The New CEO of Zynga Has Won the Game Before It’s Started

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July 2 2013 6:05 PM

Failure Is an Option

Don Mattrick might work miracles at Zynga. But even if he loses, he wins.

Don Mattrick, president of the Interactive Entertainment Business at Microsoft speaks during Microsoft Xbox.
Don Mattrick speaks during the Xbox One news conference at the Electronic Entertainment Expo on June 10, 2013, in Los Angeles, Calif. This fish is headed for a much smaller pond.

Photo by Kevork Djansezian/Getty Images

No one was taken aback yesterday when Mark Pincus announced that he’d be stepping down as CEO of Zynga, the online video game company he co-founded in 2007. The Pincus deathwatch had running for months, and intensified in April, when Zynga reported that its revenues had declined 30 percent over the last year. The surprise was the guy Zynga recruited to head up the spiraling firm. Zynga’s new CEO is Don Mattrick, who, for the last six years, has been chief of Microsoft’s Xbox division—by far the most successful video game outfit in the world.

Just a few weeks ago, it was Mattrick who presided over the bombastic unveiling of the Xbox One, Microsoft’s new console. That launch has been far from flawless. First, Microsoft got in trouble with users for its overbroad copyright-protection scheme. (The company planned to have the console connect to the Internet once a day, and it restricted sales of used games). Then Microsoft got into more trouble with users when it backtracked on that plan—which meant it also backtracked on letting users share games with others. Still, none of these hitches seemed fatal for the Xbox One, and Mattrick’s place in the Microsoft firmament appeared secure. So why would he make this move? Why go from a thriving empire to one that faces near-certain doom?

Because running Zynga is a fail-proof job. The company is so bereft—of ideas, vision, morale, shareholder confidence, even basic good will from others in its industry—that no one thinks it’s heading anywhere other than south. That’s terrible for Zynga. But for Mattrick, it’s a golden opportunity to bask in the glory of not-great expectations. If, as is pretty likely, Mattrick fails to turn Zynga around, he’ll be held blameless—he’ll be the valiant emergency room doctor who couldn’t stabilize the patient. And Mattrick really will be blameless: Despite cashing out hundreds of millions of dollars of Zynga stock, it’s Pincus who maintains voting control over the company, and people are wondering whether he’ll cede much control.

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If, despite the odds stacked against him, Mattrick succeeds—if he returns Zynga even to a level just slightly above ruin—he’ll be hailed as a hero who accomplished the impossible.

Zynga has not yet released details of Mattrick’s compensation, but the low expectations will almost certainly be accompanied by millions of dollars in stock. Zynga’s share price has been hovering around $3—far off its $10 IPO price. If Mattrick slightly improves the outlook and the stock price shoots up even to the high single digits, he could be in for a big payday. Compare this certain success with the headache of managing an unwieldy, uncertain launch at Microsoft and it’s not hard to see why he might have decamped.

That’s the cynical take. There’s also a more generous view, which is that Mattrick might actually be the best man for the job at Zynga. Mattrick’s main accomplishment at Microsoft was the meteoric growth of Xbox Live, the subscription-based online plan attached to the console. When Mattrick started running the Xbox division, only 6 million people subscribed to Xbox Live. That number now stands at 48 million people, each of whom pays about $5 a month. Mattrick grew this user base mainly by expanding into new markets. In the beginning Live was only really worthwhile for hard-core players who wanted to connect with other gamers over the Web. But then Microsoft began turning the console into a souped-up, voice-activated cable box by adding movies, TV shows, and apps that could hook you up with Netflix and HBO. These additions led to a huge increase in Live usage. These days, Microsoft says, people spend as much time watching stuff on Xbox Live as they do playing games.

Zynga does not offer a subscription service. Instead, it generates most of its revenue by selling tokens, expansion packs, and virtual goods in games that run on Facebook and elsewhere on the Web. The company has labeled 2013 a “year of transition,” during which it promises to transform itself into a more sustainable firm. That meant cutting costs; in June it shuttered many of its offices and laid off 520 employees. But its main goal is to expand its reach and appeal. First, the company wants to put out more games that are primarily used on phones and tablets, not on Facebook. It also wants to launch titles for audiences that have traditionally shied away from Zynga’s games. One target group is “mid-core” gamers: people who are into more action-packed games than the company’s traditional base of Words With Friends–addled “casual” gamers. “Mid-cores” are presumably more hard-core than casuals, but not quite hard enough to handle those gangstas playing Halo, I guess.) Zynga also wants to expand its base of casino games, the most successful of which is Zynga Poker. At the moment, due to regulatory restrictions in many of the countries in which Zynga operates, people who play those games can’t win real money. But the company is pushing to overturn those restrictions, and it sees a big long-term opportunity in gambling.

In the broad strokes, then, Zynga’s goals mesh with Mattrick’s successful strategy at Microsoft. Mattrick knows how to expand a service to attract new people while hanging on to a loyal user base. He also knows how to spot the possibilities offered by new hardware (see his launch of Xbox’s Kinect motion-gaming system), which will be crucial as Zynga tries to push its games on novel devices. And finally, having spent 25 years at Electronic Arts, he’s a veteran of the traditional games business, with contacts everywhere; he might give Zynga cred with game developers who’ve shied away from working with the firm.

That’s the bright side, anyway. It probably won’t work out so well. But even if he doesn’t turn Zynga around, Don Mattrick can’t lose.

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