Zynga worries for Facebook ahead of IPO

By Reuters | Updated: 5 June 2012 00:56 IST

Highlights

Zynga is launching a new games service that allows users to play on the company's website instead of Facebook.

Zynga Inc is launching a new games service that allows users to play on the company's website instead of Facebook, potentially driving traffic away from the world's No. 1 social network that is its biggest partner.

The service is the online game company's boldest move yet to create a presence outside of Facebook, where it makes 93 percent of its revenue.

Investors sent Zynga's shares up 10 percent to $14.48.

"Zynga is building their own web-based platform, which makes them a bit more independent and creates a brand for them outside of Facebook. But it doesn't really cut the cord with Facebook, and it won't have a dramatic impact on their margins," said Baird Research analyst Colin Sebastian.

Zynga's re-designed website, which will come online later in March, makes it easier to play games more quickly with access to live chatting and message board features where players can ask for help.

Five of Zynga's top games will be on the new Zynga.com, including "CastleVille," "CityVille" and "Words with Friends," the company said on Thursday. Zynga Chief Operating Officer John Schappert said in an interview that players can find opponents to play games with who they are not friends with on Facebook.

But the so-called Zynga Platform is closely tied to Facebook in other ways: Users still need to log in using their Facebook IDs and sales from virtual goods in games, such as houses or other items, will be traded using Facebook Credits, the social website's payment system.

"You will still pay Facebook for buying an extra tractor," said Hudson Square analyst Dan Ernst.

Facebook, which has 845 million users, keeps 30 percent of revenue generated from Facebook credits. Zynga executives declined to comment on whether the company would ever sell items on its platform without paying Facebook a cut.

Ernst, the Hudson Square analyst, said it might be easier for Zynga to pull in advertising dollars if it attracts a large number of users to its own website.

Manuel Bronstein, general manager of Zynga.com, said the new website was not intended to migrate users away from Facebook. It will help users keep their Facebook profiles separate from their gaming habits while bringing Zynga closer to its users, he said.

"If they want to play on Facebook, if they play on mobile, if they play on the Web, I want them to be connected to Zynga and it cannot be constrained to one single destination," Bronstein said.

Playing games made by Zynga and Electronic Arts is one of the most popular activities for users on Facebook.

Zynga's new website will also host games from other companies, which is a new revenue stream. These include Orlando, Florida-based Row Sham Bow, which makes a Facebook game called "Woodland Heroes," as well as the San Diego-based company MobScience, which makes the Facebook game "Coffee Bar."

Ernst said this could help lower Zynga's costs. Zynga spent about $500 million last year developing the technology and infrastructure to support hundreds of millions of players in social games.

"This is a smart move that shows that Zynga is a lot more adult and developed than people thought," Ernst said.

Bronstein, from Zynga, said the platform brings Zynga, which went public late December, closer to its goal of having 1 billion users. It has 240 million monthly users. The service will come out in 16 languages including Chinese, Korean, Japanese and German and will not be on mobile devices yet.

Facebook, which plans to raise $5 billion in an initial public offering expected to value the company at $75 billion to $100 billion, said in a filing in February that 12 percent of its revenue comes from Zynga.

Copyright Thomson Reuters 2012

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