Presumably, the 30% from Facebook Credits will keep Zuck smiling. But, if not, Zynga’s fortunes peak and valley based on Facebook’s policies towards it. The S-1 says that the Zynga business would be harmed if:
- Facebook discontinues or limits access to its platform by us and other game developers;
- Facebook terminates or does not renew our addendum;
- Facebook modifies its terms of service or other policies, including fees charged to, or other restrictions on, us or other application developers, or Facebook changes how the personal information of its users is made available to application developers on the Facebook platform or shared by users;
- Facebook establishes more favorable relationships with one or more of our competitors; or
- Facebook develops its own competitive offerings.
We have benefited from Facebook’s strong brand recognition and large user base. If Facebook loses its market position or otherwise falls out of favor with Internet users, we would need to identify alternative channels for marketing, promoting and distributing our games, which would consume substantial resources and may not be effective. In addition, Facebook has broad discretion to change its terms of service and other policies with respect to us and other developers, and those changes may be unfavorable to us…. Facebook may also change its fee structure, add fees associated with access to and use of the Facebook platform, change how the personal information of its users is made available to application developers on the Facebook platform or restrict how Facebook users can share information with friends on their platform. Beginning in early 2010, Facebook changed its policies for application developers regarding use of its communication channels. These changes limited the level of communication among users about applications on the Facebook platform. As a result, the number of our players on Facebook declined. Any such changes in the future could significantly alter how players experience our games or interact within our games, which may harm our business.
Zynga is an asymmetrical relationship. Clearly Facebook benefits by having Zynga generating activity and stickiness for Facebook, increasing user engagement and presenting more opportunities to sell display advertising. Moreover, it benefits by the sale of Credits. But Facebook has all the leverage in the relationship, since Zynga cannot play off Facebook with another effective social network. In that vein, Fred Wilson’s post today about rooting for the success of Google+ is spot-on:
My line about “don’t be a xyz bitch” is all about controlling your own destiny. These social platforms are awesome to build and launch on. They give you instant distribution, instant users, instant social identity. But in a perfect world you don’t want to be dependent on any single one of them. The more social platforms of scale there are, and we have a bunch now, including Twitter, Tumblr, and Foursquare, the better world it will be for developers. And our business at USV is investing in and helping developers build companies. So I’m rooting for Google+. I think it will serve users who aren’t being served well (or at all) on the social web right now. And I think it will be a strong new platform for developers. And both of those are great things for the web, our business, and entrepreneurs.