Facebook’s Games Initiative Could Spell Trouble for Zynga

Sad day in FarmVille.

If struggling online-games developer Zynga thought things were bad before, they could be turning a whole lot worse: Facebook is rolling out a pilot program for small- and medium-sized game developers.

“Through the program, we will work with select game developers and provide promotional support for their games in placements across our mobile apps,” reads a note on the Facebook Developers Website.

Facebook is promising those developers access to the social network’s “800 million monthly mobile users,” a variety of analytics tools for measuring their games’ impact, and a “unique targeting ability” for finding the right audiences—all for a cut of the games’ revenue. “We will be collaborating deeply with developers in our program by helping them cultivate high-quality, long-term players for their games,” the Website added.

Zynga’s “FarmVille” franchise proved a sizable hit on Facebook, where millions of players spent untold hours tending to their virtual homesteads. Buoyed by its success and a monster IPO, Zynga rapidly acquired game studios (including OMGPOP) and launched new offices around the country. By 2013, however, some of the shine had come off its business model: with its user base and revenues falling, Zynga shut down games and initiated punishing rounds of layoffs; in July, it hired Xbox executive Don Mattrick as CEO, but it remains to be seen whether he can launch a successful turnaround.

“We are missing out on the platform growth that Apple, Google and Facebook are seeing,” Mattrick said on the company’s most recent earnings call, according to Bloomberg. “We have the ability to break some bad habits and get back to some good fundamentals.” Much of that depends on whether Zynga can successfully exploit a presence on mobile devices such as smartphones and tablets, despite Facebook’s newfound interest in game developers.

Zynga benefitted mightily from its relationship with Facebook, but other developers have subsequently realized they can utilize many of Zynga’s tricks—and the social network’s enormous audience—for their own ends. King is now Facebook’s top app developer, largely on the strength of its “Candy Crush Saga” game. If Facebook encourages more small- and medium-sized developers to jump into the social gaming, it could fill the arena with even more competitors, which could prove bad news for the already-reeling Zynga.

But for Facebook, the benefits are obvious: if any of those tiny-for-the-moment developers create a hit game, the revenues will come flooding in. That would supplement the social network’s ad revenue, all while ensuring it doesn’t need to overly depend on a single large developer with a set portfolio of games—like good buddy Zynga.


Image: Zynga