Update: Zynga Will Pay Facebook 30% Per Transaction – But It’s Probably Getting Free AdsEarlier: Facebook and Zynga have reached a five-year deal to keep Zynga games on Facebook and expand the use of Facebook Credits in Zynga’s games.
A couple weeks back, it looked like Zynga might leave Facebook and host its games on ZyngaLive.com instead.
Zynga was upset because Facebook required it to use Facebook Credits and pay 30% of every transaction – far more than the 3.5% payments providers charge on the Internet, but about the same Apple charges iPhone App developers.
Also, Facebook had begun to limit the ways in which Zynga could contact its users through Facebook’s “notfication” system, and this effectively forced Zynga to buy more Facebook ads.
One industry source estimates that these platform taxes cut into Zynga’s revenues by as much as 50%. Reports suggested traffic to Zynga’s games was tanking, too.
But Zynga wasn’t the only dependent party in these negotiations. Facebook is trying to become a platform where application-makers can become real businesses. So far, Zynga has been far and away the most successful company built on the Facebook platform. It recently issued shares at $4 billion valuation and we’ve heard 2010 revenues could approach $600 million. If Facebook killed Zynga, it’s hard to imagine many more startups and VCs giving the Facebook platform a try.
“Facebook was a pioneer in opening their platform in 2007 and in just three years tens of millions of Facebook users play our games every day, from FarmVille and Café World to Treasure Isle and Mafia Wars,” Mark Pincus, founder and chief executive officer at Zynga, said in a canned quote.
“We are excited about Facebook’s long-term commitment to social gaming and Zynga, and look forward to working with them and other platform providers to bring the best social gaming experience to users worldwide.”
“We are pleased to enter into a new agreement with Zynga to enhance the experience for Facebook users who play Zynga games,” Sheryl Sandberg, chief operating officer at Facebook, said in a statement. “We look forward to continuing our work with Zynga and all of our developers to increase the opportunities on our platform.”
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