Zynga may be in the gutter these days, but it used to not always be like that. The company used to be on top of the world thanks to its close relationship with Facebook. The social network benefited from this relationship as well, but both companies are being forced to rethink their strategies as the market changes around them.
Reuters reports that Zynga and Facebook have recently rewritten the terms of a partnership that gave the social games maker preferential treatment on the social network. That treatment is what largely led to Zynga's early success, but other game developers have shied away from developing titles for Facebook platform due to Zynga's perceived monopoly on the platform. The new agreement neuters Zynga's close relationship thus encouraging more game developers to create games for the platform.
The agreement has two parts to it that could lead to very interesting results for both companies. For one, the new agreement allows Facebook to develop its own games. Reuters spoke to a person close to the company, and they said that Facebook has no plans to develop games. That could change, but some game developers might not take kindly to facing competition from the platform it develops for.
As for Zynga, the company now has more independence on its own social gaming portal - Zynga.com. As per the old agreement, Zynga had to use Facebook Credits on its own site, but that's no longer the case. Likewise, the company no longer has to display ads for Facebook on its own site.
In short, Zynga is now governed by all the rules that other game developers are held to. The company will no longer get any special treatment or early access to game development tools. It levels the playing field for other developers, but Facebook was already doing that with services like App Center. Zynga itself blamed these new methods of discovering games as a reason for its abysmal performance this year. The company's games were no longer prominently displayed on the various game pages around Facebook, and other games were able to move in on its turf.
Facebook's shares only dropped 0.37 percent in after-hours trading, but Facebook will probably bounce back this morning. Investors are probably glad that Facebook is no longer closely tied to Zynga and its toxic shares. As for Zynga, its share price dropped 12 percent in after hours trading, but has slowly climbed up to only an eight percent loss.