News analysis: The right man for the job?

Social gaming giant Zynga has undergone a major management reshuffle that has seen founder and former CEO Mark Pincus retake the reins. But is Pincus the right man to steer the firm back on the road to success? Martyn Hannah reports  

Don Mattrick’s abrupt departure as CEO of social casino giant Zynga last month was not half as surprising as his replacement, founder and former chief exec Mark Pincus. While no clear reason was given for Mattrick’s exit, the man himself said the “timing was now right to leave” and allow Pincus to retake the reins and “lead the company into its next chapter.” On the face of it, his departure seemed amicable, but beneath the surface tensions were clearly brewing between Mattrick, Pincus, and Zynga’s board of directors over how the firm should be run. [private]

Eilers Research says it believes there were “likely a multitude of factors at work” including “differences of opinion about the strategic direction of Zynga” after Mattrick “failed to deliver on top-line growth.” When Mattrick joined Zynga, Eilers says he was tasked with “with turning around the company and quickly embarked on an aggressive employee restructuring program and making Zynga a mobile first game company.” In that sense, his two year tenure can be seen as a success with mobile bookings up from 27% when he joined to more than 60% by the end of last year.

Despite transforming Zynga into a mobile-first company, revenues and profits continued to remain below analysts’ expectations, and the firm was forced to reset its guidance on more than one occasion. And while Zynga’s Q1 2015 financial results came in above guidance – revenues were up 9% YoY to $183.2m with booking also increasing 3.8% to $167.4m – the real story was the firm revealing plans to cull 18% of its global workforce (or 364 people) by the end of the fourth quarter in order to save $45m as part of a wider $100m cost reduction program.

“For our people, we need to create an empowered, entrepreneurial culture that fosters more creativity and innovation,” Pincus said in a statement following the announcement. “Over the years we’ve seen that tighter, more nimble teams can drive faster innovation and deliver more player value. As a result, we announced a cost reduction program to focus, simplify and align us against our most promising opportunities. This was a hard but necessary decision and I believe this plan puts us in the best long term position for success,” he added.

Limited talent pool

It’s Pincus’ first bold move since jumping back into the hot seat, but whether reducing Zynga’s talent pool will help drive the innovation and product development the firm needs in order to get back on track is up for debate. But so long as Zynga can retain its key employees, the move should help balance the books while allowing the firm to push forwards with its product pipeline.

“It’s clear that Zynga has been having retention issues with their key talent with 42% of their employees being with the company under a year,” says Michael Carpenter, CEO of Ruby Seven Studios.  “With that level of turnover and internal knowledge loss, it’s difficult to grow or even maintain revenues. On the flip side, 100 million monthly active users and $1b of cash is not a bad base to build from. I think Mark’s challenge will be to adapt out of being a fast follower and Zynga being more innovative in game design,” he adds.

In particular, the social gaming giant will have to continue to push forwards with its mobile offering – while Mattrick made great strides towards turning Zynga into a mobile-first company during his time at the helm, there is still work to be done. The firm was late bringing its games to market on mobile, and its early execution was less than stellar. Its recent efforts – in particular Hit it Rich and Wizard of Oz Slots – are performing well, but Zynga has yet to hit the sweet spot with a mobile game capable of replicating its early success.

Moving the needle

“It’s all about mobile,” says one social gaming industry insider. “The market is really tough and competitive, so Zynga needs to get products out that have the right product metrics to get a positive ROI at scale. They don’t need games that male $1m per month as that won’t move the needle for them, they need $100m+ annual hits for it to make a difference,” they added.

In recent months Zynga’s casino titles have performed well on desktop and mobile, in particular Hit it Rich and Wizard of OZ Slots. Data analytics firm Dystillr lists Wizard of Oz Slots in eight place on its Top 25 iOS App Revenues chart for April, with estimated bookings of $4,126,000, while Hit it Rich is in sixth position with estimated bookings of $5,960,000. Even the revamped Zynga Poker product is just outside the top ten in 12^th place with estimated bookings of $3,718,000. But should Zynga look to invest time and money into its casino and poker products, or will development dollars be spent elsewhere?

“Poker, and social casino games in general, are a strange breed on mobile because there is only so much change to the formula that players are willing to accept,” says Matt Diener, game analyst at EEDAR. “Therefore, a lot of player retention is based on the perceived fairness of the game and how many of a player’s friends are actively engaged with the title. The product at the core of Zynga Poker is solid and well crafted, so I think it would be best for Zynga to focus on long-term player satisfaction and retention,” he adds.

All is not lost

But Zynga seems to be heading down a different path, and is looking to cash in on the lucrative social “game” market where it found its early success with FarmVille. Off the back of its Q1 2015 results call, Zynga it had launched its first mobile action strategy game Empires & Allies, worldwide on the Apple App Store and Google Play. During the quarter the firm also released Dawn of Titans and FarmVille: Harvest Swap. And while Diener says these games have yet to take the market by storm, it is a good indicator of where Zynga sees opportunities for growth.

“Admittedly, none of these titles [Dawn of Titans, Empires & Allies and FarmVille: Harvest Swap] have been market defining successes in the way that Clash of Clans (Supercell) or Candy Crush Saga (King) have been. Suffice it to say that Zynga’s hopes, and a lot more, might be riding on the success of Dawn of Titans. But Zynga has proven it can weather storms that most would think fatal. The mobile market is full of change and upheaval, and talent always rises to the top. Zynga’s big challenge now is matching its talent up to projects that will assure its success in 2015 and beyond,” he adds.