Anybody who has been on Facebook over the last few years cannot possibly have missed the Farmville revolution. The online game, made by Zynga, took the social networking world by stormso much so that Facebook entered into a partnership with it in 2010, whereby it got exclusive rights over Zyngas games, and Zynga got access to Facebooks gigantic user base. This worked to both companies advantage as Zynga contributed around 15% of Facebooks total revenues via fees and in-game purchases, while Zynga relied on Facebook for roughly 80% of its revenue. This equation, via which Zynga received preferential treatment over other game makers, is now going to change. In regulatory filings on Thursday, both companies reported that they had altered their previous partnership. Zynga is now allowed to use its games on its own website and is no longer allowed to cross-advertise its products via Facebook (a major advantage it enjoyed over its online gaming competitors), while the social networking giant can begin to attract other game makers.
Even though Zyngas stock fell 12% following the announcement, this seems a spot reaction rather than a reflection of investors perceptions of the longer-term business potentials of the new deal. From the looks of it, the new deal seems a win-win for both parties; albeit more so for Facebook than Zynga. Able to now cater to more online game makers, Facebook stands to boost its revenue streaminnovation in the online gaming space is huge, and more games means more revenue. Zynga, on the other hand, gets a consolidated location for all its games, thus being able to exert greater advertising pull. After gauging which games are popular on its site, it can then place those on Facebook, taking advantage of its close to 1 billion users.