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Facebook Inc. (FB) Fees Are No Game for Game Developers

Facebook Inc. (NASDAQ:FB), in some measure, owes much of its rapid rise into the very fabric of society to small social game developers – those who created some entertainment for users of Facebook by providing games that encourage interaction among Facebook users and friends. A large part of Zynga Inc. (NASDAQ:ZNGA) success as a game-development company can be traced to its early alliance with Facebook and its successful games like FarmVille.

Facebook Inc. (FB)

However, Facebook Inc. (NASDAQ:FB) has run into a problem with its popularity. Although it has been a springboard for game developers in the past, now that it is so popular (900 million users at last count), the fees that game developers pay to Facebook have become too prohibitive – so much so that some companies are finding it better to either make their own platform or to go straight to mobile or the open Web to develop and market their games.

Even loyal partner Zynga Inc. (NASDAQ:ZNGA) has branched out. Citing a “challenging” economic environment – a reference to Facebook Inc. (NASDAQ:FB),the game developer has launched its own platform, Zynga.com, and has developed applications for smartphones and tablets, moving away from the Facebook platform because the fees have gotten too high, though Zynga still pays 30 percent of its sales on Zynga.com directly to Facebook as part of their contract (which expires in 2015).

“Facebook is still a viable platform for independent developers looking to make money on a game,” said Mitch Lasky of Benchmark Capital, who monitors game companies as a venture investor. “However, companies with aspirations to be larger publishers – Kabam, Kixeye, even Zynga – are moving aggressively off the Facebook platform to mobile and the open Web. Publishers aren’t convinced that the costs of being on Facebook are worth it.”

Facebook has historically charged companies 30 percent of all revenue generated on Facebook, and sometimes the costs can be to 50 percent or more of revenues. Those game companies that already have a reasonable portfolio are taking the chance that jumping off a Facebook Inc. (NASDAQ:FB) platform and moving to mobile will pay off in having similar success in visibility without having to pay the high fees that would come with being on Facebook.

And it’s just another reason why Facebook Inc. (NASDAQ:FB) needs to catch up on mobile. This is no game.

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