Zynga Inc. (ZNGA)’s new chief executive officer, Don Mattrick, takes over the struggling social-gaming pioneer amid one of its biggest challenges yet: losing the No. 1 spot on Facebook Inc. (FB:US) to upstart King.com.
King, developer of “Candy Crush Saga,” yesterday reached 150.4 million monthly users on Facebook Inc. -- surpassing “FarmVille” maker Zynga, which has 150.2 million, according to online tracker AppData. That ended Zynga’s five-year reign as the top game maker on Facebook’s social network.
Zynga is hiring Mattrick, former head of Microsoft Corp.’s entertainment division, to take over from founder Mark Pincus, who will remain chairman. It’s an effort to recharge revenue growth at the game developer, whose shares have tumbled by more than two-thirds since its 2011 initial public offering as demand fizzled for games like “Mafia Wars.” Mattrick’s challenge as CEO will be twofold: winning Facebook gamers back from King, and wooing players who favor mobile devices with titles designed for smartphones and tablets.
“It’s like trying to turn a ship around that’s been going in the wrong direction,” said Sean McGowan, an analyst at Needham & Co. who recommends buying Zynga shares. “Mobile is a different animal -- it’s different from anything Mattrick has done.”
Pincus will take a diminished role at the San Francisco-based company he founded, a sign that his hard-charging management style and negotiating prowess -- once described by Google Inc. (GOOG) Chairman Eric Schmidt as “fearsome” -- may have clashed with the needs of a large, publicly traded business.
Zynga, based in San Francisco, had been the dominant game provider on Facebook since the social network opened the site to outside developers in 2007. By investing heavily in a few popular applications, such as “Texas Hold ’Em” and “FarmVille,” the company was able to keep rivals, including Electronic Arts Inc. (EA:US), from gaining much traction on Facebook’s site, which now has more than a billion members.
Zynga reached a peak 327 million users on Facebook in October before entering its first extended period of decline, according to AppData. Zynga has lost more than 100 million players in the past year -- about the same number gained by King -- because it has continued to rely too much on old hits, said Michael Pachter, an analyst at Wedbush Securities Inc.
Those losses stemmed from “letting many games get stale and not really innovating, and from King growing like a weed,” Los Angeles-based Pachter wrote in an e-mail.
King’s approach of testing out a variety of new games on its own site before releasing them on Facebook has helped it lure users like Linda Gaden, a resident of Tacoma, Washington, who gave up on Zynga years ago and currently has two games of “Candy Crush Saga” going.
“After I found King, I left everything -- King is where my passion is,” Gaden said in a phone interview. “They come out very often with new games that you’re not going to find anywhere else.”
Zynga rose 6.5 percent to $3.27 at the close in New York. The stock has dropped 67 percent since debuting in December 2011.
Mattrick may help Zynga create new, appealing games by drawing on his experience at EA, where he worked for more than a decade and was responsible for creating original content, McGowan said. The executive resigned from Microsoft at the end of last week, a person with knowledge of the matter said.
The new CEO will also seek to reinvigorate Zynga’s efforts in mobile games, where it has failed to produce a lasting hit. The number of people who play games on phones will probably increase 18.4 percent to 125.9 million in 2013, from 106.3 million last year, according to New York-based researcher EMarketer Inc.
“The rise of mobile caught Zynga flat-footed,” said Josh Williams, president and chief science officer at Kontagent Inc., a San Francisco-based app-analytics firm.
Part of King’s appeal to mobile users is how it lets players pick up a game on a smartphone where they left off on a version played on a desktop, said Alex Dale, chief marketing officer for the company, in an e-mail today.
“King continues to focus specifically on the casual category: digital puzzle games that take less than a minute to learn,” Dale wrote. “You can pick it up and play it for one-to-two minutes or for hours.”
King, whose official name is Midasplayer.com Ltd., has hired JPMorgan Chase & Co., Credit Suisse Group AG and Bank of America Corp. to prepare for an initial public offering, two people with knowledge of the matter said last month.
A leadership change may also help Zynga do a better job attracting and retaining top engineers and executives. The company has lost more than a dozen top managers in recent months as the value of equity used to compensate workers has declined. Many staffers have left to create their own mobile game startups that are poised to vie with Zynga.
About half of Zynga’s employees say they would recommend working at the company to a friend, compared with 91 percent of Google Inc. (GOOG:US) workers, 77 percent of Microsoft and 67 percent of staff at Electronic Arts, according to surveys done by job-hunting site Glassdoor Inc. Pincus’s approval rating on the site fell to 23 percent of Zynga employees in the second quarter, down from 70 percent in the third quarter of last year.
Pincus joins other technology entrepreneurs who have lost or ceded top jobs within a few years of taking a company public. Earlier this year, Groupon Inc. (GRPN)’s board of directors fired Andrew Mason, the co-founder and former CEO, as growth slowed.
In a memo to Zynga employees today, Mattrick said he plans to work closely with Pincus to restart growth.
“Zynga is a great business that has yet to realize its full potential,” Mattrick said in the memo, which was posted on Zynga’s blog. “I’m really proud to partner with a product focused founder like Mark and work with the executive team to grow the DNA of the company and lead this transition.”
Mattrick, who joined Microsoft in 2007, became president of the interactive-entertainment business in October 2010. The executive had been leading the effort to introduce the next-generation Xbox One home-entertainment and gaming console that will compete with Sony Corp (6758).’s new PlayStation 4 device.
Yet the unveiling of the next Xbox wasn’t without hiccups. Mattrick reversed course on a policy last month for Microsoft’s new console that would have required users to connect to the Web at least once every 24 hours to keep playing a game, and the company lifted restrictions on reselling, trading and lending used game titles.
Microsoft CEO Steve Ballmer had been planning a reorganization of the world’s largest software maker aimed at reducing the number of business units and putting more focus on devices and services, people familiar with the matter said last month. He was planning to give more responsibility to Mattrick, the people said at the time.
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