Zynga Stock Dives as Facebook Keeps Backing Away
Zynga shares are down 7 percent after the social-games maker and Facebook announced they are all but ending their special relationship. Facebook can develop its own games if it chooses to do so, and Zynga can now host its games …
Context & Ripple Effects
Zynga’s dependence on Facebook had already been exposed when its shares fell around Facebook’s May IPO, while separate coverage in June focused on Zynga’s user losses. A 2010 report also framed Zynga as preparing for conflict with the platform through its proposed Zynga Live alternative.
The revised arrangement follows the November disclosure that Facebook could make games itself. It turns an uneasy distribution partnership into a more conventional platform-developer relationship, with Zynga losing the protection implied by preferential treatment.
First-order effects
- Zynga shares fell 7 percent as investors reassessed the value of its Facebook distribution relationship and the company’s ability to host games beyond Facebook.
- Facebook gains explicit freedom to develop its own games, placing it in a position to compete with a developer that had been closely tied to its platform.
Second-order effects
- Zynga must put more weight on direct hosting and channels outside Facebook, making audience acquisition and retention more central as its user base was already under pressure.
- Facebook can set game-platform terms without preserving a special carve-out for Zynga, weakening Zynga’s negotiating position relative to the platform.
Third-order effects
- The split points toward social-game developers being valued less for privileged platform access and more for portable audiences, brands and distribution they control themselves.
- If major platforms both distribute and build games, developer-platform partnerships are likely to become more transactional and vulnerable to changes in platform rules.
The trend: Social-game distribution is shifting from exclusive platform partnerships toward platform operators retaining the option to compete directly with their developers.