Following last week's poor quarterly earnings report and a subsequent flurry of legal investigations (complete with at least one insider trading lawsuit so far),Bloomberg reports that Zynga announced a new plan to dramatically restructure the roles of its senior executives on Wednesday morning, stripping Chief Operating Officer John Schappert of his product oversight responsibilities.
While it is not clear what Schappert's new role will be at the company, the Bloomberg report states that he will most likely retain his title as COO for the time being. A spokeswoman for Zynga told the Wall Street Journal that the company "reorganized [its] teams" in order to more fully "unify [the] company around a multiplatform approach," adding that "players expect their favorite games on every platform and we want to unlock everyone in the company to continue moving quickly against the multi-platform opportunity."
Though news of Zynga's restructuring is still developing, the reports state that David Ko, who runs the company's mobile operations, and Steve Chiang, executive vice president of games will no longer report to Schappert. Instead, anonymous sources claimed that the as-yet undisclosed plan is that they will report directly to Mark Pincus, Zynga's CEO. Pincus himself has come under intense scrutiny for selling off shares of his company shortly before their prices took a steep plunge. At the time of his sale, shares were selling at around $12 each. Since the weak earnings report, that number has dropped to less than $3 a share.
Schappert came to Zynga little more than a year ago after a long and successful career in AAA game development, rising to the level of COO at Electronic Arts (EA), one of the largest console game developers in the industry. When he was hired by Pincus in July of 2011, many videogame journalists and industry analysts hailed it as a sign that the entire industry was leaning towards the lucrative possibilities found in social and online gaming. Dean Takahashi of VentureBeat wrote at the time: "Schappert's move is one more example of the transformation happening in the game business: Users are flocking to social games such as Zynga's CityVille and FarmVille games. Executives such as Schappert are weighing their options betting that social, casual games are the way of the future."
Now, sources say that that the company's recent underperformance is being blamed on Schappert, leaving many within the company to lose faith in the former industry titan. But more generally, Zynga is facing a much deeper and more persuasive problem than one of staffing: the heralded "transformation" of the game industry may not be happening at all, leaving companies like Zynga overinvested in an unreliable and unstable medium.
"The place is in utter meltdown mode," Richard Greenfield, an analyst at BTIG LLC in New York, told Bloomberg. "The real question I think everyone should be asking is why it took reporting a collapse in earnings to make a management change."
In the immediate aftermath of last week's shares plunge, Zynga's top executives tried to reassure investors and customers that much of their current predicament can be attributed to an overreliance on Facebook, whose own restructuring allegedly made it more difficult for users to access Zynga's various IPs that function almost exclusively on the social media site. Schappert himself said at the time: "Facebook made a number of changes in the quarter. These changes favoured new games. Our users did not remain as engaged and did not come back as often." In response, the company reiterated its future plans to expand into the mobile space and capitalize on other trends in gaming, such as online gambling.
The reorganization was thus supposedly part of the company's effort to prioritize mobile software development throughout Zynga. Ko will work with Chiang to bring more of the company's top talent to designing smartphone and tablet apps, Bloomberg's sources say.
This renewed emphasis may finally alleviate some of Zynga's reliance on Facebook. At present, the relationship between the two tech companies is highly asymmetrical-Facebook accounts for roughly 80% of the total value of virtual goods sold in all of Zynga's games, while Zynga contributes 14% of Facebook's revenue, according to Facebook's SEC filing on Tuesday.
Yet many videogame journalists, who often cover the industry from a more cultural and entertainment-oriented perspective than a strictly business one, are suspicious of the creative direction Zynga is taking by demoting one of its most experienced employees. Gamasutra called the decision "the company's most bone-headed move in years," arguing that it "could cause even more stock turbulence" in the future. "Investors may want a scapegoat," the column argued, "but Schappert is one of the most game-savvy executives the company has. Mark Pincus, who will now oversee game development, doesn't have the experience, and should things slip further, it will further undermine confidence in his leadership abilities."
How Zynga will work its way around social gaming's current predicament is yet to be seen. But as the Gamasutra article grimly forebodes: "The worst may be yet to come."