Once upon a time, Zynga Inc. seemed to be one of the few social-media companies that had the whole monetization thing down.
Players of Farmville and the company's other games were spending real money on fake game currency; prior to its 2011 IPO, the company was generating about 50 cents in operating cash flow for every dollar of revenue.
Now, not so much. It seems that everything that could go wrong for the company has indeed gone wrong. Growth is slowing, losses are piling up, and the company radically cut back its forecasts during the year.
What's the matter? Zynga's monetization efforts are going in the wrong direction, as its games now sound faddish (and haven't translated well to mobile phones).
The company had 177 million "monthly unique users" in the third quarter, but most play for free; "monthly unique payers" totalled 3 million in the quarter, down 28 per cent from the second quarter.
(For a longer blow-by-blow, see the Motley Fool's Evan Niu with "2012: The Year Zynga Crashed and Burned.") Yes, Zynga is in a spot; it needs a new vision. At a minimum, it needs a leader that can inspire its employees through these dark days.
It needs someone other than Mark Pincus, whose full title is "Founder, Chairman, Chief Executive Officer, Chief Product Officer and Chairman of the Mergers & Acquisitions Committee." The only one of these jobs he has done well is founder.
CEO? Check out this devastating article from the Wall Street Journal in November, ostensibly designed to show Mr. Pincus is learning from his mistakes and is prepared to lead the company forward.
The story notes that at a meeting of senior employees in May, a product director named Jonathan Liu told Mr. Pincus that "People couldn't articulate what the main strategy was, or why they were coming into Zynga on a day-to-day basis."
(Disclosure: I wish I'd known about that meeting in July, when I took a flier on 200 Zynga shares at $4.50 apiece. They're down nearly 50 per cent since.)
The article says Mr. Pincus "nodded and agreed" and made changes in the ensuing months like sacking the chief operating officer, spending more time at product meetings, and integrating the mobile division into every gaming studio. Sounds OK.
But, the article notes, "employee departures became rote." How poisonous is the atmosphere? After Mr. Pincus devised Zynga's first-ever companywide stock-option grant to employees, the article says "Some employees asked if they could refuse the grant, which they viewed as an insult and a pittance, according to two former employees."
As for his role chairing the mergers and acquisitions committee? In a desperate bid to boost its mobile offerings, it spent $180-million on a company called OMGPOP just a few weeks after its game "Draw Something" debuted. Within months, Zynga took a writedown on the deal.
Farmville? Crapville. Time for a new mayor of Zyngaville.
READERS: Is there hope for Zynga if Pincus gone, or is it too late?