While Facebook/Zynga Fight Over Virtual Games, Can Marketers Win?

As consumers and audiences shift toward non-traditional channels in their quest for content, online gaming via social media platforms have become the prime battleground for advertisers and marketers alike, spurring widely reported animosity between Facebook and Zynga.

According to a TechCrunch report citing an email from unnamed sources, social-gaming giant Zynga is readying to fend for itself, cutting the cord to Facebook and launching its own social gaming platform to be called Zynga Live.

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Virtual Gaming = Growth Market
Virtual gaming was a trending topic at the Social Media World Forum (SMWF) in London two months ago and some amazing figures were released then: the virtual gaming is a growth market, with the U.S. representing a mere 1/5th of the size of the Chinese market. Asia is currently leading the sector.

For Muhammad Karim, senior brand manager for Mars, the social gaming market will be the biggest gaming market in the world in five years.

New Advertising Channels
Indeed, traditional advertising is becoming less effective as DVRs and ad-blocking browser plug-ins become prolific. Now real-time rich-content advertising is getting more attention, and proof of that is Microsoft's push for adopting dwell-time as a KPI for online campaigns. Evidently enough, social media has found widespread adoption, opening new channels for engagement.

Virtual Economy Valued at $10 Billion in 2010
Speaking at the SMWF, Trevor Johnson, Facebook's head of strategy and planning, EMEA ,confirmed that virtual branded gifts are the next big thing, especially with the virtual economy being valued at $10 billion in 2010. Among the most successful games on offer is Zynga's Farmville: 1% of the world population plays Farmville, Johnson said, adding that even real-life farmers were playing the game.

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Win-Win for Users, Brands, Carrier Platforms
Virtual currencies have now bloomed and Facebook has its own, called Facebook Credits. Players of Zynga's various hit games such as Farmville, Mafia Wars, Cafe World, etc. now can purchase virtual goods and branded goods through this channel. Just like iPhone apps downloads, the amounts collected individually are small but the global spread and sustained use of Facebook makes the business model well worth it, both for the user, the platform and the brand.

Virtual Currency, Real Tug of War
The ongoing reported tensions between Facebook and Zynga are directly linked to revenue sharing. According to the Facebook Application leaderboard, Zynga accounts for 4 of the most successful apps on Facebook, including Farmville at #1, Café World at #6, Mafia Wars at #8 and Petville at #9.

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No wonder that Facebook is trying to get the game developer to enter a long-term agreement that would make the Open Graph API company Zynga's primary platform. At the moment, Zynga is also carried on platforms like the iPhone, MSN, My Yahoo and MySpace.

At the same time, the social network levies a whopping 30% off Facebook Credits spent on Zynga games. Enough to understand how the latter would want to bail out of a not-so-mutually-beneficial alliance.

The question is: how many of the current Facebook users who flock and stay for long periods at a time every day on the site would leave when Zynga departs? How would Facebook make up for the revenue loss?
And conversely, how would Zynga attract users without the power of Facebook? The virtual gaming company has already started a campaign to retrieve users' emails to cut off Facebook and send notifications directly to gamers. It also has launched its own Farmville.com platform.

Potential for Search
From a marketers' and a developer's point of view, the potential remains regardless of such spats and the growth of that market is likely to be boosted by further innovations in geo-tagging and how it taps into real-time and local search.

"Searching and finding" game mechanics have helped Foursquare grow rapidly and following rumors that Facebook will set its sights on location-based marketing in the next month, we are likely to see search engines' local algorithms become a "socialized" aggregation layer.

Facebook and Yelp badges are actively marketed to local businesses, and Google Places recently offered small businesses the opportunity to have a StreetView camera film the inside of their stores.

Furthermore large product brands are also jumping on "check-in" activities that were previously limited to Gowalla and Foursquare by creating 'social loyalty cards'. The likely upshot of social loyalty cards is that the products a store sells will simultaneously improve the store owners visibility on search engines.

Geo-tagging is already generating innovations in Google StreetView and alternate reality apps and Bing recently teamed up with Mashable to create a local Twitter trends map. In an interview with Chris Pendleton, tech evangelist for Bing Maps and Mashable's Pete Cashmore, Cashmore said that, if he had to predict the next big thing on the web, it was likely to be a company that engages Facebook's 400M strong user base via their geo-location API.

This post was co-authored by Liva Judic (@merrybubbles) & Jonathan Allen (@jc1000000)