No surprise here. Mark Zuckerberg just said he isn’t happy with the growth of the gaming ecosystem on the Facebook platform on the earnings call today.
“Gaming on Facebook isn’t doing as well as I’d like,” he said, pointing out that gaming revenue from Zynga has declined 20 percent from a year ago. That said, he added that the platform is evolving in such a way that newer developers like Kixeye, Germany’s Wooga and King.com are gaining marketshare to make up for Zynga’s losses.
He went on, “But the reality is that there are actually two different stories playing out here. On the one hand, our payments revenue [from Zynga] decreased by 20% this quarter compared to last year. But the interesting thing is that the rest of the games ecosystem has actually been growing. Our monthly payments revenue from the rest of the ecosystem increased 40% over the past year, since payments has been adopted. This evolution is pretty encouraging.”
Zuckerberg added that the number of people playing games on Facebook is 235 million, up from 205 million last summer. But keep in mind, that the growth rate of the gaming community on the Facebook platform isn’t commensurate with the growth rate of the social network’s overall user base. In the same time period, Facebook went from about 750 million users last summer to more than 1 billion today, or a roughly 1/3 increase. Many of those newer users are coming from developing countries where they are using feature phones, which makes it harder if not impossible for them to play resource-intensive social games.
You can see the impact of the gaming ecosystem’s slower growth on Facebook in the company’s payments and fees revenue, which declined 9 percent quarter over quarter to $176 million from $192 million.
Zynga is now down to providing less than half of Facebook’s payments revenue. The company contributed 43 percent of Facebook’s payments and fees revenue this past quarter, down from 62 percent in 2011. Today, Zynga makes up 7 percent of Facebook’s overall revenue, down from the 12 percent contribution it made last year.
In fact, Zynga had layoffs throughout the Boston and Austin offices today, reflecting the company’s tighter margins and slower-than-expected revenue transition to mobile platforms.
What else is behind these declines? Partially, it’s that the Facebook gaming ecosystem is now mature. It’s also because gamers are moving onto mobile devices and Facebook can’t earn a direct share of virtual currency revenues from native iOS or Android games. Facebook also elected to make platform changes over the last couple years that crimped on easy (and sometimes spammy) marketing tactics that early developers would use to acquire millions of users quickly.