Zynga, Facebook having some tough times down on the farm

It’s been a tough year in Farmville. Make-believe fields are sitting fallow and make-believe cows aren’t getting fed. I’m sure if there was a make-believe John Mellencamp, he’d be in Farmville right now organizing a benefit concert.

Let’s get this straight, up front. I’m not hating on Farmville or Mafia Wars or the other game you play on Facebook where you pretend you’re a vampire. I’m a gamer. I get it. I’ll even confess that I was hooked on Scrabulous (the Scrabble rip-off) back before Hasbro, the owners of the real Scrabble, shut it down.

These days, I’d pretty much forgotten about Farmville and Mafia Wars. Thankfully, Facebook made it easier to hide those annoying, bordering on maddening, requests from friends to join their games or, even worse, the announcements that one of your friends had just added some critter to his farm.

But in making my life a little more pleasant, the Facebook team ignored the goose that laid the golden egg. That goose, gamemaker Zynga, announced Wednesday afternoon that it posted a $22 million loss in its second quarter. And just like that Zynga, which made a fortune selling virtual (i.e. make believe) commodities for real (i.e. real!!) money, saw its stock pummeled, losing nearly 40 percent of its value as investors rushed for the exit. Zynga, maker of Farmville, Mafia Wars, Words with Friends and dozens of other titles, raised $1 billion last December when it went public. At its height, Zynga stock reached $15.91 a share. On Wednesday, it had sunk to $3.12 a share in after-hours trading.

Facebook, which gets a substantial amount of income from its Zynga partnership, felt the tremors, as well, seeing its shares fall 8 percent. Now, all eyes will be on Facebook later today when the company releases its own second quarter earnings. Don’t expect Mark Zuckerberg to pull rabbits out of his hat. Do expect him to underscore the fact that Facebook’s future will rely much more on advertising and much less on its commission from gamemakers.

Ironically (okay, perhaps, not ironically but more coincidentally), Wednesday morning started with a glass half full look at social media revenue. Technology research firm Gartner released a report projecting global social media revenue will reach $16.9 billion this year, a 43 percent increase from the $11.8 billion in social media revenue in 2011.

According to the report:

Advertising is, and will continue to be, the largest contributor to overall social media revenue and is projected to total $8.8 billion in 2012. Social gaming revenue more than doubled between 2010 and 2011 and is expected to reach $6.2 billion in 2012, while revenue from subscriptions is expected to total $278 million this year.

Great news for the big social media players, such as Facebook, Twitter, LinkedIn etc, right? Absolutely. The projection shows that the monetization of social media is likely nowhere near its peak. And it’s why venture capitalists are still all hot and bothered by mobile and social video startups. In the grand scheme of things, social media is still a good investment, despite Zynga tanking and the likely bruising Facebook will get this afternoon.

Interestingly, the Gartner report had an encouraging outlook for Zynga and its competitors:

Gartner analysts said that social media sites will continue to incorporate gaming techniques on their networks, driven by the monetization opportunities that it presents. The sale of virtual goods will remain the primary source of revenue. Major console gaming publishers have recently entered the social gaming arena and are adding momentum to the social gaming industry by utilizing their intellectual properties. Gartner expects this trend to have a favorable impact on social gaming revenue as consumers are likely to be attracted to familiar gaming titles. Some of the big social developers such as Zynga, GREE and DeNA have moved to an open-platform strategy, enhancing user convenience and choice.

So, what the hell happened in Farmville? The New York Times quoted one market analyst who said: “Right now, everything is going wrong for Zynga. In a rapidly changing Internet landscape that is moving to mobile, it’s very hard to have confidence these issues are temporary.”

Zynga placed some of the blame on Facebook, saying in a statement that: “We are lowering our outlook to reflect delays in launching new games, a faster decline in existing Web games due in part to a more challenging environment on the Facebook Web platform, and reduced expectations for Draw Something.”

In the Times article, Zynga’s chief operating officer went further:

“Facebook made a number of changes in the quarter,” John Schappert, chief operating officer, said in a conference call with analysts. “These changes favored new games. Our users did not remain as engaged and did not come back as often.”

It will be interesting to see if Zynga can recover. Even before Wednesday’s announcement, Zynga was trying to become less reliant on Facebook, launching its own online gaming platform on Zynga.com. But when investors jump overboard as quickly as they did on Wednesday, it’s hard to imagine that Zynga’s current management team will be around long enough to see if the new strategy works.

There’s even a chance that Zynga, which is less than six years old, will follow a familiar pattern: A wildly successful social media pioneer that runs its course, unable, or unwilling, to keep up with the more nimble and hungrier competitors it spawned. MySpace anyone?

Make no mistake, there’s a lot of money to be made in social media gaming, but it’s probably not going to be on Facebook. And all those make-believe farms are likely going to fall victim to some very real bulldozers.