Zynga (ZYNG) released more information in an updated S-1 last week. Most of the document was not that notable as it related to the lease agreement surrounding its new headquarters and rooftop dog park.
For those that do not know, Zynga has a very pet friendly culture and dogs roam around the office. Near the end an interesting document appeared. The redacted agreement between Facebook and Zynga covering what has been described as its symbiotic relationship. All payments for Zynga’s games must go through Facebook and use the Facebook credits system even gift cards and any gift card fraud is the complete responsibility of Zynga. Facebook takes a 30% cut for allowing Zynga use of its platform.
Any game using Facebook’s integration or data will be exclusive to Facebook for the duration of the agreement. This locks Zynga into Facebook and precludes its ability to expand to different social platforms. In the event that Facebook is not able to use its platform in a country where Zynga wishes to expand (China) Facebook credits will not be required for use.
Zynga must give Facebook at least a week’s notice before launching a new game. This may sound like a given but there have been times when Zynga’s software updates caused Facebook consternation in the past and Facebook’s updates can take so long to implement that it is difficult for a company to respond to any errors it may cause. Facebook shares ad revenue with Zynga and assists in reaching monthly user targets.
The question on everyone’s mind at the moment is who needs whom more? Is Zynga dependent on Facebook or vice-versa? In the beginning sites like Yahoo’s games and games.com had a difficult time gaining traction in the social gaming sphere. As Facebook began to come into prominence its user base became an attractive asset to monetize. Zynga realized this and jumped into the social gaming fray leveraging its platform for growth.
As Zynga grew it became closer to Facebook, but without seeing Facebook’s financial statements it is difficult to understand its co-dependency. While it does appear that Zynga is highly dependent on Facebook, the agreement has not stopped Zynga from launching Farmville, Texas Poker, and Cityville in China and on the iPhone. This shows that Zynga has plans to diversify its revenue base away from Facebook.
Without knowing Facebook’s revenue numbers we cannot breakdown how much revenue comes from Zynga and related game companies. That in itself makes the relationship difficult to gauge. There is a symbiotic relationship between the two companies but both companies' futures are not intertwined. In the beginning Zynga needed Facebook’s eyeballs. Now that Zynga is growing more mature there is less of a need for Facebook’s installed user base unless there is a product launch.
Much is made in the press of Zynga’s need for Facebook but in reality the opposite may be true. The amount of goods shared through Zynga is helping fuel Facebook’s growth in sharing. Once we get a completed S-1 from Zynga and an initial S-1 from Facebook investors will be better able to judge the relationship between the two companies. As of this moment it appears as though Zynga is beginning to move away from Facebook preparing for the day when it will be a standalone firm operating on multiple platforms worldwide.
Source: Zynga's S-1
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