This morning brought news of Zynga and Facebook’s five year commitment to keeping social gaming on the network. As we wrote earlier today, the deal was surprising considering Zynga’s recent frustrations with Facebook. Some of these frustrations stemmed from last year’s limitations on messaging users. But the more significant concern was Facebook’s push of Facebook Credits as the only payment platform that Zynga and others can use. And clearly, the Credits angle of the deal was a definitely part of the negotiations for this partnership.
The issue that Zynga has is that Facebook takes a massive fee – 30% – for Credits (that is standard for all publishers). For Zynga, which is a cash cow for virtual currency and goods, this cut can amount to some serious dough. Last year, Zynga founder Mark Pincus told The New York Times that direct purchases of virtual currency and goods would account for most of its more than $100 million in revenue in 2009. Last week. Cake Financial founder and CEO Stephen Carpenter estimated that Zynga is bringing in $15 million in profit per month, and would stand to take a significant loss from the 30 percent cut. Now, with the new deal, Zynga will expand the use of Facebook Credits, the social network’s virtual currency, to more games in the developers’ family.
Zynga and Facebook most recently sparred over Facebook’s Credits initiative. Zynga was of course trying to negotiate to lower Facebook’s cut and in these earlier negotiations, things got heated. Facebook was even threatening to shut down Zynga games altogether.
Facebook’s director of communications Larry Yu tells us that the 30 percent fee has remained the same for this deal. But according to a source, Zynga was able to win some concessions and the company walked away pleased with the deal. These concessions could have been made in the form of ad money, as Zynga is one of the largest advertisers on the social network.
And if Facebook is willing to make concessions for Zynga, what does this mean for the other game developers and publishers who are using Credits? For instance, it would make sense for Playdom, the second most popular game publisher on Facebook, to try to sort out a deal as well.
The other angle to the virtual currency agreement is whether Facebook credits will be able to be used on Zynga games off the Facebook platform. Zynga’s recent plans to move off the platform, i.e. Zynga Live, is sure to play a hand in this matter. Zynga wouldn’t comment on any specifics of whether Facebook Credits will integrate off platform.
That being said, virtual currency withstanding, Zynga reportedly spends between $5 million and $8 million a month on Facebook advertising. The fact is that Zynga can afford to play hardball.