Google invests in Zynga, plans to launch Google Games. But is it true?

Techcrunch has started a rumor that Google has secretly invested $100 million in Zynga (making it a total of $500 million raised) and plans to launch Google Games later this year.

Details are few and far between but according to Techcrunch, Google Games will launch with Zynga’s games like FarmVille as its anchors, utilize Google Checkout for micro-transactions, and tie into Google’s social graph.

Our take:

Granted these are rumors. But Techcrunch is a reputable web site and I can’t see them posting big news like this unless their sources are legitimate. If true:

• Facebook needs to start to take social games seriously or they are going to be in danger of giving away its cash cow to Google. Google, Yahoo, and Microsoft are going after this market in a big way. Facebook’s advantage is their social graph but their disadvantage is that their games strategy is being run as if by bunch of amateurs. Unless Facebook starts to “ante up” and take games seriously, games could be an in for a company like Google to create their own social graph and finally be competitive with Facebook on the social side. It should also be noted that at the same time that Zynga may have negotiated this strategic deal with Google, they have locked Facebook into a 5-year distribution deal as well. For a company that is the 800-pound gorilla in social games and prides itself as being smarter than anyone else, Facebook continues not to make all the right moves.

• Google could have made a big splash in social games without an investment in Zynga. I would argue that the fact they invested $100 million into Zynga instead of investing that in themselves, shows that top management at Google does not get games yet. Having said that, Google’s wealthy so regardless how the deal goes, it’s a good strategic move. Interestingly, Google now appears to be going after games from two directions: They are going after Facebook with social games in this deal with Zynga and after Apple by planning to launch a Web app store later in the year as well. If their engineers can mesh it all together and tie it to Android, we may wake up one day to realize Google is the king of all casual games on all platforms. They are quietly coming up with a big plan that if it works, will be revolutionary for casual games.

• Zynga is operating on the business side on a level higher than their competition. While Playdom and its ilk purchase game studios left and right to create great games, Zynga is focusing entirely on the business to expand their distribution. It’s as if Zynga has given up on the idea of being games company and decided to focus on business and marketing. Truth be told, Zynga games are good but not great. Treasure Isle and FrontierVille are well-designed games for social graph and encourage micro-transactions, but as games, nothing to write home about. According to Techcrunch’s sources, Zynga’s revenues for the first half of 2010 were $350 million and is projecting $1 billion in revenues for 2011. While blogs and web sites like Gamezebo focus on their dwindling traffic numbers, Zynga just seems to focus on strategic deals that can grow distribution and revenues. They don’t care about creating the best FarmVille game ever. They just want to plug the current FarmVille everywhere. It’s a good strategy but one day, they will have to create good games again.

• My crazy prediction: Zynga continues to sign strategic distribution deals with companies like Softbank, Yahoo! (of which deal, pails in comparison to this Google deal), Google, etc to expand beyond Facebook. Next, Zynga acquires a big social games company like Playdom to fill the void of good games. Combining Zynga’s brilliant business minds with Playdom’s plethora of games studios will create the uber-social games company and it does take consolidation to the next level.

In the end, this entire post may be pointless since at this point, it’s all just a bunch of rumors. But it’s most likely a true story. We’ll know soon enough when we’re playing FarmVille on Google.

Joel Brodie