The Zynga/Facebook Crisis

Bing recounting the near apocalypse.

You may remember last spring, when the Facebook was trying to push Facebook Credits onto every social gaming company... which meant an instant 30% haircut on their income... and Zynga was getting ready to throw down over the incident? Apparently the crisis nearly went nuclear, at least according to this interview with Bing Gordon. (Bing was my old boss at Electronic Arts, back when it was less than a hundred employees... now he's a partner at Kleiner Perkins and led their investment into Zynga.)

He characterized the situation as very tense, and apparently it came very close to a breaking point, but in the end both companies stood down and entered into a five-year agreement where Zynga uses Facebook Credits. It may seem like Facebook had the power, since it was their platform that they were allowing Zynga to use; but you have to remember that Zynga was responsible at that point for some substantial percentage of Facebook's total traffic and time spent on Facebook. If Zynga had pulled back from Facebook and directed its users to a web portal, both companies would have been hurt.

So everything's settled, right? Well, it still seems to me that Zynga should work towards diversifying their revenue streams such that no one entity (like Facebook) exerts power over a majority of it. A tall order, true, but certainly something that would let executives sleep a little better at night. It's a bit unsettling to think that Facebook could look around one day and say, hey, we're not really making enough money... maybe we should take 35% instead of 30%. This is another reason to hope for a substantial Facebook competitor to emerge, because competition would help keep prices down for developers.