Facebook's Darth Vader Grip On Game Publishers

Imagine a 400 pound bully strangling another kid while simultaneously rummaging through his pockets for lunch money. And he’s speaking quite calmly the whole time about what great friends they still are. Or else.

That’s what the relationship between Facebook and the major game publishers feels like right now, they’re telling me. Until a little over a month ago everything was quite cozy between Facebook and those publishers. Games like FarmVille and scores of others were growing hand over fist, adding hundreds of thousands of new users daily via viral features like Facebook notifications. Those publishers could monetize those users any way they like (which they did). And lots of that money made its way back to Facebook in advertising buys.

Then things changed. Perhaps the image of Darth Vader choking the cute and lovable Elmo best describes the situation from the publishers’ point of view.

Last Fall Facebook put the hammer down, and let publishers know that the viral spread of games via notifications was going away. Those changes went into effect in March. That was 40% or more of new user referrals, we’ve heard anecdotally.

Facebook users certainly rejoiced at the lessening of application spam. And while Facebook may have thought they were simply pruning the hedges to keep things under control, they may have cut way too deep. Since notifications have turned off, the big games have lost an average of 10% of their total monthly users, and there is no sign of that leveling off.

We reviewed the average monthly user data on the top ten Facebook social games from allfacebook and AppData. These stats were collected last night, and they are already out of date – Farmville has lost more than 1 million users since then, bringing their total down to 76.4 million. In the last month alone, nearly 30 million users, unduplicated, have bailed from these top ten games. That’s about 10% of the total:

That’s the strangling part. The shakedown part is Facebook Credits, where Facebook takes 30% of the total payments as a tax. They have begun applying pressure on game publishers to accept Facebook Credits as the only payment method. Publishers are “outraged and disgusted” by Facebook Credits, says an exec at one large publisher, but they can’t complain publicly because Facebook has so many subtle ways of hurting them. The fact that Facebook seems unwilling to accept PayPal as a payment option adds further frustration – publishers think total payments will go way down even before Facebook takes their cut.

All of this is just a backdrop to Facebook’s ongoing negotiations with publishers over long term agreements that tie them to the Facebook platform. Given the changing landscape and the inability of publishers to know what might hit them next, it’s no surprise that Zynga will launch an independent platform where they can make their own rules. Others may soon follow.