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Shootout at Zynga

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Preeti
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SAN FRANCISCO, USA: Zynga Inc's inexorable decline over the past six months, capped by a sharp reduction in its 2012 outlook last week, has sharpened interest in what Chief Executive Mark Pincus will do next.

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The fate of the company now rests with Pincus, the 46-year-old co-founder who controls a majority voting stake. Analysts say he needs to downsize its current 3,000-strong global workforce and come up with a hit that can captivate the growing number of players now moving to mobile devices, where its presence is relatively weak.

Zynga did launch several such games this year, including "The Ville" and "ChefVille," and is working on several more. On Thursday, Pincus emphasized to employees in a company-wide memo that Zynga would be "continuing to invest in its mobile games business."

But he warned that the company will make "targeted cost reductions," which analysts interpreted to mean layoffs as Pincus shifts Zynga away from the "casual" Facebook games, like "FarmVille," that were the company's bread-and-butter for years.

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"They have banked on the casual gaming segment, and to readjust the business to more core gaming, some casual heads probably have to roll," said P.J. McNealy, CEO of Digital World Research.

 

The transition will be jarring for a company that moved early to build a formidable business almost completely on top of Facebook's burgeoning platform. "FarmVille," "FrontierVille," "Zynga Poker," "Mafia Wars" and "CityVille" took off primarily as Facebook games on personal computers. They accounted for 83 percent of total revenue last year.

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Zynga has not been able to reverse the tide of users abandoning its previously lucrative Web-based games for offerings on smartphones or games from competing publishers.

Monthly-paying players rose to 4.1 million in the second quarter from 3.5 million. That number would have declined had it not been for new players attracted to "Draw Something," which Zynga purchased in March. The company said on Thursday it will write off about half the game's $183 million price tag.

Also, Pincus' attempt to revive his company has been undermined by an accelerating employee exodus.

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On Friday, the two creators of "Words with Friends," one of Zynga's most popular mobile games, announced that they had departed, following more than a dozen key employees who have left in the past six months.

"The departures underscore our skepticism about ZNGA and its ability to address the challenges it faces as it pivots towards mobile and its in-house gaming platforms," Brian Pitz from Jefferies & Co wrote in a research note on Friday. "Yesterday, CEO Mark Pincus asked employees to not lose sight of the bigger picture, but this may not be enough."

Besides betting big on mobile, Pincus hopes to capture growth in online gambling games, an effort that could take years to pay off. It could take 18 to 24 months for U.S. authorities to legalize it, McNealy said.

 

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