It’s going to be difficult, over the coming week, to avoid the story of Google’s investment of $100 to $200 million in Zynga, the world’s largest social gaming company. First reported by TechCrunch, then seconded by VentureBeat (and perhaps also GigaOm), the rumor hasn’t been confirmed by either Google or Zynga company but seems very credible.
If true, it’s a bombshell, and could mean Google will be getting into the social gaming market in a big way relatively soon, potentially as a way to build our more social-network like services that could help it compete with Facebook more directly than it has been able to so far. The plan, according to the reports, is that Zynga will provide its games as a core part of a new Google social gaming platform, that ties in with existing Google social connections and communication channels.
Myspace, Hi5, Yahoo, Microsoft — just about every major competitor appears to have independently decided that games are the channel through which to strike at Facebook. But is that truly Google’s plan? Below we’ll take a look at what Google and Zynga might have to gain from a deal.
That Google is interested in games is not news. Earlier this year, the company bought Labpixies, a small development studio, hired a developer advocate, and began searching for a games product manager.
The company’s exact aim is difficult to discern, though. It is no longer just a search giant, since it owns successful web products, a growing mobile platform in Android, and has a decade-long ambition to succeed in social networking. Its previous social gaming moves reflect the multi-platform focus; the product manager position, for example, asks for experience in both web and mobile gaming, while Labpixies owns cross-platform titles.
Does Google want to create a social gaming platform that spans the web and devices?
Social games are popular, fundamentally, because people like to play games with their friends. Facebook’s developer platform has done the best job of that to date, but Google, like other companies, is trying to refine the social connections and communication channels that it has available to make itself a better destination for gaming. One can imagine a Google user playing FarmVille by seeing notifications come through Gmail chat, a widget in their personalized inbox, a notice on YouTube, or any other destination.
The apps could have a place in any of its web products, independent of any new social networking initiative, or even in search as Bing recently demonstrated. Games will certainly also be important to Android, which may prove to be an attractive mobile platform to a game developer like Zynga. And, Google’s ads division, still its main profit center, might have encouraged a Zynga investment to get better access to in-game advertising.
Zynga, in turn, has email addresses gleaned from Facebook users, along with mobile phone numbers and other information, that it could use to tie in with whatever Google creates. It might even try to use Facebook Connect to make it easier for Facebook users to play on Google’s platform.
Meanwhile, Google is planning to take another shot at social networking soon — following earlier, partially successful efforts like Orkut, or the OpenSocial platform standard.
Here, there’s a simpler equation. Assuming Zynga negotiated good terms on the investment, not giving away too much of itself, then the deal was a good one for the company. It probably didn’t, considering that some recent reports and sources in the industry peg the company’s valuation from $4 billion to $6 billion, if not higher.
But Zynga could get money from other sources; it’s also looking for strategic deals, as with its recent $147 million SoftBank investment, which could provide a way into the Asian markets.
Google is a major Facebook competitor, so Zynga can be seen as wisely giving itself an escape hatch in case Facebook ever turns hostile — a possibility despite the new contract the two companies recently signed. But like Google itself, Zynga is surely aware that the search giant’s past social networking attempts have mostly failed. In fact, it has already been trying to do this. It announced a distribution deal with Microsoft in February and another with Yahoo in May.
One possibility is that Zynga, like some others, sees a more distributed future for social games, in which they could be spread across the web and used via whatever social graph is most convenient. Like Microsoft and Yahoo — and even Zynga’s free-standing gaming sites — Google will need to create a more effective social graph for users than what it has now. Up to this point, Facebook has been better at providing the social connections and communication channels that Zynga needs than any other company.
Another point: to create mega-hits like FarmVille, Zynga became a master of ad campaigns on Facebook, using them to bolster the growth of games. It has also experimented with non-game ads, on the web and even on billboards and buses. Perhaps it will start pulling in users through Google advertising?
In the end, Google and Zynga likely share many motivations for the deal. But while Google has work to do before its investment can bear real fruit, Zynga has at least succeeded in allying itself with what is, for the time being, still the internet’s superpower.
And, a note for those following Zynga’s finances. The company has had an odd paperwork trail in the last year or so, but the Google investment helps explain it. The company has never filed standard regulatory paperwork showing that it has raised the SoftBank money, or the $180 million it announced it was receiving from Digital Sky Technology back in February. Instead, piecemeal filings have been showing up for smaller amounts. Google’s money represents another large chunk, that so far hasn’t been accounted for.
There are a few possibilities, some of which we’ve gone over already. Zynga may be delaying paperwork filings to cloak its financing activity. It may also be signing deals with these larger investors where it provides them with a subscription agreement to purchase a certain amount of stock at a set price by some agreed-upon date in the future. Google may be in this mix.
Another possibility could be that Google (and maybe SoftBank and DST) bought shares from earlier investors. We’ve been hearing hints about early stakeholders selling — and MediaMemo recently reported that one, Pilot Group, has now mostly gotten out, and for a big profit.
At this point, what is clear is Zynga’s still-strong industry position. It is big enough that it has the flexibility to raise hundreds of millions of dollars, cut deals with the largest web companies in the world, buy up talented smaller rivals, and explore new platforms, even as Facebook changes cut into its home-base traffic. The remaining question for Zynga, Google, and everyone else interested in social gaming, is still this: can they create successful alternative platforms? The Google investment shows that the industry is searching harder than ever before.