Is Leaving Facebook a Gamble Zynga is Willing to Take?
Amanda is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A good portion of speculative articles written lately about online gambling have involved internet social gaming company Zynga (NASDAQ: ZNGA). The drift is generally that Zynga is a natural candidate to make huge profits from such activity, which certainly seems like a sure bet. The company claims that 30 million people play Zynga Poker each month, so offering other activities like lotteries and real-money poker seems like a no-brainer. Currently, they are reported to be in talks with possible partners for just such a project. The company that should be number one on their list, however, is Facebook.
The two companies already have a fairly lucrative deal going with Zynga Poker and other games that use Facebook Credits, instead of greenbacks, as currency. When credits are used for purchases, Facebook takes a 30% cut of the action, leaving 70% for the gaming company. Although this is only a small percentage of Facebook’s yearly revenue, most of which comes from advertising, legalization of online gambling will surely help up the ante. Curiously, recent articles regarding each entity’s interest in cashing in on the inevitable online gambling craze don’t mention the other as a fellow punter. This seems odd, considering the apparent symbiotic relationship they now enjoy. Where’s the problem?
An undercurrent of any conversation about Zynga seems to be the company’s need to become independent of Facebook. There is even some speculation that this relationship may be at the root of investors' reluctance to take Zynga seriously. The company has announced plans for Zynga Direct, a platform from which it would presumably launch its cash gambling product, leaving Facebook behind. Now, independence is an admirable quality in any new company, but this concept seems misdirected, and here’s why.
Currently, Zynga draws on Facebook’s user pool for its 7 million social poker players per day. If they use a new partner and platform for the cash version of the online game, they will probably acquire some, but not all of those who now indulge in Zynga Poker. Without the 800 million prospective customers that Facebook supplies, getting new players to sign on becomes a much dicier proposition. Surely, this scenario would not do much to instill investor confidence in the internet gaming company.
Staying with Facebook seems the least risky way for Zynga to break into the cash-based internet gaming realm and really strut its stuff. Facebook seems poised to take advantage of legalized online gambling no matter what, and Zynga runs the risk of placing themselves outside of Facebook’s field of candidates if it rushes to cut the apron strings.
The two companies need only to tweak the infrastructure that they already have in place to quickly dominate this new gaming category. Facebook has still not put a date to its IPO and it may well be planning to add online gambling to its stable of moneymakers before doing so, and might be inclined to stay with a partner it knows in order to cash in quickly. Zynga is still a fledgling, and needs to strengthen its wings before flying the Facebook nest. Staying on needn’t stop them from developing other options as well—such as mobile apps—but jumping ship too soon may be a chance that Zynga would be ill-advised to take.
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