Zynga (ZNGA) and Facebook (FB) Dive Together

One of the earlier posts in this blog asked readers to consider the possible effects on social gaming companies of the success or failure of Facebook as a public company. My postulation that gaming companies closely linked to the world's most popular social network would find much of their success out of their control seems to have proven correct over the past week, at least in a small way.

I stumbled across an article on DigitalTrends.com that made me start thinking about the future of Zynga -- the phenomenal company that created an entirely new segment of the video game consumer market. The article, linked below, reveals that Zynga plans to enter the world of online gambling next year, starting with a real-money poker game to be launched in legal and regulated markets. It wasn't too long ago that people couldn't get enough of Zynga's stable of games, staring at gradually-growing landmarks for hours while dishing out hundreds of dollars, 50 cents at a time. Why, then, should the company consider serving an entirely new target market?

While considering this interesting turn of events, I saw Jim Cramer on CNBC's Mad Money highlight the fact that both Facebook (FB) and Zynga (ZNGA) stock took a major dive in trading on Thursday (Facebook plummeted even further on Friday). Then I remembered my earlier post, Upcoming Facebook IPO Could Change the Game for Social Games, and everything started to click.

It turns out that the influence over success or failure for gaming companies linked to Facebook runs both ways. I submit that the independent success of both Facebook and Zynga indirectly rallied each other in recent years, and that we're now seeing the opposite effect. As Zynga recently cut its revenue outlook for the coming quarter and Facebook reported it's number of new users leveling off, the detrimental effects of each piece of bad news seem to be shared between the two, in addition to the expected independent effects. What's good for Facebook is good for the gaming companies that rely on it, and the opposite holds true, as well.

My advice to social gaming companies is to do exactly what the social network that went public with a single productive asset did not do -- diversify your outlets. If Zynga games were as tightly entrenched in The Android Market, iPhone App Store, XBOX Live Arcade and other popular outlets, I wonder if Facebook's slowing pace of growth would affect it as much.

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Zynga to launch real-money online poker in early 2013

Upcoming Facebook IPO Could Change the Game for Social Games

Rumors of Facebook's impending (but not scheduled) Initial Public Offering (IPO) cover the news wires lately, as investors look to ride what could be a sustained wave of profitability from the seemingly unstoppable force of Facebook. With numerous social gaming companies linked to the success of Facebook, the upcoming IPO will most likely have wide-reaching effects on the currently entrenched social-gaming brands, as well as changing the game for startups looking to join the ranks of social-game developers.

An IPO means two very important things -- a huge inflow of debt-free capital up front, and the ability to raise additional large sums of money for growth through future offerings. This can give Facebook a significant boost (not that it was strapped for cash) that can fuel marketing and new-customer acquisition in new markets around the world. Existing social games on Facebook could see a rush of new players from a range of geographic regions in a relatively short time. Games themed after quaint corners of North American culture or featuring core mechanics popular to U.S. players may find themselves struggling to hook customers from distant regions the way they've hooked Americans. This can provide an opportunity for growing social-game developers to create cross-cultural gems that resonate among a wider audience.

Social-game developers listed on public stock exchanges will likely find themselves facing additional stock-price pressures after Facebook's IPO (I'm talking to you, ZNGA). As Facebook becomes as hot of a topic as Google among investors, stock traders may begin to react to Facebook-related news by acting on shares of entrenched companies. As Facebook's share prices rise, so too will the shares of game companies utilizing the platform. As Facebook's share prices fall, the opposite may very well hold true. Facebook's quarterly earnings may become just as important as game developers' earnings at determining the developers' stock prices, creating new dynamics in the financial relationships between Facebook and the gaming brands entrenched in its platform.