secret stash ep 8: Zynga CEO frank gibeau on reviving 2 game giants

If you’ve read one too many headlines about the so-called death of gaming, Frank Gibeau, CEO of Zynga, has a message for you: the doom and gloom is over. In this episode of Secret Stash, Justin Kan and Archie Stonehill sit down with Frank, who cut his teeth as a product marketer at EA in the '90s and later led the company through its mobile transformation, to talk about why he’s more optimistic than ever.

Frank shares his lessons from three decades in the trenches - from cartridge-era publishing in 1990’s to rebuilding EA, and steering Zynga into what it is today. From postmortems on Shaq Fu to what it really takes to fix a broken culture and scale a mobile business, this episode is packed with stories, strategy, and an honest look at what’s next for gaming.

Tune into the latest episode below or wherever you listen to your podcasts. Or, keep reading for the highlights.

Gaming’s doom and gloom is over, thanks to D2C 

Frank, 1:33 - “ A lot of things about the gaming industry are grabbing the headlines about why it's not great, and why it's too doom and gloom. But I think the worst of it's kind of behind us and now the next couple years for hardware - the slates on PC and console - look particularly good. And I think in mobile there's a lot of green shoots. Sure, it's a tough environment for certain types of things like customer acquisition, but in a lot of ways there's a ton of innovation happening in how new games are getting created, how we're finding markets, how emerging markets are starting to develop, changes in development with regards to new tools like AI. As you look out from the medium to long term, I'm very optimistic in the short term. I think we're through most of it.” 

Archie, 2:23 - “ I would echo your sentiment that I feel more optimistic than the headlines capture …  Perhaps those headlines don't capture a lot of what's happening underneath the numbers. One of the things we care about a lot at Stash, and you guys have been a market leader on, is direct-to-consumer. We've actually seen revenue growth not decline. I think more broadly that does demonstrate that a lot of the top line revenue declines could be masking underlying just shifts in where players are spending.” 

Frank, 3:32 - “Somebody I know said, ‘oh, your game is declining.’ I said, ‘no, I didn't see you in our data rooms. It's actually going up because direct-to-consumer is exploding.’ It's something that we've believed in for a very long time. Anytime you can get a close one-to-one relationship with your players, that's the way you gotta go. Getting platforms out of the way is always a good move and we really have seen the momentum pick up on whether it's APK on Android or our mobile direct store and some of our web plays. So that's not counted in the Sensor Tower data. Advertising's not in the Sensor Tower data …  So we're excited. The joke we make is ‘mobile's a red ocean, but it's good if you're a shark’.”

Frank, 53:42 - “If you look at the percentages, we've had some games that are done north of 40%. You see other kinds of percentages from other companies that have been publicly announced that we're in the conversation on. So if you add that to the Sensor Tower numbers and then throw ads on top of that, all of a sudden you're like, ‘hey, mobile doesn't suck so much.’”

From retail sales to live service gaming

8:33 - “Electronic Arts back in those days had a real culture for product management. It was a different time and place. There was no internet, you had no direct data feeds. Live services weren't a thing. You literally put the cartridge in a box and it went - and maybe you would do a postmortem where you do some qualitative testing, say, ‘hey, what’d you like about this?  I always found I learned more from the games that didn't sell than I learned from the games that did sell. So I go and try and figure out like, well, why didn't this connect with players?” 

10:34 - “There was a game called Shaq Fu … They came up with this idea of taking basketball players, Michael Jordan and Shaquille O’Neill, and putting them in action games. So this was literally a fighting game on Sega Genesis with Shaq as the main character doing all this kung fu stuff.  Except that on the Sega Genesis, he was about three inches tall in the fighting. So it was kind of absurd. It just didn't translate right. It was a huge launch, spent a lot of money on it, and it goes out on a Tuesday and our lead buyer at Toys R Us calls our Head of Sales, Nancy Smith, and says it's a disaster.  We didn't move any units.  And so what we do is we'd say, ‘okay, what the hell happened?’ 

11:30 - “EA was really good about asking hard questions and going through the postmortem, what worked, what didn't work, and what are we gonna do about it.  And you go out and you throw a bunch of techniques at it. You go talk to editors at the CGW or Game Pro or whoever it was, you'd go out and get people who didn't buy the game, have them play it, and then tell you what they thought.”

12:30 - “That technique was kind of core. Product management was making the games better. We were relentless about competitive teardowns. Now, when you started getting to connected games, then we got huge data feeds that would come in and tell you what game events are working, where are people dying? Where are they not dying inside the game? How far are they getting? That changed everything. Product management went from being an individualistic art form to much more systematic.”

Unlearning PC/console and getting a PhD in mobile

13:19 - “ I'd done mainly console and PC up until about 2013. Then in 2013, I moved over to lead the mobile division at EA. And that was the period of time when it was going from a premium feature phone business model … to free-to-play. And we were trying to figure out how to do that.” Of course at the core of that is live services and understanding data. So we really embarked on that. Now, there were a number of companies that were way ahead of us on that - Zynga being one at the time on Facebook … So we had to build that from scratch.

“And so I called my last two years at EA getting my PhD in mobile.  I learned what skill sets translate from console and PC effectively to mobile and which don't … I found that engineers and producers made the transition no problem. But the design function and the product management function were problematic. What we found was, it was almost better to start with somebody who was fresh and didn't have the baggage of building a premium game or marketing a premium game.”

“But some people made the transition. I like to think I did. It was about being really open to unlearning and getting rid of a lot of muscle memory and starting fresh on how to think about it. But some of the fundamentals are still the same: Who is this game for? How do we find them? How do you know? What do they like? What do they not like? How valuable are they? Then how do we bring that voice into the development so that the creative teams can make the best calls?” 

3 lessons learned from EA to Zynga

15:41 - “ It was probably 3 things from EA that were absolutely fundamental to the success we had at Zynga from my perspective:

15:45 - “ Number one was I had been through a turnaround.  At Electronic Arts when you come in ’91, you go on this vertical tear all the way up to the early 2000s where the company was just the apex predator of packaged goods video games. We just mastered it and then we blew it on the digital transition to online. That's when the company went through a huge shock and we started to drop … We got arrogant and we did things that were more in the interest of our business model than our players. And the company crashed.  So we end up in this situation where we go from zero to hero, back to zero.”

16:57 - “We went through this kind of cathartic self-examination and I stuck it through because I cared about the company. I loved EA, still do. And I was pissed. This is not the company I joined. This is not the company that I was a part of building. And I didn't believe that this is how it should end … We basically said, let's write down everything our customers hate about us … Probably like a hundred of them. And we prioritized them and we went after them. We said, ‘okay, we're not gonna do that anymore. Shut that down, shut that down, shut that down.’ And we basically said, we're gonna one step at a time, build our way back. And it was awesome. The most fun I had and the most rewarding part of my career is when you hit rock bottom and everybody counts you out, and then you come back up. I found I really liked fixing things and I loved going into teams that weren't performing at their potential and making some adjustments.”

18:42 - “ Number two was I'd been around a lot of acquisitions - good ones and bad ones. Whether it was Maxis and Westwood back in the old days or BioWare, Dice, pretty much every pop cap - every acquisition at EA, I'd been around or been directly involved in, and I learned along the way what worked and what didn't work.” 

19:02 - “Finally I had done that two year PhD in mobile. So when I walked into Zynga, I was relaxed. I'd been there before. When I looked at the company initially, wow, there's incredible strengths here. There's tremendous potential and talent … We could really reposition it.” 

Step 1: Fixing company culture

19:39 - “My first company meeting I put up a chart  that said, ‘Here's the steps that we're gonna take in order to turn the company around.’ The first thing was about getting the right leadership in and getting the right culture built.

21:22 - “ There are no bad soldiers. Only bad officers. So for me, it's all about leadership. So you have to bring in people who are A players and they're gonna recruit like crazy to bring in A players too.”

22:14 - “ And then the other thing I learned as I went around the company was there's incredible talent underneath this misaligned political layer of bad leadership. So we went in and found people and basically promoted them three jobs.” 

22:49 - “So we started to put together a whole bunch of great momentum around these new people coming in, bringing new people, taking people that had been at Zynga for a long time, giving them new opportunities. And the first rule of a turnaround is you want to accrue short, small wins that then build into momentum.”

24:16 - “The other last piece of it was compensation. It isn't always tied to culture, but it has a role in culture. Get the compensation fixed so that it's a shared win. Everybody wins when we do, when we're doing the right thing. So you don't have these cross purposes things and resource fights.”

Step 2: Fixing the leaky bucket

25:42 - “The company was doing about $700 almost $800 million in top line. And it was literally spitting out $17 million. And you're in a high margin business - you're in a business that is growing explosively in mobile at that time.  Most businesses in the mobile space at that time were doing 20-30% margins on the bottom. So you had a leaky bucket - and you had to go back up through the whole P&L and be like, ‘okay, where is this miss?’”

26:37 - “First off, it was rigorous prioritization - the best and brightest people in the company going at the biggest ideas without mercy.”

26:46 - “The other thing was everybody wanted to build new games and not work on live games. So you had to make live operations and development elite and cool - because success was, ‘I don't work on making Words with Friends grow week over week’. Success is ‘ I get to work on some hobby project on the side that might or might not make it.  So we basically shut down probably 100+ projects that were underway, focused the best and the brightest on those things, really doubled down on where we had heat, and then just got out of things that were not mission critical. That was the first stage of the turnaround - unlock the value for better execution.”

27:43 - “ I made this speech to the company about, ‘hey, look, running a company is like playing a game. You have a set of resources, you have a game board, a market, you have competitors, and you have a set strategy, and win. And one of the ways that you keep score is your EBITDA. How good are you with your resources? That's a measurement of how good you are with your strategies and your resource execution is how much comes out the bottom’ …  It was more like, ‘Hey, we gotta be smarter about how we deploy, how we build, how we create, and how we market. And this is a measure for it to tell us.’ And I put up the chart. I had Activision, EA, Playtika, everybody up there and then us - and we were at the bottom, of course … I said, let's just get into the conversation with 20% … I think we can do it. We have the resources in-house. We don't need to raise capital … For me, it was just a fantastic opportunity. I looked at that and I was like, o’h man, we can go to town if we can put the right strategy together and execute.’”

How to acquire studio talent

30:46 - “ So when they offered me the job, I was like, ‘oh yeah, this will be awesome.’ And then the business brain part was well underway - which is a growing market, fantastic capital table, tons of cash and the ability to get cash, the great brands, awesome publishing platform, product management and data science off the charts industry best. And I said, ‘well, the problem is, we don't have enough game teams. We don't have studio talent.’ We had science in spades. We didn't have enough art. And that kind of balance is what games are … It was about ‘how do I use the capital to go find awesome teams and products that we can put on this incredible publishing platform and scale.’”

32:11 - “ Most acquisitions have great industrial logic and then they completely fall apart because egos and integration. So those were the two things I focused on as we went out and looked at companies - how do we make the pitch that we're gonna grow faster together? How do we make the pitch that joining Zynga will actually enable things for you to do more of?”

32:31 - “And a lot of these were series A companies that were now gonna have to go raise a new series - ‘oh I gotta build a marketing department, oh, I gotta build all this capability.’ … That kind of dynamic of Zynga works for you, we're gonna grow faster together, integration's gonna be extraordinarily light … I always found it odd that we would buy companies at EA and then turn them into EA, take their logos off the building or say, ‘Hey, we know better. Here's what you should do.’ And it was just arrogance as opposed to enlightened self-interest, which is, I'm buying this company because this talented group of people have created something I can't or haven't yet.” 

37:45 - “A lot of times we pitch like, ‘hey, do you want to be a big player in the Zynga company, or do you want to be employee #30,005 at Company X? These much larger players where you're kind of an afterthought. Here, you're strategic, you're literally in the boardroom.” 

How to get acquired

40:05 - “ I think we were around $8-10 billion and we started getting interest from a variety of parties. We were growing fast. Playtika was growing fast. There had been a bunch of companies that had recently gone public, like Roblox and others. So the category was hot and the market was $200 billion - half of it was mobile, and there's companies out there that just had no position at mobile and they felt that this was an opportunity for them to do that.” 

40:31 - And we looked at a variety of deals and compared them against our internal plan. And, you know what? Take Two was the right company for us at the time to be able to go after the ultimate mission, which is we wanted to be the largest game company in the world … So ultimately we found with Take Two is, we had a company that was really excited about getting into mobile … And culturally they fit really well in terms of the model. Look at Rockstar and 2K. They get to be who they are. They're culturally autonomous. They’re creatively autonomous. They align with Take Two on what the goals are for the business and their role in that, and then it's kind of hands off and off we go …  So what I found was Zynga wanted to continue to pursue its goal and we felt that we could pursue that goal more effectively with a larger partner and more resources and more availability to IP. So that was the thesis behind the deal.”

42:02 - “Surprisingly, the integration went extraordinarily easy. I thought a bunch of Californians and a bunch of New Yorkers were gonna clash a bit. And it was pretty straightforward up front. We just flipped our acquisition book on its head and just said, ‘okay, well this is what we do when we acquire, how would we want to be acquired?’ And we said, ‘Here's the religious issues, here's the stuff we're fine with, we understand the synergies, we've been through this, we understand.’ And they were great about it. We were able to basically get it done in record time. And since then, we've been in a position where there's a lot of things that we do that the larger organization is learning from, a lot of things that they do and that we've incorporated.

If the marketing sucks, tough luck

48:22 - “ I was around when EA was still a distributor and a strategic advantage was they built a direct sales force. Then we built direct relationships with the retailers … it's an unbelievable multiplier on your content teams. EA could sell more of any game onto the shelves than anybody. And it was because of that integration of sales, retail, marketing, and into a fully integrated publishing concept.”

49:07 - “So in a very early part of my career, I learned that you can have the greatest game in the world, but if the marketing sucks and it can't reach the shelves - tough luck. So you had to be a winner on both sides of the business … If you look at Roblox or Steam - those are my two favorite companies right now in the industry, I think they're unbelievable innovators - the scale and power that they generate now is distribution. There's great content there, but their ability to generate an audience and serve the audience is just incredible.”

Is the Apple and Google tax worth it?

49:40 - “When you look at mobile, at one point in time, Apple and Google were fantastic partners. They would generate tons of installs off of organics. But they haven't shown a great track record recently of being a value add to the business. There's new policies and things that they implement that actually are difficult for us to manage the business.” 

50:01 - “So when you think about it, you want to always have that direct relationship with your player. And until very recently, we hadn't had that opportunity on mobile because of the platform dynamics and the regulatory environment. But now that that's started to shift, any little crack we saw, we went after it … And anytime we get a crack, we're gonna, we're gonna try and drive a truck through it. So as the platforms have opened up and we've seen the opportunity to build direct relationships with players, we've gone hardcore after it.”

51:54 - “We don't have to pay a tax. So you can give players better value. I don't mind paying a platform if I get value, but I don't get any organics anymore. So what am I paying for? We have our own payment systems. So my perspective it's a little unbalanced now, so I don't feel so bad.”

52:50 - “The sky's the limit. I think it's just this is the first 30 minutes of the movie or maybe in the first 3 minutes of the movie. So there's a lot more to unfold here. I think it is gonna be happening - better CRM, better tools, better stores, players that have gotten used to it and understand it and like it. Some categories have a higher propensity to convert like RPGs or core games. Casual or puzzle, people argue don't - it's not been our experience.