Facebook is not just useful to companies for publicizing their products and engaging with their customer base, as some companies are even highly dependent on the overall success and growth of Facebook. In fact, some companies have built their current business model around the popular social networking site. Here are two companies that have done this:
Zynga
Zynga is one of the largest online social gaming companies in the world. The company, which which went public in the second half of last year, produces games that are mainly distributed through social networking platforms such as Facebook. At present, 75% of their revenue is generated through Facebook, which means that their overall business model is heavily dependent on the development and future success of Facebook. Zynga have benefited hugely from the rapid growth of Facebook, with revenue increasing from $19m in 2008 to $597m in 2010.
It is a mutually beneficial arrangement, and Zynga counts for roughly 12 percent of Facebook's revenue, due to the fact that Facebook takes a 30 percent cut of all revenue made through gaming activity provided by Zynga on its platform. This gives Facebook huge bargaining power, and any increase in this revenue share would heavily affect the overall earnings of Zynga. The platform is so important to the firm that the word "Facebook" was printed 204 times in the company's S-1 file.
If Facebook should lose its momentum, Zynga's revenue would suffer greatly, unless it could find another similarly active distribution channel for its content. This represents the greatest threat to their business model, but the company are attempting to diversify their product portfolio to develop their products for other platforms in order to decrease the risk factor.
Last night, Zynga reported its earnings for the first time since going public. Despite beating analysts' estimates with revenue of $311 million and 5 cents EPS (analysts forecast a revenue of $302 million and 3 cents EPS), the company still posted a net loss of $435 million. Investors were anticipating good results from Zynga, with shares rising 7% to close at 14.35. However, after the announcement of the loss the stock price fell back down to 13.35 in after-hours trading. Since Facebook filed its papers for its IPO, Zynga's shares have increased by roughly 35 percent, based on yesterday's closing price (pre-earnings report release).
Fusion-Io Inc
Fusion Io is a small technology company that provides a memory storage platform for various enterprises that is thought to be more efficient than any other platform currently available in the market.
Although they service enterprises in a number of sectors including financial services, retail, energy and internet, a large chunk of its revenue comes from Facebook. With 845 million monthly active users, Facebook need the network that they rely on to be very fast and very reliable, and Fusion -Io has so far been able to provide the product it needs. In 2011, Facebook accounted for roughly 36 percent of Fusion-Io's total revenue.
As Facebook grows in size, their need for more efficient memory storage and speed will increase. Increased demand from Facebook could drive Fusion-Io's future revenue, with some analysts predicting that their 2014 revenue could come close to $600 million.
However, with other tech firms looking to enter the market with similar technology, the relatively small customer base of Fusion-Io might be endangered. Other big companies that account for a large portion of Fusion-Io's revenues include Apple (24%), HP (14%) and IBM (10 percent).
At present, Fusion-Io's shares are trading close to their IPO price, and most analysts are placing a "hold" recommendation on the stock.
As we can see, both Zynga and Fusion-Io are heavily dependent on their partnership with Facebook for their current success, and are therefore dependent on the success of Facebook itself. The movement of Facebook's share price can therefore be taken to be an alert signal for Zynga and Fusion-Io's stocks. With further diversification and product development, both firms could continue to thrive without Facebook, but if Facebook continues its massive growth, both Zynga and Fusion-Io will significantly benefit.
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