Facebook, Zynga Loosen Ties

Gaming company gains autonomy outside of social network

Facebook and Zynga used to be best friends.

Facebook and Zynga used to be best friends. Now the social gaming company is looking to reduce Facebook’s role when users play its games like Words With Friends outside of the social network, according to regulatory filings published Thursday afternoon.

The new agreement between the companies lets Zynga do what it wants with its games outside of Facebook. For example, when users play FarmVille 2 on Zynga.com, they won’t have to buy their crops using Facebook Payments, and they won’t have to log in with their Facebook accounts when playing Words With Friends on their smartphones or on Zynga’s site.

Zynga also won’t have to show users Facebook ads when they’re playing on Zynga.com. The latter move is a significant departure; earlier this year Facebook began running its ads on Zynga.com. Many perceived that display ad partnership as the inklings of an external Facebook ad network.

While it’s uncertain how much money Facebook has made off the Zynga.com ads, Zynga—which cuts Facebook a slice from the virtual goods it sells and run ads on the social network—has historically been a sizeable revenue source for the company. Zynga contributed 7 percent of Facebook’s total revenue for the first nine months of 2012, which was down from last year when it accounted for 12 percent of the year’s revenue. The virtual currency change could potentially kneecap Facebook’s stagnating Payments business. The revenue segment only grew 13 percent year over year in the third quarter of 2012, and Facebook said in its most recent quarterly earnings statement that Zynga “generated the majority” of its payments revenue, though “Zynga's contribution to our payments and other fees revenue has decreased over time and this trend may continue.”

Initially it seems the news has hurt Zynga's bottom line more than Facebook's. The former's stock is down 12 percent in after-hours trading, whereas the latter's has only dipped by 0.22 percent

The agreement also frees up Zynga to develop mobile games or certain types of social games without being forced to make them available on Facebook. And for the social games it does develop, it will only need to make them available on Facebook “shortly following the time that such game is made available on another social platform or a Zynga property,” according to the filing. Social games that Zynga acquires but aren’t already available on Facebook will need to be launched on Facebook post-acquisition.

Interestingly the new agreement opens up Facebook to develop its own games. That won’t take action until March 31, 2013, which could give Facebook plenty of time to create titles if it so chooses. But whether the social network—the one that CEO Mark Zuckerberg often refers to as a platform for other developers to build on—would actually develop games and risk pissing off other social game developers may be a long shot.

Facebook and Zynga did not immediately respond to requests for comment.