New Zynga S-1 Docs: Traffic Guarantees From Facebook, but No Canvas Ad Revenue

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By Eric Eldon Comment

A recent set of updates to Zynga’s S-1 document sheds new light about the company’s business position, as it prepares for an initial public offering. For starters, Google has indeed invested, although the terms were not disclosed.

More interesting is the special relationship that Facebook and Zynga have formalized over revenue and traffic, in two developer addendums. (You can find the full set of docs here, although sadly some of the most interesting bits have been removed).

At first glance, the terms read as if Zynga had a special deal with Facebook, where it gets a portion of the ad revenue from Facebook ad units that run alongside its games in canvas apps. However, the terms specified that it is not canvas app ad revenue — instead, it’s referring to Zynga web sites like FarmVille.com, or even Facebook ads that might run within games.

We asked Facebook about the matter and got this response: “We don’t have agreements with any developers, including Zynga, to share revenue from ads next to their Facebook canvas apps. We did agree with Zynga to work together in the future on providing ads on their properties beyond Facebook, but we have no current timeline for when we might start working on that.”

Facebook also appears to have guaranteed Zynga certain growth targets in exchange for continuing to invest in games on the platform, whether web or mobile. Facebook has, since the launch of the platform, rewarded and punished individual developers through increasing or decreasing the number of invites, notifications and other communications allowed per user, or by providing some games with special access to features or in-house advertising.

However, Facebook has not to our knowledge previously guaranteed traffic levels in writing. Other developers are no doubt wondering if they can get the same sorts of guarantees, and why they haven’t gotten them in the past. Unless they have their own undisclosed agreements, of course.

As part of the addendum terms, Facebook appears to have gotten Zynga to agree to make Facebook the exclusive “Social Platform” that it uses, for the unspecified time-frame of the agreement. This helps explain Zynga’s closure of its games on Tagged, MySpace and other social networks, although we’re not sure how that might conflict with anything Google might want to launch with Zynga’s participation. Facebook also appears to have required Zynga to include itself as an option for mobile apps, for the agreement’s duration. However, Zynga can also use mobile platforms as well.

Another interesting point here is that Facebook has given Zynga permission to create some sort of “Zynga Platform,” although we don’t know what that is. It also has given the developer access to new features, including a proposed “Game Friends Protocol” API, apparently offering a new way for social gamers to find and play together.

Finally, with Credits, the virtual currency exclusivity kicked in for most of Zynga’s major games over the third quarter of 2010. As we examined when the filing first came out this month, the company has continued to grow revenues after the Credits implementations kicked in; some growth rate decreases are visible, but other factors, like communication channel reductions, appear to have affected it as well.

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