The Concern That Facebook Could Destroy Zynga Overnight Is Overblown

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As Zynga nears its IPO, one of the biggest question marks surrounding the company is its dependence on Facebook, on which it relies for nearly all its revenue. The concern here is twofold:

First, that Facebook might go into the games business itself, thus displacing Zynga.

Second, that Facebook could tighten the reins on its platform or increase its financial “tax” on Zynga.

We spoke with a senior executive in the social games industry about these concerns. The executive does not know anything specific about the Zynga-Facebook relationship, but he thinks that fears about this risk are overblown.

Specifically:

  • “From what I’ve heard the relationship between Zynga and Facebook is stable and friendly.”
  • What’s more, Facebook has an interest in making sure Zynga’s IPO goes well. 
  • Zynga does have a lot of growth ahead of it, according to our source: Facebook is still growing, and Zynga is getting better at monetizing its games.  (Our primary concern about Zynga is that the company has stopped growing.)
  • Pressed on the fact that Zynga’s not really growing, our source said that Zynga is getting better at both turning its games into hits and getting money out of players, and so that the picture should get better as they launch more games. (We’re sceptical.)
  • Our source speculates that Zynga might fix some of its dependence on Facebook by buying Angry Birds-maker Rovio. Rovio has been talking about an IPO itself but “that might be a way to raise the stakes. We’ll see.”
  • Our source summed up the Facebook-Zynga relationship this way: “Zynga needs Facebook and Facebook needs Zynga.” 

The last point is key and we would agree with it. Zynga’s biggest problem right now isn’t Facebook (or only indirectly): it’s the fact that it’s just not growing.

FOR MORE:

  • The Latest Numbers Don’t Look Good At All →
  • Our Full Revenue Analysis Of Zynga →

This note was published as part of BI Research, a new industry intelligence service from Business Insider. The service is currently in beta and is free. To learn more and sign up, please click here.

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