Already feeling the heat from users and lawmakers over its privacy practices, Facebook called a truce with game developer Zynga that will keep online hits such as “Mafia Wars” and “FarmVille” on the social-networking site.
The two companies announced a five-year deal yesterday amid reports that tension between them had reached a breaking point and that Zynga was threatening to walk.
Neither company would comment on the terms except to say that Zynga had agreed to expand the use of Facebook’s virtual currency, called “Facebook Credits,” to more of its games.
At the heart of the dispute was Facebook’s push to get developers to use Facebook Credits in their applications. Facebook takes a 30 percent commission every time the virtual currency is used.
Although Zynga’s games are free, it generates real money — estimated at $100 million last year — from selling virtual items, such as a barn to FarmVille players. It pays a much lower fee to payment services providers such as PayPal for the transaction.
In other words, Facebook, which has struggled to find its own business model, was using its status as the dominant social network to demand a cut of Zynga’s revenues after letting the game developer have pretty much free rein.
Facebook’s argument was that by expanding and improving Facebook Credits, it would increase the number of paying customers and everyone would make more money, including the developers.
While details are in short supply, industry insiders believe Zynga agreed to give Facebook a revenue cut. In return, Facebook likely agreed to share more data and insights with Zynga, such as giving it advance notice of upcoming changes to the site, which Facebook has been rolling out fast and furious.
“Zynga more than anything wants to have visibility,” said Chris Cunningham, founder and CEO of appssavvy, which helps brands promote themselves through Facebook applications.
Despite their differences, the companies had a lot to gain from cooperating with each other. Zygna’s popular games are one of the reasons users keep coming back to Facebook.
What’s more, Zynga spends a lot of money advertising its games on the site, with some estimates suggesting that Zynga accounts for as much as 10 percent to 20 percent of Facebook’s revenue.
On the flip side, Facebook, which has over 400 million users around the world, is the dominant platform for game developers. The site’s rapid growth and open platform are a huge part of Zynga’s success.
“The company that allowed them to build such a big business has endorsed them and officially signed up for this partnership,” said Cunningham. “I imagine Zynga will sleep well at night with this agreement knowing that there is something actually inked.” holly.sanders@nypost.com