Zynga's Facebook Deal Revealed: Exclusivity

Details on the marriage contract are interesting.

One thing about going public that private companies find annoying is the need to reveal more information about their business. Not just the sales figures and profit percentages, but important details about key agreements that can affect the business going forward. Companies generally prefer to keep all that information secret, lest some competitor somehow use it to their advantage. When you're going public and registering your stock with the Securities and Exchange Commission, they have some niggling little rules that force you to disclose all sorts of information. Anything that might materially affect performance needs to be disclosed, which is why we're now finding out some interesting things about Zynga's business as they prepare for their IPO.

One of the key moments in Zynga's history is the epic showdown with Facebook in May 2010 over the implementation of Facebook Credits. That was when, as Bing Gordon put it, they almost went nuclear. Facebook had decided to require all social games on Facebook to use Facebook Credits, and thereby give up 30% of their revenue to Facebook. Quite reasonable, if you're Facebook; not so reasonable from Zynga's point of view. Given that Facebook represented the vast majority of Zynga's business... and that Zynga represented a healthy percentage of Facebook's overall traffic... it was a tense moment. An agreement was signed, the dust settled, and Zynga was accepting Facebook Credits. But we never knew any of the terms of the deal... until now.

The key thing in the agreement is that Zynga has given Facebook a 5 year exclusivity on its current games, as well as new games it introduces that has Facebook integration or use Facebook data. The agreement specifies several other social networks that Zynga cannot release its games on, though the names of those networks have been redacted. Astute observers will note that this agreement predates the existence of Google+, which has already emerged in just a few weeks as the most viable competitor Facebook has seen in years.

There's more detail in this Gamasutra article, but the key thing is the exclusivity. It might have seemed like a no-brainer at the time, for who could challenge mighty Facebook? Now that Google has finally seemed to get some traction, there might actually be another social network worth creating games for, in only a year or two. Zynga will be locked out for a while, though, which gives some other social game companies a chance to grab some market share. Don't forget that Google is also planning something big around games, as various rumors have noted.

Meanwhile, Zynga has some other issues to deal with, like the Vostu lawsuit that seems to be heating up. I suspect it will all be settled out of court, but not before there's some discovery back and forth and a few more legal broadsides.

It doesn't seem to be distracting Zynga from making great inroads with Empires & Allies, its latest game that's zoomed up the charts to become bigger than Farmville. Maybe those farmers will have to beat some plowshares into swords in order to compete.

Meanwhile, Zynga is making inroads into China with a partnership with Tencent, bringing a localized Chinese version of Cityville to the land where millions play online. Hmm, maybe they don't need Facebook after all... since Facebook isn't in China. Zynga stands to do very well in the Chinese market, and Facebook won't be sharing in that revenue.