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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