New Zynga CEO, Don Mattrick.

JULY 1, 2013 • After persistent rumors in recent months that Microsoft president of Interactive Entertainment Don Mattrick was destined to return in an executive capacity to Electronic Arts, the head of the Xbox business has instead taken over the chief executive’s office at Zynga from Mark Pincus. The Zynga founder will continue on as chairman of the company and chief product officer. Much as Peter Moore left Microsoft’s Xbox division soon after E3 in 2007, Mattrick’s departure is happening soon after he introduced the Xbox One at this year’s E3. The move to Zynga also comes shortly before Microsoft CEO Steve Ballmer is expected to announce a far-reaching restructuring. Zynga has had difficulties in retaining players of its new games long-term during the last year and a half. In the process, its share price has dropped from a high of $14.63 in March 2012 to under $3 before the Mattrick announcement was made. Zynga stock launched at $10 during its IPO in December 2011. The company has also closed offices and laid off staff in recent months in a bid to cut costs.

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Impact: As DFC has reported multiple times over the past few years Zynga is a company that has fallen onto very hard times.  Zynga obviously had to pull a rabbit out of its hat for wary investors unhappy with the publisher’s fall from dominance on Facebook. With skill games purveyor King having taken the top spot on Facebook, and the growth of mobile gaming attracting many former Zynga users, the publisher has been struggling to find a rebound strategy. Investments in products like Draw Something have fallen flat. Meanwhile, revenue is declining.  For the first quarter of 2013, Zynga revenue was down 18% over the previous year with bookings down 30%. 

Zynga’s Running With Friends.

The major turnaround efforts have come in the form of a rush to enter the mobile side of the business, as well as ramping up real money gambling. Zynga is also betting heavily on producing many more mid-core titles similar to what competitors Kabam and Kixeye have been successful with. Mid-core games feature more challenging play mechanics than the casual titles that Zynga is known for. While they attract fewer players overall, those who do play tend to spend more money on them. While Pincus has many pans on the fire, it has been too early for any of them to show the positive results necessary to mollify skittish investors. It is therefore telling that Pincus felt impelled to fall on the sword, yet neither is he leaving the building. Reports indicate that Pincus is fiercely convinced that both the mobile and mid-core plays will succeed. We wonder how much independence Mattrick will possess to chart the future fortunes of the company. We are convinced that Zynga will find it difficult to recapture its once lofty position in revenue generated thanks to a flattening of revenue from Facebook games overall, and some concern that many of its early mobile titles rely too heavily on social networking features than many mobile users are not looking for. So we wonder what the appeal was to Mattrick to step into the current environment at Zynga. Perhaps he appreciates a challenge, or the upcoming Microsoft restructuring was not to his liking. Mattrick does come to the job with a long resume filled with game development credits, cross-platform hardware experience, as well as strong management chops. We fully understand why Zynga would want him, yet are still not convinced why he accepted the offer from a business perspective. Most telling it shows how Microsoft’s entire interactive entertainment business is struggling.  Rebuilding Zynga seems like a difficult long shot for Mattrick but obviously it was more appealing than the environment at Microsoft around the Xbox One launch.