Wednesday, October 12, 2011

The Facebook - Zynga Relationship

As the Wall Street Journal notes today, Zynga has embarked on a strategy to become less dependent on Facebook. To date, the firm has ridden the coattails of Facebook, with its social games doing incredibly well on the social network's site.   However, as the firm approaches an IPO, investors expressed concern with the dependency on Facebook.  Zynga now has begun to pursue a strategy of offering games directly to consumers through its own site as well as through mobile platforms. 

The issue of dependency raises an interesting question.   To what extent is Facebook dependent on Zynga?  To date, the dependency has been mostly one-directional.   However, if Zynga does succeed in developing its own route to market, then we may see a bit more of a co-dependent relationship.  Why?  Well, Zynga certainly helps Facebook a great deal, not only through the direct revenue that Facebook generates from the relationship... but also because heavy Zynga users tend to spend a great deal of time on Facebook.  As a result, Facebook has an opportunity to sell more ads.   If we end up with a situation of co-dependency, then I would look for rumors to begin to swirl regarding a Facebook acquisition of Zynga.  That's what tends to happen when two firms become dependent upon one another.   Each side worries about being "held up" by the other, and therefore, a merger often resolves the conflict and enables the two parties to cooperate more effectively.   We are far from that point, but we may be headed in that direction with the latest Zynga strategy moves. 

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