Don Mattrick Can't Save Zynga From Itself

Zynga (NASDAQ: ZNGA  ) investors have expressed a lot of optimism over new CEO Don Mattrick, who left Microsoft (NASDAQ: MSFT  ) to take the top spot at the social game maker. Shares have gained more than 20% over the past few days following the announcement that Mark Pincus was relinquishing the CEO title. The problem is that not even Don Mattrick can save Zynga from itself.

Who's still the boss?
For starters, Pincus will still exert tremendous control over the company. The founder is staying on as chairman and chief product officer, so he will largely still determine the most important aspect of Zynga's business: the games. He also still controls 61% of all voting power. Make no mistake: What Pincus says still goes.

Under Pincus' tenure, Zynga rightly garnered negative attention for its habit of shamelessly copying rival games, rebranding them, and cross-selling them to Zynga's large (but declining) user base.

Source: SEC filings. MAUs = monthly active users. MUUs = monthly unique users.

More importantly, the small fraction of Zynga's user base that are actually paying customers has fallen to new lows. There were only 2.5 million monthly unique payers, or MUPs, last quarter, representing just 1.7% of MUUs.

Source: SEC filings. MUPs = monthly unique payers.

Zynga's reliance on Facebook (NASDAQ: FB  ) has been declining as the company focuses its efforts on mobile. "Only" 76% of last quarter's bookings were generated on Facebook's platform, down from 85% a year ago. In 2011 and earlier, this figure was consistently well above 90%. Mobile bookings have grown from 12% to 22% over the past year, so it's undeniably making some progress. Facebook is even now interested in becoming a game publisher, which could hurt Zynga's presence on Facebook even further.

Mobile Mattrick?
However, mobile is not Mattrick's forte. This is the exec that led Microsoft's Xbox business for six years, helping lead Microsoft's entertainment and devices division to profitability, but the gaming console platform utilizes an entirely different economic model than mobile platforms.

Game consoles are usually sold at a loss in the early years, with console manufacturers making up for it with hefty licensing fees from developers. This model has always favored larger companies. In contrast, mobile is different in that platform operators simply take a 30% cut of sales, giving the smaller developers a better chance at releasing the next Angry Birds or Temple Run. That's far more competitive, and levels the playing field in many ways as it rewards greater creativity and innovation -- two qualities that Zynga has never demonstrated.

Mattrick will be moving from managing a gaming console platform to directly competing within a mobile platform, all while Pincus still calls the shots with products. That doesn't sound like a recipe for success.

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  • Report this Comment On July 07, 2013, at 8:32 PM, z06forum wrote:

    Sounds like the author is a non Beleiver..

    I wonder if the Author would have the same comments after Don sold his first game company to EA. Then EA hired promoted him to be President of the company (very sucessful) then MSFT hired him then made him President of the Gaming (Very sucessful there too) I beleive with a canvas at hand and a blank one entering into the Mobile Arena the 2 of them can make some waves. Wallstreet also thinks so and is betting big on it. The BOD seats are trend leaders in the On line and mobile space. This is where we are headed. I would not doubt it if Znga offered a specific Gaming Tablet that allows for dual controlers and an App store which allows you to play on line games with either 2 players sitting together, mobil players or On line players. Better Graphics ability, dual controler ports which you can also add a mouse too or printer or other devices. There is so much vision which you cannot think of that is in their heads. ZNGA is a turn around story and In my opinion going to be the next SONY play station or Microsoft X box on the go.. From Real money gaming to on the go games for people of all ages... I think they can be the next NFLX for Gaming... This can potentially be bigger than you ever imagined..

  • Report this Comment On July 08, 2013, at 12:08 AM, Bunnyking77 wrote:

    I think everyone is a little wary of Mattrick regardless of his past accomplishments because of his recent blunders.

    With good reason. The XBOXone could have come out swinging with a lot going for it, but there were a lot of bad choices made within the interface, and pricing of the unit.

    A smart person would be wary.

    I have never thought of investing in Zynga, it bases it's games on an unpopular pay to win formula that most gamers despise.

    I can't see Zynga doing well, without something radical happening.

    I doubt he can do much without completely gutting Zynga and starting over or without making a deal to come to consoles.

    This is an extremely risky market and Zynga is an extremely risky company in an industry that gives back very little return.

  • Report this Comment On July 08, 2013, at 12:10 AM, Bunnyking77 wrote:

    What is Zynga based on?

    The power of Farmville and on Words with Friends.

    As big as these two games are, it isn't something I would put money into. It's way too risky. I can't even believe why they went public when they were doing fine just under the radar.

  • Report this Comment On July 08, 2013, at 2:16 AM, Texasrecurve wrote:

    Wary of Mattrick? Good gosh man look at his career. His so called recent "blunders" are non-issues except for you weirdo hard core gamers out there. You clowns get your panties in a wad over nothing.

    BTW, the "freemium" model originated in China where its extremely popular just like it is here. Its 2013, computer gaming is now for everyone, not just you unemployed 30 year old's living in your parent's basement. Geeesh.

  • Report this Comment On July 08, 2013, at 12:47 PM, jbasc wrote:

    @Texasrecurve

    Calm down closet nerd. Recurve bow user I am guessing? Like all the other cool kids...

    Prepping for an apocalypse or fancy yourself Robin Hood? Do you own tights? Rhetorical questions...

    Looked at his career. As I am literate, not from Texas and see beyond "He worked at dem big city companies dur hur hur" all I see is a collection of nothing eventful. He hopped on at the right time and contributed next to nothing everywhere he has been.

    At EA, a company that cruises along by being bigger than everyone else, he is "responsible" for a sequel, a game with a popular movie and book tie in, and a decent racer. Nothing risque or innovative, just holding the line and dry hump some movie/pre-existing IPs. Exactly what you are looking for in a transitional CEO amirite?

    At Microsoft, a company that cruises along by being bigger than everyone else, he is responsible for the technically innovative, unprofitable, abject failure that is Kinect and cutting the fat at the failure that was Microsoft Studios down until it was profitable again. Largely accomplished by getting rid of PC (not fix mind you, not great at fixing anything as a general theme), stopped competing with Steam with their horrible Live for Windows, the standard no balls in play approach. Mostly he got Live subscriptions up by leveraging... sorcery... or the fact that they have no competition and other than screwing it up, was a sure bet. Awesome, he can calculate an ROI (or more likely have someone else, as most C level managers do).

    On top of the impressive skill set of having money and a fattened resume, he is brash and unlikable when facing the public. This is nothing new for Zynga. Although you would think they would want something new, wouldn't you?

    Zynga has Farmville and... nothing else. Oh Words with Friends. I mean they purchased that off someone but... they have it. Really big 4 years ago I guess. No risk there. With all his cell app development experience I am sure they will penetrate that rapidly saturating market with the ease and grace that he exhibits handling the consumer public.

    No reason to be wary. Its a sure thing.

    Isn't that right William Tell?

  • Report this Comment On September 25, 2013, at 6:45 AM, anon3879 wrote:

    @jbasc don't forget, in 2001 he single-handedly wiped out a product that took 4 years to develop and almost managed to get EA into court with McFarlane Toys.

    Not to mention it caused their lead developer to quit the company.

    Because the product could compete with their (back then) 4 year old 2d isometric mmorpg.

    The fact 3D mmorpg was already being accepted as the new standard was trivial of course.

    @Texasrecurve

    Go back and do your homework, the fact that McFarlane had to REMIND EA about their contract makes it painfully obvious the decision for cancellation was unprepared and most likely served no real purpose other than for Mattrick to make his mark.

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