Friday, November 30, 2012

Zynga's short-lived success

Facebook and Zynga ended their exclusivity agreement. This means that Zynga can now host its games on other platforms and use non-Facebook ads and payments on their website. However, Zynga no longer has special privileges on the Facebook platform. Facebook recently revised its agreement with Zynga to bring it in line with agreements with other gaming companies that are also utilizing the Facebook platform. Within hours of the news of this change in relationship status, the Zynga shares fell by 13%. This was expected because recent figures show that up to 80% of Zynga’s revenues were coming from Facebook users. Being too dependent on any one platform has its risks. Zynga’s dependence on one platform has been a cause for concern as they cut jobs and offices around the world.

Zynga had a brilliant strategy. They identified the social media boom and realized that people want to collaborate at all fronts, including gaming. They also identified the most successful social networking platform, Facebook, and successfully reached an agreement with them to get exclusive privileges on their platform. As the first movers within this area of gaming, they were tremendously successful. Seeing the growth and success of Zynga, several new companies mushroomed in this arena and today Facebook has little to no reason to keep the exclusivity for Zynga.

With such a new and innovative business model come new problems. Facebook has no competitors so to speak, which leaves Zynga with either collaborating with Facebook or create its own platform. With the new agreement, Zynga will have to start building on its own platform and of course continue to improve its presence on Facebook.

For Facebook, the termination of the understanding is a good thing. They can now sell themselves as being fair to all game developers and increase participation from other companies. In essence, the agreement seemed to make sense for Facebook only for the initial years.

The questions I would like to leave the readers with are:
- Will ending the exclusivity agreement with Zynga be of any harm to Facebook?
- Can Zynga bounce back with its own platform to be a leader again?


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