Why Facebook and Zynga Declared a 5-Year Truce

Facebook and Zynga, the social network and its most popular game developer, have settled some of their differences and agreed to work together for the next five years, they announced in a joint press release today. The two companies realized they need each other, even if their objectives are not always aligned.

As part of the deal, Zynga promised to expand its use of Facebook credits to more of its titles “in the coming months.”¬†Facebook will maintain its standard 30 percent revenue cut for Facebook credits on all Zynga games, which was a core negotiating point, a Facebook spokesperson confirmed to GigaOM. But of course there are other, non-disclosed terms of the deal that will keep Zynga on board and happy with the Facebook platform.

By way of background, though Facebook and Zynga have had a mutually beneficial co-dependent relationship for the last couple years, it’s gotten ugly lately. Facebook wants to push forward with its own standardized currency — Facebook credits — within applications on its platform. It sprung this on app developers at a particularly bad time, just after reducing functionality for them to notify their users, resulting in significant active usage drops. And worse, Facebook is taking a 30 percent cut of all credits, just like Apple (s AAPL) does on its iPhone platform, but without justifying such a large share by adding new functionality or marketing beyond what it’s long given away for free. App developers were particularly concerned that Facebook would, as it fully rolls out the credits program, require them to use it exclusively and disallow cheaper options like PayPal (s EBAY).

So Zynga, which built its business on the social networking site, freaked out and made a stink about building its own game network and said it may even leave Facebook altogether.

Zynga would lose virtually its whole business and its relationships with its users if it left Facebook, so that was hardly an option. What was at stake for Facebook was different. Perhaps the company could have stood to lose the Zynga advertising revenue and user engagement, and it might have been nice to live without Zynga’s particularly aggressive efforts to recruit users and their friends to its games. However, other developers were siding with Zynga because they agreed the credits deal was unfair. If Facebook had cut off its biggest game maker, it would have alienated everyone else, too — even the competitors who stood to gain the most, in the short term, from Zynga’s absence.

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