Will Zynga’s Growth Make It a Facebook Frienemy?

The explosive growth lately of Facebook’s biggest game developer, Zynga, demonstrates how the leading social network and its developers can feed each other’s growth in a symbiotic model worth emulating. But how far can such relationships be mutually beneficial, and where might they fall into zero sum games?

Zynga seems to keep outdoing its own impressive results, doubling its total user base in the past three months and speeding toward nine-digit annual revenues. The company’s FarmVille game – in which users plant seeds, grow crops, etc. (which I’d make fun of, but I played Dig Dug as a kid) — jumped from 33 million active users in August to more than 50 million active users in September. That’s twice as many as the next most popular Facebook game, Mafia Wars, which is also owned by Zynga.All told, the company has roughly 130 million active users across all properties. And the company’s CEO has said he expects to see well over $100 million in revenue this year. That kind of growth has some wondering whether Zynga will even go public before Facebook does.

Facebook, in turn, has benefitted directly from Zynga’s drive to succeed, as the game maker has been a prolific purchaser of Facebook ad space. One estimate puts Zynga’s annual ad spend with Facebook at $50 million – not far from half of its top line.

At some point, however, Facebook and Zynga could potentially find each other eyeing the same piece of pie. Zynga’s success in driving sales of virtual goods within its games (like seeds, etc.) is countering the conventional wisdom that such purchases would probably never take off in the U.S. — at least not with casual gamers like those on Facebook. Zynga has gotten users so hooked on planting virtual corn and killing make-believe mobsters that they’re buying these digital goods (either with cash or in exchange for accepting an ad-based third-party offering) to advance their game play.

The increased attention to Zynga’s success and what it implies about the virtual goods market may lead some to question whether Facebook should take a bigger role in that space. Facebook sells virtual goods, too — mainly gifts for friends — though revenue from those sales is estimated to be in the range of $75 million annually, less than 15 percent of the site’s total top line and much less than Zynga’s haul. However, if Facebook took a bigger piece of the virtual goods market — particularly by reaching into the market for game-based goods, or goods that were translatable or exchangeable into gaming worlds — that could leave developers like Zynga with less of it, and as a result, less to spend on Facebook ads.

Facebook is certain to make bolder moves in this area at some point; it has already laid the groundwork, developing its own virtual currency system and (through a partnership with a company called Zong), enabling payments via mobile phone that don’t require credit cards – important since more people have mobile phones than credit cards. But any company that has the power to print the coin of the realm must wield it modestly, in a way that allows it to capitalize on rather than impede the growth of its customers.

In farm terms: Don’t kill the chicken; just enjoy the eggs.

Question of the week

What should Facebook’s role in the virtual goods space be?
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