Mattrick’s Revolution
Last quarter was a good quarter for Zynga. Mattrick stepped in last July and announced he would fix the company. He started with cutting 1/5 of the staff, and divesting the company of many of its non-performing parts. Come October, Zynga showed an EBITDA of $7M. Not anywhere near its past peak in triple digits, but it’s a start. So is Zynga officially out of the woods?
Not quite yet. What Mattrick has done was stop the bleeding, but he still hasn’t cured the patient. Zynga has some deep structural issues that permeate its cultural make up. Zynga has pioneered the formula of how to increase engagement, and has made a good business for itself on monetizing players who rely on impulse purchases. However, whaling is not always a viable or sustainable business model. Unfortunately, Zynga also has one of the worst monetization rates for its entire player base. (It was estimated to be around less than 2%) And on top of this, a large portion of Zynga’s product lines are generally not built to sustain its player base for long, due to its monetization policy and methodology.
However, there are reasons to be remain hopeful. Mattrick has taken several actions since then that can cause some major shifts in their corporate culture and product DNA.
For starters, Mattrick announced shortly after his appointment that he would flatten out the org chart, and shuffle the management around. Following this, 3 C-level officers announced that they were leaving the company, along with one of the SVPs who was in charge of the Farmville franchise. These are all high risk, but potentially high reward moves. Thinning out the command chain means that management must now take greater stock in what is going on in the trenches rather than manage through proxy. However, it remains to be seen if Zynga has the talent to actually be able to manage the company with a considerably smaller staff and management.
Secondly, Mattrick has also closed down several of the in-production games and refocusing the manpower on other projects. Again, this is a good thing in terms of keeping the staff from being spread too thin.
Third, Zynga is now experimenting with taking bitcoin payments as a means of giving them another avenue to monetize their consumers, so you can now gamble on both a Zynga game AND on the worth of your dollar.
Lastly, several messaging channel apps have picked up a couple of Zynga games to introduce to their millions of users.
Are any of these moves enough to save Zynga? Not at all. Giving the company the agility to move, if successful, will be immensely useful. Giving Zynga another avenue to court users and monetize them is also useful. However, none of these things can increase their top line revenue.
To do that, Zynga needs to do the one thing it has fallen down on the most: make good games that people want, and find a monetization strategy that is palatable to the players. The structural issues within Zynga do not lie in just its organization structure, or its technology, but in the most granular and atomic portion of their business: player interaction.
At its fundamental core, the one thing that Zynga really needs to make a comeback is to produce a hit. It doesn’t need to a smash hit like Candy Crush. It just needs to be one that can appeal to its 133 million users and get a monetization rate that’s slightly north to the side of “good” and they can be saved.
However, therein lays Zynga’s greatest weakness and the one thing that makes Zynga a risky bet: Mattrick is not a casual gamer. His background in console puts him squarely in the camp of the mainstream core gamer, a segment that Zynga is EXTREMELY weak in at the moment. This is not to say that he can’t learn the ropes and come out on top, but console gaming is fundamentally a very different beast from mobile casual gaming. (And it is certainly not the same as gambling) Console games’ relationship to mobile games is akin to what movie theater releases are compared to youtube videos. Bridging that knowledge gap will be no small feat for Mattrick. (Though, with his new COO, Clive Downie of DeNA West now on board, it is actually entirely possible) Regardless of how Mattrick fares in his ability to understand this new market, he will really be faced with three possible strategic outcomes from his next product:
Expand the casual player base
Increase the average revenue per user of the existing players
Expand into other segments beyond the mobile casual
The key to the success to all of these will lie in Zynga releasing that right product. Zynga is a company that is built on its logistical strength. Should they have a hit on their hands, pushing it out will not be an issue for them. But this is all built on one single thing: who will be the new talent that will head up its next production? We’ll be looking into that in the next piece
