In exchange, Facebook has agreed to some revenue-sharing opportunities from advertising, as well as facilitating some user-personalization capabilities for Zynga games. Most significant (to Zynga as well as other game makers), Facebook is forbidden from developing and deploying games of its own. The full nature of the relationship between the two companies remains secret, but it's clear that each has made significant commitments to the other, at least through 2015.
Facebook also makes the rules
None of this bodes particularly well for smaller developers. Even given the special relationship between Facebook and Zynga, a close read of Zynga's SEC filings gives the impression that the scales are tipped significantly in Facebook's favor. That goes double for any developers whose relationship with the social networking giant isn't quite as cuddly as Zynga's, based on Facebook's past handling of its developer program.
Zynga derives the largest portion of its revenue from sales of in-game items. In the past, that meant players could purchase items either via direct credit card sales or through various third-party payment processing companies. (In 2009, Zynga was PayPal's second largest merchant.) But that all changed in 2010, when Facebook told developers they would need to transition to the social network's proprietary Facebook Credits currency as their exclusive payment system. Zynga completed the transition in April.
The upside is that the new scheme dramatically reduces developers' payment processing costs by cutting down the number of payment vendors. The downside is that Facebook skims 30 percent off every Facebook Credits transaction. In other words, Facebook now lays claim to 30 percent of the revenue of any developer that relies on in-app sales.
But suppose you want to monetize your apps in different ways, such as advertising. Facebook retains the right to decide how you can do that, too. In March, it published an exclusive list of ad networks that had agreed to a 12-point list of terms. Among those excluded under the new rules was AdSense, the ad network operated by Facebook archrival Google.
Facebook has demonstrated a similar willingness to change or withdraw platform features unilaterally. For example, in 2010 it did away with a method for apps to send notifications to their users -- to let you know when it's your turn at Scrabble, say. And every Facebook user knows how frustrating it is when Facebook rolls out yet another UI overhaul, out of the blue.
Is the game rigged?
All of these factors suggest a fairly volatile market for independent developers, and that's to say nothing of the volatility of the Facebook platform itself. Remember MySpace? Or Friendster? Big social networking sites are still a relatively new phenomenon on the Web, and history suggests users are a fickle bunch. For Facebook, the most obvious cloud on the horizon is Google+, but who knows what next month may bring?
For now, all signs point to a successful IPO for Zynga. What lies beyond that horizon is anyone's guess. Although some analysts have scoffed at what appears to be Zynga's "utter dependence" on Facebook, another interpretation is that Zynga has inked deals that restore at least some semblance to stability to what otherwise seems to be a very shaky marketplace. It may in fact make sense for Zynga to place all its eggs in Facebook's basket -- at least until its contract with Facebook runs out in 2015. Smaller developers who aren't in a position to forge similar partnerships, however, would be advised to tread very carefully -- especially considering they will have to compete with the likes of Zynga.
This article, "Developers' big decision: Whether to bet the farm on Facebook," originally appeared at InfoWorld.com. Read more of Neil McAllister's Fatal Exception blog and follow the latest news in programming at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.