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08/12/2012 by
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Social Games Giant Zynga Draws Back From Facebook Platform

Social games giant Zynga, creator of FarmVille and Poker, was not bluffing. It reached an agreement with Facebook that reduces its dependence on the social networking giant.

Social Games Giant Zynga Draws Back From Facebook Platform

Since the 2010 the deal between the two moguls gave Zynga a privileged status on the world’s leading social network with over 1 billion users.

Both internet companies have been trying to reduce their interdependence, with Zynga starting up its own Zynga.com platform, and Facebook inviting other games developers.

A courageous move from Zynga, because Zynga relies on Facebook for about 80% of its total revenues, in recent quarters of 2012. Facebook revenues depended for 15% on Zynga.

A day after last Thursday’s announcement, shares of gaming company Zynga fell 7%, to $2.44 in the next morning’s trading on the New York Stock Exchange.

Facebook shares went down more than 1% to $26.98.

Social Games Giant Zynga Draws Back From Facebook Platform

My Opinion?
Other game companies like SpilGames and RealGames might have received Zynga’s move with a little confusion? Strange to see your most fierce competitor drawing back from Facebook, with the high probability that their revenues will severly drop? Not even mentioning the plummeting of the Zynga stock price.

But I can image that this bold move by Zynga also inspires the other game creators. Is this move by Zynga, similar to an Amazon-alike strategic move that will make Zynga a more independent stronger company in the long run?

In the mobile space, not many games and app developers would turn their back on Apple. Simply because they need the volume that Apple and iTunes are delevering. Even though Apple it (like Facebook) is taking a significant chunk of its partner’s revenues.

In the social space, blue monster Facebook has over 1 billion users, and to attract such a huge number of people to the Zynga.com platform, that will take quite of a lot of marketing efforts. And a lot of extra marketing Dollars, as well.

The good news for Zynga? When their marketing and POE media strategy are executed smartly, they will be able to acquire new paying customers for at least 50% less than the kicback Facebook was charging them. An example?

Just look at the disruptive model of booking.com. If you are able to buy each hotel booking via paid search in Google for 50% of the fee that hotels are paying – you don’t have a big problem – you have created a cash machine. With a much higher profit.

So, if e-commerce giants like Booking.com and Amazon.com are making so much revenues and profit without Facebook, Zynga with its unique content and games can probably do the same in the future.

So to share holders: If a company like Zynga, is now able to keep 100% of its revenues, and can lower its acquisition costs with 50% or more, I would suggest you to buy Zynga stocks. Not dumping them.

But hey, maybe investors do not always understand long term value? Like many investors have misunderstood the power of Amazon’s long term strategy for already quite some time.

What About You?
Is Zynga’s move bold, courageous and smart long term? Should other game creators follow Zynga’s example? Or is dumping Facebook social suicide for Zynga?

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