Is Zynga Too Big To Fail for Facebook?

Like AIG, or the U.S. Treasury itself, is Zynga too big too fail?

With a Zynga IPO expected imminently, some in the digital space have suggested that it is risky for investors to put a lot of cash in a business that is so dependent on a company as powerful and opaque as Facebook. After all, Facebook has been increasingly throwing its weight around in its 600-million user ecosystem. For example, as of July the only currency allowed in Facebook will be Facebook Credits; game companies will no longer be able to employ tokens, points or anything of that nature unless they are backed by Credits. Facebook can seemingly make or break companies built on its back, if it so choses — much like Apple’s App Store.

That dynamic would appear to put Zynga at great risk, particularly considering the heady valuation it will seek. If Facebook doesn’t like any of Zynga’s practices, or feels like it is making too much cash, it can just change the rules or even launch its own gaming platform. However, it turns out Facebook CEO Mark Zuckerberg loves Zynga, and has repeatedly stated that his company has no interest in getting in the gaming business itself. In fact, at the eG8 in Paris this week, Zuckerberg cited the social gaming industry as a model for other businesses looking to exploit social media.

More importantly, given its size — not to mention its very healhy financial situation — Facebook almost needs Zynga as much as Zynga needs Facebook.

“They really have a symbiotic relationship,” said Joe Marchese, founder of SocialVibe, which helps Zynga execute programs with advertisers.

“Zynga delivers a lot of benefit to Facebook.”

That turns the tables a bit for Facebook. It has a big task ahead of it: convincing others to build large businesses on top of its platform. Zuckerberg’s vision, social makes everything better. The downside to this is summed up by Zynga investor Fred Wilson: “Don’t be a Facebook bitch.”

For some, Zynga games like FarmVille are why they use Facebook; Zuckerberg doesn’t want to mess with that. Zynga games drive up Facebook’s traffic and time spent numbers.

Even better — Zynga drives up Facebook’s revenue numbers. Constantly buying media on Facebook to promote its games, by some estimates, Zynga pours $100 million into Facebook a year.

Some have even argued that Zynga is better at monetizing its user base than Facebook — which makes an IPO more promising. Millions spend real money on Zynga games for virtual goods. That makes Zynga even more integral to Facebook. As Marchese noted, while the company envisions users spending Facebook Credits on everything from movie tickets to apparel, right now Facebook Credits are all about games. “They’ve created significant value for Facebook in the app economy,” said Marchese, now svp marketing & digital at Fuse.