After reporting killer earnings last week, Facebook (NASDAQ:FB) is moving forward with its plans to go into mobile game publishing. While the move has been rumored about for awhile, according to All Things D, on Tuesday Facebook announced it will begin pursuing some small- or medium-sized gaming creators, which normally wouldn’t be able to compete against bigger companies like Zynga (NASDAQ:ZNGA). Facebook will publish and promote those companies’ games for a cut of the revenue.
Facebook will provide these smaller gaming studios with heavy promotion on its social media site, analytics tools, and the opportunity to work with Facebook’s own gaming department. This is a boon for companies that would normally get drowned out on various app stores, and never reach customers without the huge advertising budgets of bigger companies.
What Facebook gets out of the deal is the potential to create a new revenue stream. For now, Facebook has revenue-sharing agreements with the companies who publish games via the site, getting a 30 percent cut of the revenue from popular games like Farmville and Candy Crush Saga. Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) have similar agreements with game providers through their app stores, according to All Things D. But that money has never come close to the amount Facebook makes from advertising.
Mobile ad revenue boosted the company’s earnings, far exceeding analyst expectations. Analysts had been unsure if Facebook would be successful at monetizing the relatively new form of mobile ads. But when earnings were reported last week, Facebook announced that mobile ads made up 41 percent of the company’s $1.6 billion in total ad revenue. That led some analysts to project that mobile ad revenue would soon surpass desktop ad revenue.
Facebook’s exclusivity agreement with mobile game publisher Zynga, which is responsible for the incredibly popular Farmville, recently expired, which has allowed Facebook the freedom to experiment with this new model with the hopes of creating a larger revenue stream.
The move unfortunately hasn’t been so good for Zynga. Zynga reported higher-than-expected earnings last week, but also gave some bad news that’s leaving investors worried about the company’s future. In the last year, the number of daily active users on the company’s games has been cut in half, and it changed its mind about pursuing an online gambling license, which investors had been hoping would create a lucrative revenue stream. Now, with Facebook’s publishing efforts, Zynga’s facing Facebook as a competitor, rather than a partner.
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