Zynga Gets One Step Closer to Unfriending Facebook

I would have dumped social game maker Zynga (NAS: ZNGA) before Valentine's Day, and it looks now like Zynga wants to sever some ties of its own.

It's no secret just how much the company relies on Facebook, whose nearly exclusive friend request it accepted long ago. The two have been peas in a pod in a committed long-term relationship that has lasted for years on end in sickness and in health, although the partnership is a bit asymmetrical. Unbalanced affections are the seeds of a loveless marriage, and this one is no different.

"I love you more." "No, I love you more." "OK, you're right."
In Zynga's most-recent, freshly filed form 10-K, the company reiterates a line that we've seen before and with which we are all too familiar:

To date, we have derived substantially all of our revenue and acquired substantially all of our players through Facebook. We expect to continue to derive a substantial portion of our revenue and to acquire a substantial portion of our players from the Facebook platform for the foreseeable future.

In contrast, Zynga accounted for just 12% of Facebook's revenue last year. This is clearly a symbiotic relationship, but the game maker has a lot more to lose than the social networker if things go sour.

Zynga has also made it clear that it's uncomfortable with the current arrangement, as it has been aggressively trying to broaden its horizons and diversify its platform base. It has made strides in mobile platforms like Apple's (NAS: AAPL) iOS and Google's (NAS: GOOG) Android, both organically (assuming you include copying as "organic") and through acquisitions.

I don't only have eyes for you
Right now, looking at the iOS App Store and Android Market, you can see that Zynga claims multiple spots under both "Top Grossing" sections. On iOS, Zynga Poker is No. 3 and Scramble With Friends is No. 24. On Android, Zynga Poker sits at No. 2, while Dream Zoo ranks No. 5.

I would have thought that these signs point to meaningful revenue coming in from those two dominant mobile platforms, potentially enough to reword its risk factors language on its Facebook relationship. But alas, "substantially all" remains unchanged.

Facebook has consistently generated between 91% and 94% of Zynga's revenue and bookings over the past eight quarters.

Allow me to introduce myself to ... myself
Enter "Project Z." Back in October, the company announced a new social games service called "Project Z," which integrates with Facebook Connect. The initiative is an attempt to move away from Facebook and create its own platform for its own games along with third-party games.

Well, Zynga has just unveiled the service as the Zynga Platform, which has just launched in beta. It will be incorporated directly into Zynga.com and the site will be redesigned later this month.

Here's the curveball: It will still use Facebook Credits as the primary virtual currency. The service will integrate with Facebook, so you can play with existing Facebook friends, along with the "zFriends" you might meet separately on Zynga's platform. The company was quick to point out that it's not trying to steal traffic from Facebook's site, and that the move is an "extension of the companies' strong and collaborative partnership."

This is clearly just PR fluff, because the only reason Zynga would go to such lengths to create a platform is to begin weaning itself from its dependence on the social networking giant. Interestingly, just last week iSuppli said the couple's honeymoon was over, as Facebook's gaming platform has started to dry up.

Brave new world
Imagine this: Years from now (after Zynga's arrangement with Facebook governing its revenue split on Facebook Credits expires in May 2015), Zynga operates its own online gaming platform, where it hosts third-party games along with its own, inevitably competing directly with Facebook's own gaming platform and somewhat indirectly with iOS and Android. Zynga becomes a gatekeeper -- just like Facebook, Apple, and Google -- along with a tollbooth collecting a cut from third-party game developers requesting entry.

This is clearly the end goal that Zynga has in mind, and investors are seeing it too, with shares promptly gaining 10% on the announcement. The real question is how well it can pull it off, since this is just the first step in what would be a momentous strategic shift for the company.

I've always been a skeptic of Zynga, but I'll give the company some credit (and not even a Facebook Credit) here: This could improve user monetization by cutting out the middleman, then eventually becoming one itself. Now all Zynga would need to do is address its corporate governance voting issues and shrinking revenue pipeline,and I may just change my tune.

Until then, though, Zynga is still a Faker Breaker.

Faker Breakers don't have good odds of scoring multibagger returns -- Rule Breakers do. If you really want to discover the next rule-breaking multibagger, don't miss this new special free report that names a company that's been recommended multiple times. While Zynga has five out of six signs of a Faker Breaker, this company has all six signs of a Rule Breaker, and I own it in my personal portfolio. Get the free report now.

At the time thisarticle was published Fool contributorEvan Niuowns shares of Apple, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio.The Motley Fool owns shares of Google and Apple.Motley Fool newsletter serviceshave recommended buying shares of Apple and Google and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.