Mark Pincus and Frank Gibeau talk about the future of Zynga and social mobile gaming

Zynga and Electronic Arts have exchanged hostages yet again. Zynga, the San Francisco social mobile game company announced yesterday that it had named former EA executive Frank Gibeau as its new chief executive. After Zynga made the announcement, Zynga’s stock price got a rare 7 percent upward bump in after-hours trading.

That speaks to investor confidence in Gibeau, who has already served for seven months on Zynga’s board of directors. Mark Pincus, the founder and prior CEO, has become the executive chairman and is staying at the company to work closely with Gibeau. We talked to both of them in an interview yesterday to find out what this means for the mobile gaming industry, which has become a $34.8 billion industry (according to research firm Newzoo).

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As we noted yesterday, the change comes at a critical time for Zynga, which is trying to make mobile games in a more profitable way. The company has been producing breakeven results for a couple of years, but it can’t seem to produce the breakaway hits that have kept smaller companies at the top of the top-grossing mobile games charts. Zynga has 10 games lined up for launch this year, and Gibeau said he is psyched about “engineering their success.”

Gibeau is one of the most seasoned executives in the game industry, and in his final post at EA during a 25-year career there, he was an executive vice president running EA Mobile, a direct competitor to Zynga. Pincus is relying on Gibeau’s own turnaround experience to get through the dark tunnel of the turnaround for Zynga.

That tunnel has been pretty long and deep for Zynga, and it’s not out of it yet. The company has slimmed down from 3,500 employees at its peak a couple of years ago to about 1,669 as of December 31. As a consequence of that, Zynga is putting its headquarters up for sale, so it can sell it, lease it back, and keep its financial options open. The stock market took that as one in series of negatives about the company’s future, and Zynga is trading at around $2.2 billion, far below its initial public offering price of $9 billion in December 2011.

But Zynga has steadily beat earnings estimates for three quarters in a row. Here’s an edited transcript of our interview.

GamesBeat: Why don’t EA and Zynga just merge? It would make this kind of thing easier.

Mark Pincus: We’ve had some very good cross-pollination of executives. This is closely following on our conversation about the past quarter. Just to reiterate what we talked about then, I’ve been back at the company for almost a year. I came back because I thought we needed to reset, get re-anchored on our vision of social gaming, which I still fundamentally believe in. Social gaming is going to evolve on mobile into something different from what it was on the web. It should be different. But I still see it as a vision, a promise, that we as an industry are not yet delivering.

The second pillar for me coming back was that our company has been a pioneer in the past, a world-class provider of games as a service. Live ops and this whole process around continuing to deliver great content for our players many years after a game has launched has been a hallmark of our company. It’s something that was getting a bit neglected. I wanted to come back to it, because I thought that was a missed opportunity to reinvigorate our franchise.

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The third pillar was resetting our culture back to its roots — entrepreneurial and resourceful. That’s what I came back to do. By no means do I think that job is anywhere near finished. But in the last couple of investor letters and quarterly calls we’ve shown some real progress. We’ve over-delivered versus expectations on what our live franchises could do. We’ve done well on bookings and profits from our live franchises. We’ve turned around what were fairly steep audience declines a year ago in our core franchises to build organic growth in our audience.

On the new game front, we’re poised to launch 10 new mobile titles, which may be one of our biggest launch years earlier. In doing that we’ll change the shape of our business and the mix of our R&D and operating expenses. We can be a significantly more profitable company having 10 games move from cost centers to profit centers by the end of the year.

As to why have Frank join and why now, he joined seven months ago as a very active board member — the same way as Bing Gordon, but even more active. We found quickly that Frank shared this passion and belief in the opportunities of social gaming, in addition to his passion for mobile. We could partner together well. Frank has worked with most of the teams across the company, especially the product teams. We saw the value of the experience that he brings in developing and shipping hit games, in addition to depth and mobile. He also just went through a major successful turnaround. He’s seen through the tunnel all the way to the other side.

I’d stress that I’m excited to partner and maintain a day to day, fully engaged operational role, but more in my value zone. I can focus on entrepreneuring our products and driving innovation in social.

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GamesBeat: Frank, why are you signing on for this?

Gibeau: When I joined the board back in August, I was supposed to do one day a week. Maybe I’d come in and talk to Mark about some things, maybe touch base with a couple of product teams. I just couldn’t help myself. All of a sudden it was two days a week, three days a week. Now it’s four days a week. I was having a lot of fun. It’s a great company.

You followed my career a bit. I’ve always been a competitor, so in some ways I didn’t know what to expect. When I got in here, I was blown away by a lot of the things I saw over seven months. It has a powerful vision of social gaming and reaching the mass market in ways that have changed the industry. There’s a lot of talent here, a lot of capable people who do a good job blending the art of game development and the science of product management, how we bring the two together to make products.

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It’s a great collection of brands. Words With Friends, Slots, Poker, NaturalMotion, Empires & Allies, and a bunch of brands they built in the past. I looked at those and thought — a growing market, a passionate audience of Zynga fans and employees, a lot of financial resources here. When Mark asked me if I was interested in becoming CEO, frankly it was a no-brainer. I see all the ingredients of a successful turnaround. I’m having fun. It’s a super engaged team that wants to win.

Because I’d been a hero, a zero, and then a hero again at EA, having gone through that turnaround, I had a lot of pattern recognition and a lot of insight into how to navigate these waters and move forward. Long story short, I’m excited to be here. It’s going to be a lot of fun.

GamesBeat: Are you expecting some changes? I know when Don Mattrick came on board there were lots of executive changes. When he left there were some more. Is anything else in store?

Gibeau: The material difference between the last CEO joining and me is that I’ve spent the last seven months getting to know the organization and the leadership. I’ve been understanding how the turnaround has been going and helping to shape the turnaround. I feel like I have a good start and a good handle on what we’re good at and where we need to improve.

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We’ll be looking at the business and making the right changes to ensure we pull this off and nail our objectives. We’ll make some changes, but I’m excited to see what we have already. We’ll always be in the hunt for great people. That’s always part of how you run a business.

GamesBeat: Has the workforce seen too much change, with all of the executive revolving doors there? Is that a consideration as you manage the company?

Pincus: You always want to try to get to stability. The first place that we want stability is at the team level. We’ve had pretty good stability there. The NaturalMotion teams, the Slots teams, especially in our studios in Austin and Chicago and Eugene—They’ve had a lot of stability. We’ve recently brought back a few people who are kind of greatest hits from the past. There’s a nice continuity. It’s good to see Tim LeTourneau and other people coming back in the building.

Frank has had a presence here for the past seven months. I don’t think it’s the same level of change. I’m going to continue working with teams as well.

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GamesBeat: Frank, what’s a bit more about what you think Zynga needs to do? Especially since people have been waiting for the turnaround to be completed for a while. It’s been talked about for quite some time.

Gibeau: When you think about the turnaround, it really comes down to the slate of 10 products we’ve been talking about and how we execute on those in conjunction with continuing to grow our live services. That’s the moment in which the turnaround starts to take on momentum and rise.

There’s been a lot of work done since Mark came back stabilizing the live services and getting them to grow again, bringing back excellence in terms of how those are operating. The turnaround is well underway. We’re seeing strong results in live service for Poker, Slots, and Words With Friends. It’s the new release slate we have to execute against to help us bring the turnaround to a strong forward momentum.

Part of that is driving the notion you’ve heard me talk about, engineering hits. Making sure all aspects of a product’s team are operating in conjunction to maximize the release and make it a hit product. That’s something I’ve said a lot about in my time. I’m working with Mark on how we nail these 10 releases, how we maximize the social features so we have viral games, and how we get the blocking and tackling in place so we have great launches. That’s where we’re spending a lot of our time.

GamesBeat: The Zindagi acquisition you guys made, was that some of your input showing up, Frank?

Gibeau: That was a deal that was really led by our Slots team. They did a deep analysis on the category. I feel like they have a strong strategy for how that category can work for Zynga. They brought the argument and the deal to Mark and I. We met the team and we were super impressed with the leadership and the talent. It’s always a good thing to add world class developers to your stable.

GamesBeat: Would you make any comparisons between working at Zynga and working at EA?

Gibeau: There are a lot of comparisons, but I think the most relevant one — when I was at EA we went through a long turnaround where I learned a lot of great lessons, both from our successes and our misses. When I came in here I could see Zynga had all the ingredients to deliver the turnaround. From my perspective, there’s nothing more rewarding than pulling off a successful turnaround. I feel like that’s what’s driving me in this job, to make sure that all those ingredients we have are executed upon and we deliver a successful turnaround. That’s how I think of the two experiences.