Zynga’s Mattrick Looked to Buy Company While at Microsoft
Don Mattrick, the former head of Microsoft Corp. (MSFT)’s entertainment division who takes the reins as chief executive officer of Zynga Inc. (ZNGA) today, has been hankering to run all or part of the social-gaming company for at least three years.
In 2010, Mattrick negotiated with Zynga founder Mark Pincus about buying the maker of such popular games as “FarmVille,” according to people with knowledge of the matter. The idea was to bolster Microsoft’s Xbox lineup with social games that then were adding millions of users on Facebook Inc. (FB)’s network each week. The discussions ultimately fell apart, said the people, who asked not to be identified because the talks were private.
Now, Mattrick, 49, is taking over Zynga from Pincus after the company lost its spot as the top game maker on Facebook to King.com. Its games have lost steam even as the social network’s membership has swelled, and players are shifting to mobile apps played on smartphones and tablets. Zynga is also grappling with a talent drain, a stock price that has plunged around 66 percent since a December 2011 initial public offering, and an ownership structure that ensures Pincus will continue having the final say even as he cedes the top job.
“Mattrick faces two challenges,” said Erik Gordon, a University of Michigan business professor. “He has to find a way to turn around a company that went from cool to cold, and he has work out his relationship to Mark Pincus, who won’t be CEO but will be in control.”
Dani Dudeck, a spokeswoman for Zynga, declined to comment.
Steve Ballmer, Microsoft’s CEO, said in an e-mail to employees last week that Don and his team had “accomplished much” at the software maker and set the company on a “path to completely redefine the entertainment industry.” Frank Shaw, a spokesman for Microsoft, didn’t respond to a request for comment.
“Don is a veteran leader who has evolved with the game space,” Trip Hawkins, founder of Electronic Arts Inc., where Mattrick worked for more than a decade, said in an interview. “He knows that consoles are being replaced by cloud-based mobile games,” and “views companies like EA and Microsoft as moving into the rearview mirror, whereas Zynga is on the road ahead.”
A Vancouver native who didn’t attend college and formed his first company at age 17, Mattrick earned his stripes in the gaming world with his own startups and working at EA and Microsoft. At those two technology giants, he earned a reputation as a no-nonsense boss who was quick to ax projects or reassign teams when he was unhappy with results.
Zynga may present the biggest challenge of Mattrick’s career. The San Francisco-based company’s revenue -- which comes mostly from virtual goods sold in its games -- fell 18 percent in the first quarter, and analysts predict it will drop for four more quarters, according to data compiled by Bloomberg.
Over the past year, Zynga has closed offices and shuttered games as it attempts to focus on mobile. Though the company cut 520 jobs, or 18 percent of its workforce, last month, it may still be too big, Scott Devitt, an analyst at Morgan Stanley (MS), wrote in a June 21 research report.
Mattrick may turn to his playbook at EA to revive Zynga. In 1991, Mattrick sold his startup, Distinctive Software, to the game giant and later began overseeing EA’s North American studios. Facing bloat that crimped profits and diluted focus, he chopped the number of games in half to concentrate on titles that would have wide appeal, such as “The Sims.” In the ensuing years, he tripled sales -- even with the smaller batch of games.
Mattrick announced his retirement in 2005, and then was drawn back into the industry by the growing popularity of casual, free games played on the Web. In 2007, he and some former EA alums built a startup, called BigPark Inc., to cater to that market. That same year, Mattrick joined Microsoft and became a senior vice president, and in 2009, his new employer acquired BigPark.
At Microsoft, Mattrick was known for high standards. He told one team that the first iteration of the Xbox Music service didn’t meet his expectations and quickly assigned a new manager with his own group to fix it, moving them to Seattle from Microsoft’s nearby headquarters in Redmond, Washington, to help them focus, a person familiar with the matter said.
He also led a push to turn the Xbox into an entertainment device for the whole family, rather than just gamers. He signed deals with Netflix Inc. (NFLX), Hulu Inc., Walt Disney Co. (DIS)’s ESPN unit and Google Inc. (GOOG)’s YouTube, letting the company offer an array of video content through the device.
Since Mattrick’s 2010 discussions with Pincus to acquire Zynga, the two men have kept in touch. They first discussed opportunities for Mattrick at Zynga in March, when the two road-bike enthusiasts began going on rides together, a person familiar with the talks has said.
A lucrative compensation package potentially worth more than $50 million also helped lure Mattrick to the role. He will receive a $5 million signing bonus, $1 million salary, $25 million in restricted stock vesting over three years, and additional restricted shares and options valued at $15 million, Zynga said in a filing last week.
Mattrick will still have to manage Pincus, who retains 61 percent of voting power over the board and remains as Zynga chairman and chief product officer.
“To walk into a company that is not profitable, it’s not growing, and you’ve got the founder and majority controlling shareholder sitting in the office next to you -- what exactly can you get done?” said Michael Pachter, an analyst at Wedbush Securities Inc. in Los Angeles.
Mattrick greeted employees at a companywide meeting in Zynga’s San Francisco headquarters last week, according to a person who was in attendance. When one employee asked the new CEO what he plans to accomplish in the next six months, Mattrick responded that he’s focusing on the next 30 days, using the mantra “two ears and one mouth,” to describe how he plans to prioritize listening to staff.
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