on Facebook, but I recognize that the quality has gotten better and people love to play them.

Lastly, a part of me thinks a flat cut by Facebook discourages these developers. If Facebook could capitalize on its advertising and user base to make money, they wouldn’t need a draconian flat rate on companies that bring users to their platform and keep them there for hours at a time. This looks more and more like a Facebook failure than a struggling gaming developer.

Will Facebook suffer from gaming developers leaving their service? Who is to blame?

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Patrick currently lives in Somerville, Massachusetts, where he is studying for a Master's Degree in Intercultural Relations. Upon graduation from Penn State in 2008, he spent two years overseas in Kyrgyzstan with the U.S. Peace Corps. While writing is currently his chosen way to put food on the table, he loves fitness and exercise, which he believes makes up for his avid computer gaming habit.

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