Facebook vs Zynga
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Months after it hurt social game publishers by taking away some of its best viral methods for spreading apps, Facebook is hoping to make amends. The company is planning to announce today it will make changes to its its News Feed, the system which displays updates from friends, so that aficionados of social games like Zynga’s FarmVille can receive more notifications about their friends’ gameplay. That will help game companies return to the days of using Facebook’s friend activity — a powerful driver of traffic — to market their games. And it comes amidst pressure from Google, which has invested in Zynga and is courting other game publishers to a social platform it’s reportedly building.
The brewing fight between Facebook and Zynga is what is known in economic strategy circles as “buyer-supplier hold up .” The classic framework for analyzing a firm’s strategic position is Michael Porter’s Five Forces . In Porter’s framework, Zynga’s strategic weakness is extreme supplier concentration – they get almost all their traffic from Facebook. It is in Facebook’s economic interest to extract most of Zynga’s profits, leaving them just enough to keep investing in games and advertising. Last year’s reduced notification change seemed like one move in this direction as it forced game makers to buy more ads instead of getting traffic organically. This probably hurt Zynga’s profitability but also helped them fend off less well-capitalized rivals.
If you thought Zynga’s recent peace treaty with Facebook meant the end of its efforts to expand its reach beyond the social network, think again. Today, Zynga has announced that it has forged a deal with Yahoo to feature its games throughout Yahoo’s network — a move that will put Zynga’s games in front of Yahoo’s 600 million users. At this point details on the deal are a bit vague — the games aren’t rolling out onto Yahoo for a couple of months, and neither company has announced which games will be integrated. That said, we can likely expect Zynga megahits like Farmville to be featured prominently, perhaps even on the Yahoo Homepage (which would be a huge win for Zynga). Yahoo also says that games and/or updates will be available through many of its properties, including the Yahoo Games portal, Yahoo Mail, and Yahoo Messenger.