For the past couple of years, Zynga’s problem was clear. The social gaming giant dominated the charts on Facebook, but not on mobile. And as mobile gaming takes off around the world, Zynga has to break into the top 20 ranks with new hits. If it doesn’t, someone else will claim the bulk of the industry’s profits — as we’ve seen with the ascendent publisher Supercell and its Hay Day social game.
Above: CEO Don Mattrick of Zynga
Image Credit: Zynga
That’s why the company is unveiling three new mobile versions of its top franchises today: Words With Friends, FarmVille 2, and Zynga Poker. If the company scores with these titles, it will jump-start its revenues and give it room to come up with more original hits. But it won’t be easy because of serious competition from a handful of companies that have shown they have more mojo than Zynga in mobile.
These three games were in the making for a while, and they are the first real test of the leadership of Don Mattrick, who left Microsoft’s gaming business seven months ago to become Zynga’s CEO. His task is to rebuild Zynga’s greatness even as he reduces costs through game shutdowns, executive departures, and layoffs. While Zynga has been running in place, rivals like King have taken off with hits like Candy Crush Saga.
Mattrick said in an interview with GamesBeat that King’s recent filing for an initial public offering showed “pretty amazing results.” King had profits of $568 million on revenues of $1.884 billion in 2013, mostly on the success of one mobile game. Mattrick said that Zynga had been “underindexing” compared to others who are investing heavily in mobile games, meaning that it hasn’t had as much luck getting mobile blockbusters.
When Zynga went public in 2011, it had 3,000 employees and $1 billion in revenue, or about $333,000 in revenue per employee. By comparison, King had 665 employees, or $2.83 million in revenue per employee, in 2013. That shows how much more efficient, or perhaps lucky, King is compared to Zynga. Mattrick believes that the company’s big investments in mobile will help it close the gap.
“We have hard work to do, but we’re making material progress each quarter,” he said.
He noted that Zynga has generating a billion dollars in operating income during its life and reached a billion consumers in its first five years. It produced $393 million in earnings during its peak year, and Mattrick wants to return to those days.
With the $527 million acquisition of NaturalMotion last month, Mattrick acknowledged that the company could use some outside help to reinvigorate its performance.
“We expect that 2014 will be a year of growth for the company,” Mattrick said. “I’m pretty excited about that.”
So far, Zynga hasn’t had a golden touch in mobile. Mark Pincus, the founder of Zynga and its current chief product officer, invested heavily in iPhone games before monetization models and massive audiences were in place. He was disappointed with the results and went back to focusing on social games on Facebook. But as mobile grew, it chewed into Facebook, and Zynga has played catch-up. It seemed that no matter how many people Zynga threw at mobile, somebody else always ended up on the top of the charts. As Zynga’s audience shrank, it tried to concentrate on making more money on its existing players.
Above: Clive Downie left DeNA West to become COO at Zynga.
Image Credit: Zynga
But Zynga still has a lot of cash and talented teams. It has plenty of opportunity to take more shots.
The task at hand is to transfer the success of FarmVille 2, Zynga Poker, and Words With Friends to mobile as the mobile versions launch during the second quarter. Those three games have engaged more than 850 million gamers so far. About 75 percent of the company’s new games are focused on mobile, and if all goes well, mobile will be more than 50 percent of bookings in 2014.
FarmVille 2, Zynga Poker, and FarmVille accounted for 62 percent of the company’s revenue in the fourth quarter. Words With Friends grew 33 percent in that timeframe. The progress is clear, and the size of Zynga’s past successes is impressive. NaturalMotion, which made heavy investments in artificial intelligence and outstanding graphics, could also add to Zynga’s mobile mojo with popular mobile franchises like CSR Racing and Clumsy Ninja.
Clive Downie, Zynga’s new chief operating officer, said in a blog post that the company is listening closely to feedback and giving players what they have asked for. FarmVille 2: Country Escape has a connected rewards system that enables mobile players to send resources from their mobile farms to their web farms. He said Zynga Poker is being reimagined as a “mobile first” game with more personalized gameplay, fast performance, and sophisticated design that reminds people of casino experiences.
Words With Friends is also getting a makeover with new profile pictures and animations, a dictionary to look up words, and game stats.
Downie and Mattrick are emphasizing a new sense of urgency to sustain franchises and create new hits. But they are doing so with a mixture of veterans and new employees, as Zynga has seen a lot of turnover as it reduced its size from more than 3,000 employees to somewhere around 2,300 now.
In the fourth quarter, Zynga showed it was able to make money in earnings before income tax, depreciation, and amortization (EBITDA), and it is forecasting that the first quarter, with EBITDA of $5 million to $10 million, will be the bottom quarter in terms of profits for 2014. Besides investing in Zynga Poker, the company has also expanded its casino game offering with Hit It Rich! and Riches of Olympus slots games.
Once Zynga starts coming out with more original games, it may be able to shake its reputation of being an also-ran in mobile. And Mattrick says that the trends favoring mobile gaming are helping the company on its quest.
“People who are selecting into our category are staying, playing, and paying more,” Mattrick said. “That trend originally showed up in Asia. We saw the same thing in the console space. The second thing is, the top 20 hits are staying in those positions for longer. It’s a deliberate act, to have multiple hits and run an organization at scale. It takes a lot of time, a lot of discipline, and you have to be committed to learning new skills and innovating each and every day. That’s the culture we’re trying to build.”
Zynga Inc. is the world's largest social game developer with more than 232 million monthly active users playing their games which include CityVille, FarmVille, FrontierVille, Words With Friends, Mafia Wars, Zynga Poker, Cafe World, and... read more »
Mark Jonathan Pincus (born February 13, 1966) is an American Internet entrepreneur best known as the co-founder of Zynga, which makes online social games. Pincus also founded Freeloader, Inc., Tribe Networks, and Support.com.Pincus ser... read more »
Don A. Mattrick (born 13 February 1964) is the CEO of social gaming company Zynga,as well as a member of its board of directors. Previously, Mattrick was the President of the Interactive Entertainment Business at Microsoft.In this role... read more »
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