In this op-ed, Gamasutra editor-at-large Chris Morris tries to figure out why investors are so down on what could be a good thing for Zynga.
So Zynga and Facebook have agreed to see other people -- and Wall Street is freaking out about that.
Zynga shares were down 8 percent in early trading Friday after the companies restructured their working agreement. And while those investors certainly have a right to be mad at Zynga in general, I think they might be getting it wrong this time.
The source of the panic seems to be two-fold: Zynga loses some undisclosed privileges and Facebook is now free to make its own games if it wants to do so. But selling off shares of the company (or piling on with criticism) is failing to see the forest for the trees.
Games on Facebook are on the decline -- especially at Zynga. And by restructuring the deal, Zynga is able to shed some of the more burdensome aspects of the symbiotic relationship it has historically had with Facebook.
First up: Ads. Rather than being forced to use Facebook ads on its own sites, including Zynga.com, it can now sell its own. That will allow the company to not only be in charge of its own rates, but to better cater to its audience. And by not having to use Facebook payments on those sites (something it was never crazy about anyway), Zynga could see a slight income bump.
The deal previously also required Zynga to share revenues from its own site with Facebook -- a curious arrangement that put the company at a slight disadvantage in competing with companies like King.com and Kabam.
What Pincus and Co. have done here is essentially level the playing field. The advantages it once had through its Facebook deal have long since evaporated due to the changing market and that audience's increasing shift to mobile.
Zynga games won't disappear, either. Worst case: The company will have to spend a bit more on marketing to boost awareness. (But the best source of marketing in social games has always been the existing customer base – something that's not about to change.)
Zynga and Facebook: Are the naysayers wrong?
So Zynga and Facebook have agreed to see other people -- and Wall Street is freaking out about that. Chris Morris tries to figure out why investors are so down on what could be a good thing for Zynga.