Facebook Inc and Zynga Inc severed the cozy ties that once bound the
Internet industry's closest couple, revising a years-old partnership
between the two companies.
The two companies reported in regulatory
filings on Thursday that they had reached an agreement to amend a deal
struck in 2010 that was widely seen as giving Zynga privileged status on
the world's No.1 social network.
Zynga stock fell 12 percent to $2.30 in after-hours trading. Facebook shares were off 5 cents at $27.27.
favored nation's status is gone but it seems like it's been slipping
away for a while now," said PJ McNealy, CEO of Digital World Research.
new agreement gives Zynga a freer hand to operate a standalone gaming
website, but eliminates the San Francisco game publisher's ability to
promote its site on Facebook and to draw users from Facebook's thriving
social network of roughly 1 billion users.
Visitors to Zynga's
gaming website will no longer be able to tap into their network of
Facebook friends or post messages about their gaming progress to
Zynga games, like "FarmVille" and "Mafia Wars," will
still be available on Facebook's social network, but those games will no
longer feature cross-promotions directing users to Zynga's standalone
The move underscores the widening gap between the two
social networking pioneers, which went public within seven months of
each other and have been intimately tied.
In recent quarters, fees
from Zynga contributed 15 percent of Facebook's total revenues, while
Zynga relies on Facebook for roughly 80 percent of its revenue.
2010 agreement provided a variety of ways for Zynga to meet its monthly
user growth targets, including guaranteed promotions of certain Zynga
games on Facebook.
"Effective on March 31, 2013, certain
provisions related to Web and mobile growth targets and schedules will
no longer be applicable," said a regulatory filing submitted by Zynga on
The changes could benefit Zynga's rivals who have long groused about Zynga receiving preferential treatment.
was plenty of speculation Zynga was getting referrals within the
Facebook community that other gaming companies weren't getting which
helped drive web traffic to Zynga games," said Digital World Research's
But he noted that recent changes to Facebook's algorithm
appeared to be helping drive more traffic to Zynga competitors such as
Electronic Arts and KixEye.
In July, Zynga executives told
analysts that the company's revenue had plummeted in the second quarter
as Facebook tweaked its algorithms, sending fewer gamers to Zynga
titles. Zynga CEO Mark Pincus, at the time, assured Wall Street that
Zynga was "working closely with Facebook to optimize the game
Both Internet companies have been trying to reduce
their inter-dependence, with Zynga starting up its own Zynga.com
platform, and Facebook wooing other games developers.
streamlined our terms with Zynga so that Zynga.com's use of Facebook
Platform is governed by the same policies as the rest of the ecosystem,"
a Facebook spokesman said in a statement. "We will continue to work
with Zynga, just as we do with developers of all sizes."
myriad terms of their new agreement, Zynga could elect not to collect
revenue for games on its own website by solely using Facebook payment
system, in which Facebook takes a 30 percent cut.
The game developer could also choose not to display Facebook's ads on its own site, Zynga.com.
Street thinks Facebook is booting them off or something bad, but
there's no way this is bad," said Michael Pachter, an analyst at Wedbush
Securities. "This is at worst neutral and at best good."
revised agreement also allows Facebook to develop its own games,
according to the filing. A person close to Facebook said the company
"was not in the business of building games and we have not plans to do
© Thomson Reuters 2012