The company posted earnings per share of one cent on revenue of $264 million. Consensus on the Street expected Zynga to post a loss of four cents per share on revenue of $209.8 million. Still, that’s a decline of 18 percent year over year compared to the $321 million in revenue the company claimed in Q1 of 2012.

“2013 will continue to be a transition year as we face the challenging environment on the web and invest in developing the leading franchises and network across web and mobile platforms,” said Mark Pincus, CEO and founder of Zynga, in a statement, “and offer our 253 million monthly players a connected experience that can follow them from work to school to home and anywhere in between.”

The most important thing to note there is that 253 million monthly active users stat. It’s down from the nearly 300 million MAUs the company reported as of last earnings.

Also worth noting: Zynga’s daily active users — or DAUs — are at 52 million, an all-time low for the company.

“Users are migrating to mobile, and our marketshare on the Web is larger than it is on mobile,” Zynga chief revenue officer Barry Cottle told AllThingsD, in an interview. “As we look at it, it’s a natural part of the transition we knew was going to happen.”

“When we made the pivot last summer, the transition was happening really very fast, so we had to reorganize our studios quickly to move towards mobile,” Cottle said.

That’s why we’ve seen the closure and consolidation of some of Zynga’s outfits in areas like Maryland and Austin earlier this year, and why we’ll see the company shutter at least four more games in the coming year, focusing on games that are more geared towards a mobile audience.

“We made some decisions on a few Web games that we decided to shut down, which would have propped revenue up but wouldn’t have gone in direction we want to go in,” Cottle said. “It may have been a great short-term decision, but not good for us in the long-term.”

In February, Zynga was eager to remind everyone that nearly a quarter of its users — around 72 million of them — were accessing the company’s games via mobile devices on a monthly basis. Update 3:31 PT: The breakdown wasn’t apparent from the print, but Pincus stated on the conference call that Zynga’s most recent mobile MAU count is at 65 million. Again, that’s down from the 72 million reported last quarter, tracking with the dip in overall sequential MAUs.

“The good news is that we’re not nowhere. We’re sitting in a very nice place, in particular as it amounts to engagement,” Cottle said. “We’re seeing users spend 11.2 billion minutes per month playing our games.”

Shares of Zynga dropped to $2.93 in after-hours trading by 12.5 percent.

The key word, as CEO Pincus repeated on the call this afternoon, was “transition.” I imagine it more like the company saying, ‘we know we’re tanking right now — just stick with us.’

I thought of myself as C.E.O. at every company I was at. Not many companies are set up so people low in the hierarchy can challenge everything like a C.E.O.

– Zynga CEO Mark Pincus, explaining to the New York Times’ Andrew Goldman why he got fired so often

The social gaming company announced the appointment of John Doerr — longtime, well-respected Silicon Valley venture capitalist and general partner at Kleiner Perkins Caufield & Byers — to Zynga’s board of directors.

“John has been a supporter of Zynga since our early days, and truly understands our core values and mission,” said Mark Pincus, CEO and founder of Zynga, in a statement. “John has worked with some of the most well-known companies in the world at every stage imaginable and his experience helping teams innovate at scale will be a tremendous asset for our leadership team.”

Indeed he has. Doerr is acclaimed as a Valley VC with a solid track record of spotting great companies early on, including Google, Amazon, Netscape and Intuit (though to be sure, in recent years Kleiner and Doerr have come under scrutiny for being late or missing the boat on investing in the next wave of Web giants). Doerr continues to hold board seats at a number of companies, again including Google, as well as Coursera and social magazine startup Flipboard.

Zynga has had a rough year (to put it mildly). After a long string of high-level departures — including execs like former CFO Dave Wehner and former COO John Schappert — it endured a tanking share price and an overall waning sense of Wall Street confidence.

Zynga has rallied in recent months, however, aiming to turn the company around with a number of long-term bets. Zynga just recently launched its first foray into real-money gaming this week in the U.K., with plans to eventually bring the online gambling games to the U.S. and on Facebook and mobile devices. And Zynga has made it abundantly clear that while the majority of its revenue still comes from Facebook-based games, Zynga wants to transition off of reliance upon Facebook’s platform, building a fuller network of social-game-playing customers across its own Zynga network. That includes, of course, a large push into mobile — just like the rest of the industry is doing.

So Doerr’s addition is likely another step in this direction, welcoming aboard a tech industry mainstay with years of experience to offer.

“What’s exciting is this is still day zero — just the beginning — of social gaming’s potential,” Doerr said in a release. “I’m excited about working with Mark and the Zynga team in its next chapters of growth.”

Doerr joins Zynga’s eight other board members, including fellow Kleiner partner Bing Gordon, Jeffrey Katzenberg, LinkedIn’s Reid Hoffman, Stanley J. Meresman, Sunil Paul, Ellen F. Siminoff, Owen Van Natta and Zynga CEO Mark Pincus.

Zynga just filed a new 8-K regulatory document outlining revised compensation arrangements with its top tier of execs that ups the salary and bonuses, as well as restricted stock units, but ties them more closely to performance and the turnaround of the struggling social gaming company.

That is, except CEO and founder Mark Pincus, whose annual salary has been reduced to $1 and who will not receive any bonus or equity in 2013 — which is not an uncommon move for tech company leaders.

Said Zynga in its filing:

“The Company’s 2013 executive compensation program is designed to focus on two primary objectives: first, retaining and motivating our talented, entrepreneurial executive leadership team; and second, aligning our executive pay structure with company performance-based incentives. We believe that by focusing on both retention and performance, the compensation packages align with our strategy to build long-term value for our stockholders.”

The Section 16 execs impacted include: COO David Ko; general counsel Reggie Davis; Steve Chiang, president of games; Barry Cottle, chief revenue officer; CTO Cadir Lee; and CFO Mark Vranesh.

Interestingly, most of their salaries — which are about double their previous compensation — are now $500,000 for all, except Vranesh and Davis, who will earn $425,000.

Possible bonuses of zero to 200 percent of their cash salary, as well as the same level of stock grants from 970,500 to 1.8 million shares each, are tied to the performance of Zynga games, expanding the network and certain adjusted EBITDA levels. The RSUs vest over four years and nothing will be paid until February of 2014, after performance targets are met.

Zynga, whose stock has largely languished since its IPO in late 2011, has also suffered from a spate of executive turnovers, which has seemed never-ending and has added to Wall Street’s concern. Most recently, CTO Debra Chrapaty resigned to take a CEO job elsewhere; and, this week, the head of Zynga’s New York office and former CEO of OMGPOP, Dan Porter, left after that $180 million acquisition failed to garner the pop it promised.

Due to the many departures, Pincus rejiggered his exec lineup in November, giving the latest team members larger roles and focusing the San Francisco-based group on major areas of opportunity, such as real-money gaming and mobile.

Here’s the whole filing:

Form 8-K

Yahoo has bought Summly, the mobile news reader app founded by a young British entrepreneur.

In a statement, the London-based company said it had bought the tiny outfit, which will close its app. The price was not disclosed (although I will try to find out soon enough). But the company had been seeking additional funding recently at a big valuation, in stark contrast to its small size (less than one million downloads), staff (five) and business model (zero revenue).

(Update: Sources tell me Yahoo paid just about $30 million for Summly, mostly in cash, with 10 percent in stock, for three employees.)

AllThingsD.com reported in December that Yahoo was looking closely at the startup, with CEO Marissa Mayer meeting with its founder Nick D’Aloisio. As we noted then, Yahoo was aiming at trendy mobile “acq-hires” to give the sleepy Silicon Valley Internet giant some sizzle and improve its moribund mobile offerings.

Mayer has been buying up a range of similar small mobile startups, largely for their teams of talented and innovative engineers. And, at a recent employee meeting, its M&A head Jackie Reses said the Silicon Valley company was looking at two significant purchases and a half-dozen smaller ones.

Said Yahoo: “Founder Nick D’Aloisio and the Summly team are joining Yahoo! in the coming weeks. While the Summly app will close, we will acquire the technology and you’ll see it come to life throughout Yahoo!’s mobile experiences soon. We’re not disclosing purchase price or other terms of the deal.”

Yahoo mobile head Adam Cahan wrote a blog post about the deal, as did D’Aloisio, who also tweeted news of it:

@summly has signed an agreement to be acquired by Yahoo!! Excited for the next chapter of Summly! Thanks to all who have supported me.

— Nick D’Aloisio (@nickdaloisio) March 25, 2013

News readers have been getting snapped up of late. CNN acquired Zite for $20 million in 2011, while we reported that LinkedIn was in the midst of buying Pulse for upwards of $50 million.

The 17-year-old D’Aloisio created the high-profile news reading app, which garnered much attention in the last year in the mobile space, which is probably what attracted Yahoo to it.

As I wrote:

D’Aloisio — who looks like he could easily be a member of One Direction if this tech thing did not work out — is perhaps a perfect storm for Yahoo, which is seeking to show that it can attract innovative, young entrepreneurs to the company, while also looking to strengthen its nearly bare mobile cupboard.

Summly is all that and a bag of (fish and) chips, with a very slick app for the Apple iPhone that has become one of the more popular in the App Store since it was re-launched last month. The company has said it has been downloaded 500,000 times.

It deserves the attention, as it is a pleasure to use — think an even hipper version of Flipboard with some more sass. The handsomely designed app summarizes news stories — all using a natural language processing algorithm — in only a few sentences and in under 400 characters. Users can then swipe through topics and stories quickly and click in to be directed to the full story on the original news site.

Summly originally started as a prototype app called Trimit, which soon garnered attention and seed funding from Hong Kong billionaire Li Ka-Shing’s investment firm. In no time, it had a range of other investors, ponying up about $1.5 million, including trendy ones like Ashton Kutcher and tech types like Zynga’s Mark Pincus, Automattic’s Matt Mullenweg and Airbnb’s Brian Chesky.

Since then, it has been striking content deals, including with News Corp. (which owns this site) and others, which seem to be attracted by its investor pedigree, its solid technology and — perhaps most of all — its media-darling founder.

To get an idea of the adorable hip factor involved, here’s a really clever video D’Aloisio did with actor Stephen Fry, who is also an investor in the startup:

Summly Launch from Summly on Vimeo.

In after-hours trading, the stock was up nearly 6 percent to $2.90 a share.

The fourth-quarter and year-end results provide a bit of relief to the social games company, which has been trying to turn things around for the past three quarters.

On the call today, we heard from Zynga’s management team, including CEO Mark Pincus, but also from its new COO David Ko and CFO Mark Vranesh, who replaced Dave Wehner after he left for Facebook.

The call had two strong themes: How Zynga plans on driving additional revenue in the future, and how it will spend less money to do it.

Not unlike Facebook, mobile was one avenue where it expects to grow sales. As a testament to the company’s efforts in the space, Ko said that Zynga has grown the number of dedicated mobile employees from 20 a year ago to more than half the company today. Additionally, Zynga said 21 percent of its fourth-quarter bookings came from mobile, up from 8 percent a year ago.

On keeping expenses down, the company said it intends to spot games earlier in the development process that are unlikely to be hits. As part of that, it will be shutting down three duds, including the recently launched CityVille 2 sequel.

Here is the liveblog from earlier today:

——-

2:02 pm: Things should kick off any second. Pretty cute of Zynga to make the hold music the FarmVille 2 theme song. Too bad it’s looping tirelessly in the background.

Ahh, relief. The call has begun with the usual forward-looking warnings.

2:06 pm: Pincus introducing the new faces on the call, including David Ko, COO, and Mark Vranesh, CFO.

He’s proud of everyone at the company for reducing operating expenses, and exceeding bookings forecast and adjusted EBITDA forecast.

They took a number of actions during the quarter, he said, including realigning the company with a mobile-first focus, with more teams now focused on mobile than Web. It closed some studios, named new managers and invested in its existing talent, with 550 people taking on greater roles and responsibilities during the quarter.

“We’ve always been a learning company, learning from our successes and failures,” he said.

2:10 pm: Pincus highlights the accomplishments of its popular Ville franchises, saying that it has generated $1 billion in revenue, exclusive of partner fees. In Q4, he said the games generated $100 million in gross bookings, the 11th quarter in a row of doing so.

He’s also talking up its newer areas of emphasis that are a bit more sexy, like social casino, including its efforts in the real-money space in the U.K., and entering in new casual genres, like arcade. In 2013, he also said its pipeline is heavily weighted to “midcore.”

2:13 pm: More on mobile: “We are creating a network that will make it easier for people to play together. It will offer a powerful distribution channel.”

As we transition to mobile opportunity, he said the company will be “calling the ball” sooner and will discontinue games that it does not think will result in a hit. It will also be investing in growing its China and India development centers.

“The No. 1 focus is to deliver the best games. 2013 is a pivotal transition year for us at Zynga; we are excited to deliver a whole new class of mobile-social games that make it easier and better to play across mobile and social platforms.”

2:16 pm: Pincus hands the call over to Ko, who we are hearing from for the first time. Since being hired as COO, he said he has been focused on execution.

He said they are planning on launching many more games on mobile, including the Invest & Express category (its Ville games) in 2013.

Ko, the former chief mobile officer, is hot on mobile gaming. He said Zynga has the fifth largest audience on iOS, behind companies like Google and Facebook. In the quarter, they launched four new mobile games and four new Web games.

While it successfully expanded the portfolio during the quarter, Ko said several games missed expectations. As a result, it is closing three games: CityVille 2, Party Friends and The Friend Game.

“We are revamping our game quality process. We need to get feedback earlier in the process,” he said. “The two biggest changes is you’ll see a shift to mobile, and we’ll be calling the ball earlier on games. We’ll double down on the games with the most potential and ship fewer games.”

2:21 pm: Now hearing about Zynga’s advertising efforts, with the sales team closing big deals with top advertisers.

On the cost side, it cut back on outside services, reduced the size of the workforce and rationalized it’s product pipeline.

And, real-money gaming: We are on track to deliver products with Bwin during the first half of this year. And, they’ll be rolling out products across a variety of platforms, including Facebook, Web and mobile.

Interesting that Zynga said its real-money efforts in the U.K. will also be on the Facebook platform, which hasn’t really done a lot on the platform to date.

2:24 pm: Vranesh is now walking through financial results for the quarter and the year. Also the first time we are hearing from him, but Vranesh had been at the company a long time before Wehner replaced him in the lead-up to the IPO.

2:26 pm: During this summary of the press release, be sure to check out Mike’s piece on Zynga’s mobile numbers, which shows how much more mobile is contributing to the company than it was just a year earlier.

2:29 pm: Vranesh notes that headcount now totals 3,058, down 251 people, quarter over quarter.

Some perspective on where Zynga’s stock is currently trading. It has $1.65 billion in cash, which is slightly below the roughly $2 billion market value. Add to that the value of the company’s San Francisco headquarters and it easily exceeds where it is trading.

2:34 pm: Opening up the call to questions.

First question about the steps Zynga is taking on mobile platform to expand the network. What gives you confidence that they will use the network vs. the random opponents?

Ko takes this one: It comes down to a couple of things. We have an advantage today in mobile because of people and the network. A year ago, we had 20 people focused on mobile, and now a majority of the company is focused on mobile. On the network side, we have 72 million monthly users, we know we have games that they will enjoy and will want to play.

2:37 pm: Did the success of FarmVille 2 make it hard for CityVille 2 to be successful?

Ko: In terms of spacing them out, we are focused on franchises, our goal is to create franchises. You’ll see us launch less titles, so they will ultimately be spaced further apart. The reality is we had a longer lead time of testing and learning for FarmVille 2, and that was a key learning experience we didn’t have for CityVille 2.

2:41 pm: A question about the review process.

Zynga says to expect a lighter slate of games in Q1, which will increase the odds of creating new franchises throughout the year — this means fewer but bigger launches that have a greater chance of being long-term, sustainable hits (like the rest of the videogame industry tries to do).

2:44 pm: Question about the new agreement with Facebook that loosened Zynga’s requirements on the platform.

A pretty vague answer by Pincus: On the strategy side, what’s important about the amendment is that in the future, we’ll have more flexibility to market our games on the Web through more distribution channels, in a way that will still work in concert with Facebook.

2:47 pm: A question about Monthly Unique Payers, which is the number of people paying inside the company’s games.

Vranesh said that Web players who paid were slightly up due to FarmVille 2, and for mobile they were slightly down due to Draw Something.

2:54 pm: A question about Zynga’s mobile daily active users: The quarter-over-quarter decline slowed in Q4 compared to Q3. Is building out the mobile network helping you grow users while Draw Something’s decline has stabilized?

Pincus: So, in terms of thinking of looking at our overall DAUs on mobile. First, the stability of existing mobile game traffic. Our team on Words With Friends did a great job of growing engagement during the quarter, as well as mobile Poker. The second driver of traffic will be our new game launches this year. We are bringing existing major franchises, like FarmVille 2, to mobile and other new launches. The third is what we can do on the network level, by driving distribution and ongoing engagement.

2:58 pm: A question on year-over-year growth for mobile DAUs.

Vranesh: On a year-over-year basis, mobile MAUs have grown 75 percent to 72 million.

This is the first time that Zynga disclosed its mobile players, but it did not say in today’s release how much they have grown, so this piece of information is particularly interesting in order to judge the company’s year-over-year performance on mobile. Obviously, when Ko says that the company has gone from 20 employees focused on mobile a year ago to a majority of employees today, this is a reflection of that.

3:04 pm: The conference call has now concluded, you may all now disconnect.

In summary, Zynga continues to make progress on its message to investors, but it’s still scattered. Executives talk about its prospects on a number of fronts, ranging from real-money gaming to mobile and advertising. Clearly, there’s lots brewing, but it’s too early to tell how the company will perform over the long-term.

Minutes after the release went out, Zynga’s stock was up nearly 5 percent to $2.88 a share. During regular trading today, Zynga’s shares were already higher based on an analyst’s upgrade.

Here’s what it reported:

The social games company said bookings for the year totaled $1.15 billion to beat the company’s forecast of $1.1 billion (bookings account for the sales from virtual goods that occur in the fourth quarter).

It also said adjusted EBITDA, which is earnings before some expenses, totaled $213.2 million for the year, which was way above its range of $152 million to $162 million. For the full year, though, it said non-GAAP earnings totaled seven cents a share, a nice beat over its forecast of two cents to three cents a share.

On a quarterly basis, Zynga beat analyst expectations, which were no doubt low for the period.

The company reported a net loss of six cents a share (or a profit of one cent a share on an adjusted basis) on revenue of $311.2 million. Analysts were expecting an adjusted loss of three cents a share on revenue of $212.1 million, according to FactSet.

Zynga’s GAAP net loss of $209.4 million in 2012 was heavily influenced by a $53.8 million restructuring charge for changes it made internationally. However, revenue was up 12 percent year over year to $1.28 billion, fueled by a 7 percent increase in online game revenue and an 84 percent increase in advertising revenue.

Over the past three quarters, Zynga has been working hard on its turnaround, so this is just another baby step along the way.

The San Francisco games company slashed expenses, including a reduction in headcount, and named an all-new executive team as AllThingsD featured in a story yesterday. We’ll be hearing at 2 pm PT from the company’s management team, including CEO Mark Pincus, along with its new COO David Ko and CFO Mark Vranesh, who replaced Dave Wehner in November.

As most know, the San Francisco gaming company has struggled to find the right balance as consumer behavior has shifted from playing social games on Facebook to playing games on their phones.

In the third quarter, 60 million people played Zynga’s games on a daily basis, up 11 percent from the year-ago period. But those gains were only possible due to mobile offsetting declines on Facebook. The worry of Wall Street investors over the situation is apparent in the price of its stock, now at $2.66, which remains 72 percent below its initial public offering price at the end of 2011.

But Zynga management believes it knows how to turn things around, including expanding beyond its classic Ville-style titles, like FarmVille, to more genres that appeal to a wider audience, including casino and more hardcore titles.

In a story earlier today, I wrote about the three executives that CEO Mark Pincus has appointed to help turn things around. One of them is Steve Chiang, the company’s new president of games.

Here are some highlights from an interview I recently did with Chiang:

Tell me a little bit about your background.

Chiang: I got into computers early, when I was six or seven, and I was really into videogames and playing games on my computer. And then I got into programming. First, I got into the industry when I graduated from school as a programmer, by creating games for Super Nintendo. That’s when making a game included one programmer and two artists, or two programmers and five artists, so they were really small teams, so you really had to know all aspects of game development.

And then, in 1994, myself and some guys I went to high school with, and John Schappert, started Tiburon. We started making Super Nintendo games, and then we started working on Madden when the contract came up after the other company didn’t ship the game on time. It was the best-selling game on PlayStation that year, which led to the acquisition by [Electronic Arts].

I stopped programming in 1998 or 1999. When I left EA, I was overseeing all sports development for Peter Moore, who was heading up the sports label, and I headed up development across Vancouver and Orlando.

What was the attraction to Zynga?

Chiang: In 2009, when I was thinking of joining Zynga, we had FIFA Ultimate Team, which was a card-based microtransaction mode. It was a $10 mode you paid for, and then you had $1.50 card packs. We quickly saw the microtransaction part of it surpass the $10 for the mode. So you reduce the $10 to free to reduce the friction.

Microtransactions and free-to-play seemed like the future, for sure. The second aspect was time. Having an hour to sit down and play a game is not easy to come by when you have a family, so, as a person who loves games, the idea of playing games for five to 10 minutes with friends was really appealing. I saw myself reconnecting with people from high school, and I saw my parents playing with my kids. The only game my ex-wife will play is Words With Friends, except for SingStar, a karaoke game on PlayStation.

When you are creating a place where women, children and older parents are all playing, it’s an incredible feeling and experience. It’s like the first time I saw “Star Wars” in the movie theatre — that’s what we are creating for people. That’s what we are trying to create on a day-in and day-out basis.

I’ve spoken to people before about the initial draw of Zynga being that so many people end up playing your game, unlike a console title that has a limited audience.

Chiang: Absolutely, in entertainment, you want to make hits. When you are working on sports games year after year, it’s not super appealing. But the idea you get to work on a game played by millions of people? That’s great.

I mean, I always tell people, you spend the same amount of time on a game that gets canceled as one that is seen by millions of people.

Do you believe the definition of a social game is changing?

I do. It’s a moniker, like casual gaming. We label stuff, but essentially the business model is free-to-play, and gaming has always been social. I look at us as doing free-to-play games on multiplatform.

For a while, social equaled Facebook.

Yeah, that’s how I interpreted it, as well. But when you look at Words With Friends, that’s what a social game looks like, where you are interacting with a friend on a daily basis.

Zynga and Facebook just changed their contract language, which is less restrictive and will free you up to do more things, right?

Chiang: I think Facebook is a really valuable partner. We struck a new agreement, which enhances our partnership in some ways, and allows you to invest more in our platform and mobile.

Everyone talks about gaming as a hits-driven business. Is it possible to sustain that over the long term?

Chiang: I think we’ve seen companies like EA and Activision be able to sustain [that]. There’s aways peaks and valleys.

With social, it’s more about gaming as a service — it’s a TV model, if you will. We continue to put out new content every week, and on Facebook every single day. That keeps our players engaged. There’s games like Poker that have been around forever. There are certainly franchises. It’s not that different from a Call of Duty or a Madden Football, which has been going on for 15 years now. We have some of the same characteristics in Poker and Words With Friends.

Tell me about the story arc for Zynga’s Villes. How come some are not as successful as the ones in the past?

What we’ve seen is a few different things. We are seeing consumer tastes changing, and there’s a player movement toward mobile gaming. If you look at just a single platform, you’ll see a peak or a leveling-off of gaming on Facebook. But we are seeing growth on mobile. As we go multiplatform, we may have peaks and valleys on a single platform, but we’ll see overall growth.

That seems to be a platform issue, but is there something about Villes in particular that is no longer popular?

Chiang: When I look at FarmVille 2, it’s reengaging a lot of players, and is off to a great start. There’s an aspect of something new, and so players are saying, “Let’s try that.”

A game like Pokemon peaked at a $1 billion business, but over time, it’s still a big business and it has sustained. Traditionally, you’ll see a massive pop and then it will sustain. It’s a great business, and when we put out great content like FarmVille 2, our players respond and they engage.

Let’s go back to the cross-platform approach. Zynga is going after both Facebook and mobile, and has restructured its leadership team around that. How has your job changed?

Chiang: I took over all of the games business, so I have every game on mobile and Web, and just recently I reorganized around our players and genres.

We have some great leaders, and some of the most experienced in social gaming in the western world. We are going to run our “Invest and Express,” which are our Ville games. We have a new group in PVP (player versus player), which is focused on men 18 to 34.

Then we have our casino group, which is poker and male-skewing, and we have slots and bingo, which is focused on women. And then we have our mobile casual group, which is focused around some of our big franchises, like Draw Something and Words With Friends.

Some critics say that Zynga’s games are not fun. What do you say to that?

Chiang: I think when you look at a game like FarmVille 2 or Elite Slots, we are driving new innovation, and we are continuing to push innovation. At the same time, if we change too much, players complain. We saw it in sports games, and you see it in social gaming, you want a consistent feel and familiarity. You don’t want to redo everything.

Zynga is such a data-driven company, I’m curious what metrics do you look at every day, and which ones are most important?

Chiang: We look at the net promoter score, where we ask players to rate the game from one to 10. A nine to 10 is a promoter, and below a six is a detractor. We certainly look at overall how many people are playing and what our retention is, especially after launch, to check out retention after seven days to see which way it’s headed.

Why didn’t The Ville do well? Zynga announced it was cutting back on it as soon as it went live.

Chiang: I think with The Ville, the team made a great effort. But we did not deliver.

Our players didn’t respond to it as we would have expected. We hit a high DAU (daily active user), but they did not retain as well as some of our other games. We looked at all of that, and applied that to our future games. When you are going for hits, we’ll also have some failures.

Do you have a mantra, or a way to rally the troops right now that makes everyone believe you can create another hit? Something to inspire them? How do you manage the turnaround process?

For us, it’s about focus and getting back to basics. Our team across the board has delivered hits. We’ve had a number of great game makers who have been tied up with games, and now they are focused on new projects. We are reducing the number of games we are making, and focusing on a fewer with the highest potential in Invest and Express, player versus player and casino.

With many departures over the past few months, does Zynga still have the talent to make good games?

Chiang: Absolutely. We had a lot of people joining before the IPO, and some of those folks have opted out, but the bench is still really deep. We are also still attracting a lot of folks. Social is not for everyone, so some people came here to try something, but the future is really bright. We have a strong network of players on Facebook and mobile, and a number of great games in the pipeline that should be — and we’ll see how they do — but are going to be really fun and social.

Is there a message that you’d like to get out to people on Zynga’s game creation? Do you think there is an impression people have that you’d like to correct?

Chiang: I never thought about that. I firmly believe that we have a huge bright future and have the best position for talent, and in terms of our network and in terms of mobile and Facebook players to drive the biggest and best entertainment in the world. We are well-positioned that way, and hopefully you’ll see things in the future that will surprise and delight a lot of people.

Was it only just over a year ago that Zynga was the hottest game company on the planet?

Today — after seemingly endless executive departures (among the missing in action are the COO, CMO, CFO and the chief creative officer), a falloff in the popularity of its many games on the important Facebook platform, and a perpetually moribund stock price from a $9 billion valuation at its IPO in December of 2011 to $2 billion today — such a moment of glory seems but a very distant memory.

Now, in the wake of the crash, Zynga founder and CEO Mark Pincus is betting his dwindling chips on a trio of lieutenants to make things right: Steve Chiang, who is now president of games; David Ko, Zynga’s former chief mobile officer, who has been promoted to COO; and Barry Cottle, who was named chief revenue officer.

Establishing the three executives’ credibility and skill sets will be instrumental in regaining Wall Street’s confidence in the San Francisco gaming company, and perhaps reestablishing it as a growing and thriving concern.

So, can they do it? To find out, AllThingsD interviewed all three, as well as more than a dozen current and former co-workers of the managers, to get a handle on who they are and what roles they are playing in the company’s turnaround process.

Steve Chiang, president of games:

Chiang, 41, who is now leading all game development, has one of the toughest jobs at the company.

Zynga operates a hits-driven business, and must continue to make compelling games to draw in large audiences, something it has of late struggled to do.

One problem is that it has persisted in churning out its once powerful Ville-style games — FarmVille, CityVille, et al — while its competitors moved on to other genres, such as casino games and action-packed games aimed at males.

Those two new categories, as well as its original Ville genre, which it calls “Invest and Express,” will be at the top of the company’s priority list, in addition to developing across social and mobile.

In this, Chiang’s efforts are critical. But what has made this executive’s path at Zynga unusual was his rise, then fall —  and then rise again — within the corporate ranks.

Ahead of the IPO, Zynga was relentless in its efforts to build out a strong bench of C-level executives. One impressive hire was John Schappert, who came on board as chief operating officer to lead the company’s game strategy.

Schappert hailed from Electronic Arts, where he knew Chiang better than anyone else. Together, Chiang and Schappert co-founded Tiburon Entertainment, which was acquired by Electronic Arts in 1998, and continues to be responsible for hit games such as Madden NFL.

Chiang arrived at Zynga first, in March 2010, as EVP of Games. But when Schappert joined Zynga in April 2011, Chiang’s responsibilities naturally decreased as less work was left to go around.

Zynga’s former chief creative officer, Mike Verdu, who worked closely with Chiang, recalled the transition. “There was certainly a period, especially as other executives came in, that the weight of influence shifted away from Steve,” he said. “All of our roles changed a bit when John was there. He had a very different way of doing things, and when he left, there was a realignment of the organization.”

Schappert stepped down in August of 2012, one of the company’s highest-profile departures.

Because Schappert was the front man in the company’s IPO, the shy Chiang is not as well-known, despite having worked there for three years. His resume at the company includes releasing CityVille, which became the biggest game at the time. He also grew the company into a worldwide organization, adding studios across the U.S. and internationally. He pushed the company into new categories, such as arcade-style gaming and hidden objects. Recent credits include the launch of FarmVille 2, the company’s most recent hit.

Chiang spoke briefly and without a lot of actual detail about his time working with Schappert at Zynga. “He’s a personal friend of mine, and he brought a lot to the company, and we made some internal changes and he decided to move on,” he said.

Now, with the reins in Chiang’s hands, he says he will focus on developing games that appeal to a wide audience. To free up talent to work on new projects, the company is sunsetting 13 of its games, including PetVille, Mafia Wars 2 and Indiana Jones Adventure World.

“We’ve had a number of great game makers who have been tied up and now they are focused on new projects,” Chiang said. “We are reducing the number of games we are making, and focusing on fewer with the highest potential in Invest and Express, player versus player, and casino.”

Whether Chiang can pull it off remains to be seen. But one of Chiang’s direct reports — who declined to be named — said: “We aren’t all driven by money or fame. A lot of people are driven by pride. Steve internalizes that. He’s a champion for the game makers, but ultimately, for the players themselves.”

For more on Chiang, click here for an exclusive Q&A interview.

David Ko, chief operations officer:

There’s a long list of reasons why David Ko, 41, earned the promotion to chief operations officer. Over the past two years as chief mobile officer, the former Yahoo exec has overseen the release of 30 mobile games and closed two of Zynga’s largest acquisitions.

The first acquisition was Newtoy, which is known for the very popular Words With Friends mobile game. The second acquisition, of OMGPOP, was less successful. Immediately after Zynga purchased the company for $180 million in cash, its hit product, Draw Something, fell dramatically in the rankings, although it still accounts for the bulk of the company’s mobile users today.

That said, if mobile is critically important to the company’s future, then having Ko as the second in command was a clear message of its importance.

Ko is now second in command, with purview over 3,000 employees, as well as being the public face for the media and Wall Street. On Tuesday, in fact, he will make his first appearance on the company’s fourth-quarter earnings call.

He has a lot to learn, which is why Ko asked everyone to stand up and introduce themselves at a recent meeting of 130 managers. “It was interesting to go around the room and hear from people who had been there for four to five years, or for two months,” he said. “It was a great diversity of talent, and they came from all different backgrounds.”

Ko’s more inclusive management style is likely to be welcomed by employees, especially since Pincus is known for valuing data over people. “Mark [Pincus] misses that stuff at times,” one former employee said. “It’s a mercenary culture; he looked at people as fungible.”

But Ko’s fast ascent to COO is not sudden as it may look, say insiders.

“In spite of the fact that he looks like he is 12, he’s the adult in the room,” said a former co-worker of Ko’s, who knew him from his days at Yahoo. “That’s the irony.”

Prior to Zynga, Ko worked at Yahoo for a decade starting in 2000. He was based initially in Asia, where he ran the Silicon Valley Internet giant’s mobile business. In 2009, Ko then returned Yahoo’s headquarters as the SVP of mobile, but was quickly promoted amid much executive turmoil to be the North American audience head.

Ko said his non-gaming background is a plus, because he has extensive experience monetizing content.

“We have lots of people with all kinds of backgrounds in social or gaming, but what the company needs is about making sure the content is available to everyone and can be monetized in different ways, whether it’s advertising or user pay.” he said. “I have a lot of experience with this. Advertising is becoming a bigger piece of monetizing, and that’s one of my core competencies.”

In his first three months as COO, Ko said, he has made three priorities at the company: To create a sense of discipline, to make the company’s strategies clear and to have fun doing it.

The reality of it all, Ko said, is that he has spent most of his time on the first two: “I have to remind myself at times, we are still a games company. We do have to do some fun things.”

One time the whole company has fun is for an hour every Wednesday when Zynga staffers drop everything they are doing to play a game under development. It was a practice that the company used to do in the early days, and Pincus asked Ko to bring back. After the employees play, they then provide feedback on what they liked and didn’t like about the game.

“Ultimately, we are a games company, and we have to make sure that people find the games fun that we are going to launch,” Ko said.

Barry Cottle, chief revenue officer:

Barry Cottle, 51, is the newest to Zynga of the three top execs, having joined the company in January 2012 as EVP of corporate and business development.

Previously, he was head of EA Interactive, where he oversaw a group the size of Zynga, including the company’s social and mobile gaming divisions and its PopCap unit. As such, his departure was a particularly big blow to EA.

As chief revenue officer at Zynga, Cottle is now responsible for securing partnerships and advertising, plus he is responsible for sales operations and the company’s real-money gaming initiatives.

And also the care and maintenance of Zynga’s most significant relationship — with Facebook.

In November, Zynga and Facebook announced that the two companies had renegotiated their contract, which will make their partnership less complicated. It also provided some benefits to Zynga, such as the ability to launch games first for mobile. Cottle worked directly with Facebook’s Dan Rose on the new terms, unlike the original contract, which was negotiated directly between the two Marks: Mark Zuckerberg and Mark Pincus.

He also moved quickly on the company’s online gambling efforts by setting up a partnership with Bwin in the U.K., which will go live early this year, and also kicked off the years-long process of getting a real-money gaming license in the U.S., starting with Nevada.

The deals are a demonstration of just how eager Cottle is to drum up new revenue wherever he can.

In Cottle’s previous jobs, he had to be equally scrappy. He joined EA in 2007 to manage the company’s roughly $700 million acquisition of Jamdat, a mobile games company. At the time, mobile gaming consisted of developers making Java and Brew games.

But when the iPhone came out, Cottle took on the job of convincing his superiors that smartphones were the future.

One of his former reports at EA recalled that as soon as Cottle made the decision to develop five games for the iPhone’s App Store, “We were in the war room the next day and were moving resources to the iPhone.”

Prior to EA, Cottle co-founded a company called Mobile Digital Media. (The company, which was later renamed Quickoffice, was acquired by Google last year.) The entrepreneurial effort was a spinoff from Cottle’s days at Palm, where he was part of the executive team that took the company public. Earlier in his career, he was a Disney executive for 10 years, working on the company’s TV and Internet services.

In many ways, Cottle’s job at Zynga is similar to the one at EA. But instead of managing the move from feature phone to smartphone, this time he’s transitioning the company from social gaming to mobile gaming.

As part of that, one of Cottle’s biggest challenges will be finding a way for Zynga’s games to be discovered on mobile.

With Facebook, Zynga leveraged virality — friends invited friends to play, or discovered games through their news feeds. But mobile does not have the same dynamics, making distribution much more challenging. Last year, Cottle inked a deal directly with T-Mobile USA, which preloads some of Zynga’s games on to smartphones, and which is actually a throwback to when games were best distributed through the carriers.

Recognizing the pace at which the business is moving, Cottle said, “You have to be able to move fast and adapt and ensure that you bring your consumers with you. They’ll move from platform to platform; we just need to bring our franchises along with them.”

To accomplish this, Cottle has one key strength in his corner: A reputation for working as hard as it takes.

Zynga’s general counsel, Reggie Davis, who has known Cottle since they both worked at Hallmark Cards in Kansas City 25 years ago, said: “He’s Midwest like me. We got taught to show up early and to clean up afterwards — and if you do, you might get asked back. That’s totally Barry.”

Zynga Plus Poker and Zynga Plus Casino are both viewable in the U.S., but once it goes live, players will have to be located in the U.K. and over the age of 18 to legally play.

Right now, the sites are being used primarily as a marketing tool to get the word out and to start collecting email addresses ahead of the official launch.

A Zynga spokeswoman declined to comment.

One thing that’s noticeable is how much social is being emphasized. The tag lines for the respective sites are “Casino For The People” and “Poker For The People.”

Today’s launch shows that Zynga is making at least some progress on its promise of expanding into online games where players can win and lose real money, from its core business of selling virtual goods on Facebook. Both sites say that the games will go live in early 2013, which lines up with what Zynga’s CEO Mark Pincus had previously promised.

In October, the San Francisco company announced an exclusive partnership with bwin.party, which enables it to launch a real-money gaming site in the U.K. The casino site is expected to launch with 180 games, including slots, roulette and blackjack. Additionally, Zynga’s FarmVille brand is expected to be used for one of the slot games.

For now, Zynga’s casino ambitions will have to be limited to markets where gambling has been legalized. It has filed an “Application for a Preliminary Finding of Suitability” in Nevada, but the process could take up to 18 months. If Zynga is found suitable, a license could take another two to three months. Even then, it still would only be allowed to operate online in one state.

During its last conference call, Zynga declined to say how much revenue the real-money gaming sites could generate, but based on the company’s current stock price, it seems investors are being cautious. Zynga’s shares fell 5 cents, or two percent, today to $2.33 a share.

Mr. Campbell, a technology veteran who has coached Silicon Valley CEOs such as Steve Jobs and Eric Schmidt, had been called in by Zynga investor and venture-capital firm Kleiner Perkins Caufield & Byers to advise Mr. Pincus as the social games company’s stock plunged and some of its online games lost traction. Some Kleiner Perkins partners warned Mr. Campbell that he might not make much progress.

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We want to build an Internet treasure.

– Zynga CEO Mark Pincus, at Fast Company’s Innovation Uncensored Conference

The founder’s comments during the call were much different from just three months ago when he blamed some of its decline on Facebook. But today, he took the brunt of the responsibility, and even praised Facebook at times. “The Ville missed our expectations, but FarmVille 2 and ChefVille did a great job. We see a lot of growth for us on Facebook by innovating in genres that have grown a lot this year.”

Why Pincus decided to dial back his previous statements is not clear. But given that the two companies are connected at the hip, it’s probably a good move. Zynga said today that 20 percent of its bookings are coming from mobile, which means the remainder still comes from the social network. Just yesterday, Facebook’s Mark Zuckerberg made a point to call out Zynga’s serious underperformance, which resulted in a 20 percent decrease in payment revenue coming from Zynga compared to a year-earlier. “Gaming on Facebook isn’t doing as well as I’d like,” he said.

But perhaps the only reason for Pincus’ more conciliatory tone was that the company did slightly better today than its worst projections, provided in a warning earlier this month. Investors were soothed by the results and its plans, which included cost-cutting measures and investments in mobile, third-party publishing, advertising and real-money gaming. The stock is up 14 percent in after hours to trade at $2.42 a share after hitting a new low yesterday.

—————————————————

A lot was already known about how Zynga was going to do in the third quarter since it released preliminary results earlier this month, warning that things wouldn’t be good.

But here’s the official report anyway, which is largely in line with what it was expecting — although a tad bit rosier than the ranges it provided.

In the third quarter, Zynga lost $52.7 million, or 7 cents a share, on revenue of $316.6 million. The loss was compounded by a $95.5 million impairment charge related to the purchase of OMGPOP, and charges related to stock-based compensation. Excluding those charges, the company would have made $400,000 and broken even on a per share basis.

Zynga had said it was expecting third-quarter revenue in the range of $300 million to $305 million and a net loss of between $90 million and $105 million, or roughly a 12 cent to 14 cent per share drop. Investors reacted positively to the better-than-expected results, pushing the stock up 15 percent, or 30 cents, to $2.45 a share.

“While the last several months have been challenging for us, Zynga remains well positioned to capitalize on the growth of social gaming,” said CEO Mark Pincus, in a release. “We’re implementing a number of steps to drive long-term growth and profitability.

The trend that worries investors is the declines that the company is seeing on a sequential basis. Compared to the second quarter, revenue dropped 5 percent. The drop was driven by a 2 percent decrease in virtual goods spending and a 24 percent decrease in advertising. The company is currently building a platform to boost advertising revenues across a variety of first- and third-party titles.

Yesterday, Zynga announced a resturcturing plan that included laying off 5 percent of its staff, or about 150 employees, and other cost-cutting measures. In the release today, Zynga said the plan is expected to generate savings in the fourth quarter of up to $20 million, excluding a restructuring charge of up to $12 million. It also said the board has asked the company to repurchase up to $200 million in shares.

Stay tuned for updates from the company’s Q3 earnings call at 2 pm PT

2:01 pm: Hey folks, the call is about to start.

Welcome! Mark Pincus, CEO, and Dave Wehner, CFO, are on the call. Things sure do change quick. Just last quarter, John Schappert was one of the key presenters, and now he’s gone. Lots of things to cover: real-money gaming partnership, layoffs, stock buy-back, employee retention plans, etc.

2:05 pm: Mark is up now, talking about the struggles Zynga is facing.

He says that social gaming is comprised of 235 million players of the 1 billion people on Facebook. Despite this, we didn’t meet our growth expectations. Why?

1. We experienced faster decline in bookings, we didn’t innovate on content and features, and we weren’t able to bring new games to market fast enough to offset these declines.

2. The faster-than-expected adoption of smartphones, which was distracting to its core social game players.

2:07 pm: He said FarmVille 2 and ChefVille are No. 1 and No. 3 on Facebook. Pincus said FarmVille 2 hit a new first: $950,000 in purchase volume in a single day, including the 30 percent it still has to pay to Facebook.

For some perspective, he said 70 percent of its daily active users engage with each other on Zynga’s network, “they generate 700 million social interactions, that’s more than the total ad clicks on Google in a single day.”

The Restructuring plan: This includes a reduction in data hosting spending, labor and outside services. “We also announced several studio closures, and a 5 percent reduction in staff.” They are also cutting 13 underperforming games (no details on which ones), and have a more stringent budget for games. “The Ville missed expectations, but we moved quickly to reduce and redeploy that team.”

On to mobile: Pincus said it has become the fastest growing platform for gaming. And, social games are the most engaging. “We have three of the top five most popular mobile games,” he says. “In the past year, we’ve generated a large audience and a business that represents 20 percent of our bookings.”

So, mobile = 20 percent of bookings.

He says they’ll be making more, high-engagement games, like Poker, for mobile. “We’ve reorganized game teams in Q3 to unite Web and mobile development. … That’s a huge change for our company.” Coming up in the mobile pipeline: Four games per quarter, which will cross Ville titles, casino and mid-core games.

Two new divisions that will be making revenue:

• Advertising: In past quarter, we added 12 new sales team members, and video advertising is a our fastest-growing category with a 142 percent jump from Q2 to Q3, Pincus said. (More info on the platform it is building here.)
• The second category is real-money gaming, as it announced today with its partnership with Bwin.

2:17 pm: Zynga’s CFO David Wehner is now going through all the financials.

“We aren’t satisfied and we are taking immediate action with a cost reduction plan,” he says. We’ve heard all the actions that they are taking before, so nothing new here.

The good news is that a better than expected Q3 means a slightly better full-year guidance, which I think has now been adjusted four times (so perhaps take it with a grain of salt).

Bookings are projected to be in the range of $1.09 billion to $1.1 billion.

Full-year 2012 non-GAAP EPS is projected to be in the range of two cents to three cents.

2:24 pm: Time for Q&A.

In after-hours trading, the stock is now up 11.8 percent, or 25 cents, to $2.38 a share. It’s worth noting that just yesterday, it hit a new low, closing at $2.20 a share.

Pincus dodges a question about how Zynga’s Q3 results fell despite Facebook reporting an overall increase in revenue yesterday: “We’re focused on building great games that can drive deeper engagement and consumer value. FarmVille 2 is a major breakthrough: We can bring a terrific 3-D game to the browser for free and we are seeing great results. We have a similar game with CityVille 2 coming, but we’ll continue to up the quality and engagement.”

Other categories, he says, that are coming include casino, player-vs.-player and core gaming, which has proven to result in better conversion rates.

The analyst presses again, asking about the algorithm changes that affected Zynga last quarter.

Wehner says: “Facebook makes changes to their algorithms all the time, we navigate those changes. We’ve been focused on operating on the Facebook platform and we continue to do that with FarmVille 2 and ChefVille. We’ve seen some declines in existing express and invest games, but we think we can continue to be successful.”

This is a different tone that Zynga is taking regarding Facebook, which it had blamed for some of its previous quarter’s woes.

2:39 pm: Bwin revenue forecasts, please?

Wehner: “There is a revenue share with Bwin on this, and we aren’t providing specific guidance at this time. We think this is a first step and is a long-term opportunity.”

A mobile question about the overlap of players on Facebook and mobile:

Pincus: “In terms of a carryover of Facebook to mobile, it’s tough to measure, but we’ve definitely seen among the Facebook-connected audience, a huge proportion, well over half, reactivated to our network because of mobile, or are playing on both web and mobile. The biggest example is our Poker game.

“In terms of Facebook driving mobile usage, we are excited about some of the changes it is testing, like new sponsored stories, and we are excited to see what the future brings.”

2:44 pm: Finally a more probing question: Why is Zynga losing share on Facebook, and when can you fix that? And, you have about $2 a share in cash, can you use that to grow?

Pincus: “In terms of our overall marketshare, we believe that our position on Facebook has been driven by our own execution. As we’ve said, we haven’t been happy about our execution. In some places, we are happy, but aren’t consistent. We are encouraged in some of our core areas, we’ve done a great job maintaining our market position. In Poker, we’ve maintained and grown, but in invest and express, we would have liked to have executed better. The Ville missed our expectations, but FarmVille 2 and ChefVille did a great job. We see a lot of growth for us on Facebook by innovating in genres that have grown a lot this year.”

Wehner says on capital, they are still looking at M&A, and that they’ll use it when highly strategic, and we continue to invest in core business on mobile and Web. Plus, the share repurchase program.

2:53 pm: A question about the advertising revenue dipping in the Q3 period vs. Q2.

Things can be seasonal, Wehner says. “Ads on the whole is growing for us and we are monetizing better and better on advertising. We are launching new products in advertising on the video side, that’s been a good growth quarter. In the third quarter, we had a sequential decline in users, which impacts ad revenue, but overall, we see it grow faster than user pay.”

2:55 pm: Question about whether the cost-cutting measures were deep enough, given revenue projections.

Wehner: The actions that we are taking will put it in the right place, and we’ll continue to invest in growth.

Pincus justifies the additional headcount and expenses: “If you compare us today to a couple of years ago, we are investing in more growth businesses than we were then. We’re investing in mobile, and network and platform, and advertising, and real-money gaming.”

3:04 pm: Analyst wants more color on future growth plans. Wehner says he’s got no more to say other than that they are on pace to launch two Web games per quarter and four mobile games per quarter.

3:05 pm: That’s it, call is over.

See ya next time, and thanks for tuning in.

The decision was made as part of a significant restructuring plan that is designed to return the company to profitability. The company said it would be phasing out 13 games and laying off about 170 employees.

This afternoon, Mark Pincus, the co-founder and CEO, will talk more about the changes during the company’s quarterly conference call, but in the meantime, here’s an explanation for why The Ville’s life is being cut short.

As detailed in the chart below, compiled by Sterne Agee, you can see that the company’s newest titles have not performed as well as some of its original titles — and that Zynga really hasn’t had a true hit in a while. FarmVille 2 has done the best among Zynga’s latest crop of games, but both The Ville and ChefVille are already starting to decline just months after launch.

A lot has changed since Zynga’s early days. As many already know, Facebook no longer gives game makers unlimited access to its viral channels. That keeps people from unknowingly posting random notes on their friends’ walls, but also makes it harder for people to learn about new games. Since that has been the case for some time, however, there must be greater forces at play.

Even though Zynga’s new games have better graphics and some new mechanics, they are largely variations of the original. It’s a formula that the company has been repeating for the past four-plus years, and now there’s evidence it has run its course.

When The Ville was announced in June, I wrote, “Much like other ’Ville games, which challenged users to build a farm, a city or an imaginary fantasy land, the point of The Ville is to create a character and build a home, complete with swimming pools, workout rooms and state-of-the-art kitchen appliances.” Zynga calls the ’Ville series of games “invest and express,” because the games allow players to invest time — and hopefully money — in their game board.

Initially, the category of games appealed to people who obsessed with owning every item available in the game. Other players enjoyed the decorating aspects of the genre, spending their time and money on making their virtual home something special. It’s a genre other game companies used, and now Facebook is saturated with hundreds of variations and copycats. (In fact, Electronic Arts has filed a lawsuit against Zynga, accusing it of infringing on its game The Sims Social).

Pincus acknowledged the problem earlier this month after revising the company’s full-year guidance: “The challenges we faced in our Web business in Q2 continued in Q3 and while many of our games achieved plan, we still experienced overall weakness in the invest and express category. To address this we’re further investing in other genres like casino where we already lead with Zynga Poker and blue PVP, a category we pioneered with Mafia Wars, and now have the opportunity to reinvent with the industry’s best talent here at Zynga.”

Stay tuned for a much more detailed explanation during the company’s earnings call today at 2 pm PT. For now, here’s the chart:

“We don’t take these decisions lightly as we recognize the impact to our colleagues and friends who have been on this journey with us. We appreciate their amazing contributions and will miss them,” he told employees in a letter.

More details will be provided on the earnings call tomorrow, but the high-level takeaway is that the troubled social games maker will be “sunsetting” 13 games, which seems like a lot, and closing the Boston office. It is also proposing closures of the Zynga Japan and U.K. studios.

As previously reported, it confirmed it was reducing staffing levels at its Austin studio, where The Ville was developed.

With as many as 3,400 on its payroll, a 5 percent layoff works out to about 170 employees being let go.

And on what was already a rough day, it didn’t help that Facebook CEO Mark Zuckerberg pointed to Zynga’s struggles as one of the drags on his payments business.

Here’s the note that was provided by a Zynga spokesperson:

Team,

Earlier today we initiated a number of changes to streamline our operations, focus our resources on our most strategic opportunities, and invest in our future. We waited to share this news with all of you until we had first spoken with the groups impacted.

As part of these changes, we’ve had to make some tough decisions around products, teams and people. I want to fill you in on what’s happened and address any concerns you may have.

Here are the most important details.

We are sunsetting 13 older games and we’re also significantly reducing our investment in The Ville.

We are closing the Zynga Boston studio and proposing closures of the Zynga Japan and UK studios. Additionally, we are reducing staffing levels in our Austin studio. All of these represent terrific entrepreneurial teams, which make this decision so difficult.

In addition to these studios, we are also making a small number of partner team reductions.

In all, we will unfortunately be parting ways with approximately 5% of our full time workforce. We don’t take these decisions lightly as we recognize the impact to our colleagues and friends who have been on this journey with us. We appreciate their amazing contributions and will miss them.

This is the most painful part of an overall cost reduction plan that also includes significant cuts in spending on data hosting, advertising and outside services, primarily contractors.

These reductions, along with our ongoing efforts to implement more stringent budget and resource allocation around new games and partner projects, will improve our profitability and allow us to reinvest in great games and our Zynga network on web and mobile.

Zynga made social gaming and play a worldwide phenomenon, and we remain the industry leader. Our success has come from our dedication to a simple and powerful proposition – that play is not just something people do to pass time, it’s a core need for every person and culture.

We will all be discussing these difficult changes more with our teams and as a company. Tomorrow, Dave and I will be hosting a post-earnings webcast (details to follow) and next week we will be discussing our broader vision and strategy during our quarterly all-hands meeting. I’m confident this puts us on the right path to deliver on the promise of social gaming and make Zynga into an internet treasure.

If you have any immediate questions, I hope you will talk directly with your manager, Colleen, or me.

I look forward to talking with you tomorrow.

Mark

The layoffs took place today during Apple’s keynote, and affected hundreds of employees, according to several reports. Three different spokespeople at the company did not return phone calls or emails seeking confirmation.

The cutbacks are not a surprise.

Mark Pincus hinted earlier this month that he was going to evaluate the business after releasing preliminary third-quarter earnings that were a disappointment. The timing was largely expected to occur prior to tomorrow’s official third-quarter report.

A source close to the company’s Austin office confirmed that almost everyone working on The Ville was laid off, and that development of the game will move to India, where the company sends games to be maintained.  The Ville has been underperforming since it launched, and was specifically named by Pincus as an example of its original genre of games that are no longer performing as well as they once did. The company has also been disappointed by the launch of FarmVille 2, although it is still expecting to launch a sequel to CityVille soon.

Also affected in the Austin office was the team working on Bingo for Facebook, but we hear the team working on Slots remains.

This afternoon, a report on Twitter first indicated that the layoffs had begun, saying that 100-plus employees were affected in Austin. Afterwards, Gamasutra reported that Zynga’s offices in Chicago and Boston were also affected. As I find out more, I’ll update the post here.

The social games maker, which still remains the largest on Facebook by far, has roughly 3,000 employees, a majority of whom work at its San Francisco headquarters. More recently, the company has been suffering from a talent drain as executives as well as lower-level employees have elected to quit. This move won’t help with morale, but at least Zynga will get to play a role in deciding who leaves.

The company’s stock fell 12 cents, or 5.2 percent, to close at $2.20 a share, which is a new low. We’ll be watching Facebook’s earnings today for any other signs on how the general social games business is doing.

For Zynga, which has struggled to develop a new hit game recently, the strategy has two aims. Obviously, it wants to generate more ad revenue. But, just as important, it wants to give game developers a reason to work with its CEO and founder, Mark Pincus.

Multiple sources familiar with the company’s plans say the platform is still under development, but some of the components could launch by the end of the year. It may not be available to third-party developers immediately. A Zynga spokesman declined to comment.

Up until now, the social game maker has been slow to adopt advertising, opting instead to rely on the sale of virtual goods for the bulk of its revenue.

The advertising efforts will be a part of its push into third-party publishing and will be used as another way to attract developers looking for a complete package when it comes to bringing games to market. Sources said the initiative is being headed up by the company’s long-time CTO, Cadir Lee, who has also been in charge of other major platform projects, including the build-out of its own cloud network.

Over the past year, Zynga has been slowly ramping up its advertising efforts. Recently, it announced a deal where Words With Friends players were rewarded for using Honda-related words on their game board. Another example: A virtual State Farm blimp that players used in FarmVille to revive crops.

Last quarter, ads generated $41 million for Zynga. That’s up 170 percent year over year, and represents 12 percent of the company’s overall revenue.

The spike in advertising over the past year likely has a lot to do with the acquisition of OMGPOP, which was generating massive amounts of ad inventory at the peak of its hit game Draw Something.

But it’s not enough. Earlier this month, Zynga updated its full-year guidance, saying that revenue will fall below previous expectations for the second time this year. Zynga will report final results for the third quarter on Wednesday.

So, what could a Zynga-built advertising platform look like?

The platform could enable the company to expand beyond brand integrations and sponsorships into more lightweight experiences, including banner ads, interstitials, video pre-rolls and incentivized downloads. While it will span both Facebook and mobile, it will likely focus more on mobile games, since Zynga has repeated over and over again that they don’t bring in as much revenue as its social games.

To bolster its efforts in the space, back in April Zynga hired Julie Shumaker (formerly of RockYou and Electronic Arts) to be the VP of global ad sales. Since then, sources say, Zynga has hired a few more direct ad sales employees, and lists several more job openings on its Web site, including roles for sales managers and directors.

It is not entirely clear why Zynga is choosing to compete with so many ad platforms that already exist today, but according to sources, there are a few benefits that may outweigh the costs.

For starters, it will keep more of the revenue that way, without having to work with a middleman — important for a company that has been forced to give 30 percent of its virtual-goods revenue to Facebook.

Another theory is that Zynga wants to ensure that it owns all of its own data. Zynga has an incredibly large audience — roughly 300 million monthly active users — and a lot of rich information about them in terms of their behaviors and their social graph.

Flickr: Paqman

The staff at AllThingsD is generally a very busy bunch. But the next five days promise to be particularly jam-packed with news from some of the biggest names in tech.

(For the record, these are only some of the events that are scheduled to occur. There are also contingencies in place for unplanned events — like, say, Google accidentally publishing its earnings release hours before it was supposed to.)

From Apple’s iPad Mini event to Yahoo, Facebook and Amazon’s earnings, here’s a breakdown of the week to come:

Monday, Oct. 22: Yahoo’s third-quarter report is on deck for after hours. As you may recall, CEO Marissa Mayer’s first day on the job was July 17, the same day Yahoo reported second-quarter earnings. So, technically, this will be the first time investors will have a chance to hear from the new boss — that is, if she makes an appearance on the call.

Tuesday, Oct. 23: First thing Tuesday morning, we’ll be live at the highly anticipated Apple event in San Jose. Invitations were sent out last week, simply saying, “We’ve got a little more to show you.” Hint, hint. In addition to the more compact iPad that everyone has been anticipating, we we might also see a 13-inch MacBook Pro with Retina Display and perhaps a new Mac Mini. In the afternoon, it’s Facebook’s turn to report third-quarter earnings. Last month, Mark Zuckerberg made his first appearance since going public to explain what had gone wrong over the past year. But given that the company’s stock has done nothing but fall since (minus one small bump), it seems the company will have some more explaining to do.

Wednesday, Oct. 24: Zynga’s third-quarter earnings call hits after the bell, and thanks to its preliminary report we already know what we’re going to get: Bad things. The company warned it was missing both third-quarter and full-year guidance. Expect CEO Mark Pincus to provide a cost-cutting plan to help the company return to profitability.

Thursday, Oct. 25: The two A’s report quarterly results today — Amazon and Apple. Pretty routine stuff here. Look for Apple to discuss iPhone 5 sales figures and for Amazon to say zilch about how many Kindle Fires it is selling. In addition, Microsoft will be hosting a press event in New York City to “celebrate Windows 8,” including a Microsoft Surface Reception. The next day it starts making the software – and computers running it — available to the public. It’s also when Microsoft plans to start selling its own tablet, known as Surface.

Correction: In the original version of this post, it incorrectly stated that the Microsoft event was set for Friday, Oct. 26. The post has been updated to reflect that the event is actually on Thursday, Oct. 25.

Zynga Poker GM Lo Toney Unveils Zynga Casino at Unleashed 2011

But investors won’t like hearing this tidbit: AllThingsD has learned today that Laurence “Lo” Toney, former general manager of Zynga Poker, has left the company.

Toney has updated his LinkedIn profile to reflect his departure, and we were able to confirm with him separately that he is no longer at the company. During his nearly three years at the company, he spent two years as the general manager of Zynga Poker, which is the company’s longest-standing franchise. Following his stint in Poker, Toney held a general manager role in mobile, where he worked on its publishing efforts.

He confirmed via email that he has no immediate plans for what he will do next: “My departure is less about Zynga and more about the vast number of opportunities that currently exist in the Valley. I have been approached by several organization to lead teams and companies that I find exciting and compelling. It is the right time for me in my career to move on.”

Released in July 2007, Poker was Zynga’s first game on Facebook and continues to register nearly 40 million monthly active users.

It is the company’s roots in Poker that make it a strong contender in the online casino space. In addition to managing the game, Toney took charge of leading the company’s real-money gaming strategy, which involved making two acquisitions, including MarketZero of Austin. He also appeared onstage at the company’s Unleashed event last year to announce the company’s casino franchise, which now includes poker, bingo and Zynga Slingo (slots on a Bingo-style game board).

Last week, CEO and founder Mark Pincus said casino would be one of the company’s prime investment categories, after disclosing the news that the company would miss full-year projections for the second time.

Toney is one of the top employees to leave Zynga recently, along with various other C-level executives and general managers. Zynga’s retention has become a sore spot as the company’s stock price continues to plummet and Zynga struggles to make the transition from a Facebook games company to a mobile games company.

However, Toney’s departure doesn’t necessarily leave a gap in the company’s leadership ranks for real-money gaming. In August, AllThingsD reported that Maytal Ginzburg was joining Zynga as the company’s chief operating officer in charge of new markets, including its real-money gaming efforts. Ginzburg joined from 888 Holdings, which offers real-money games such as poker, bingo and sports betting, in markets where online gambling is regulated.

It’s the latest of several options that have been floated, including whether Facebook or others might try to swoop in to buy the company.

Most of these scenarios are moot, given Zynga’s founder and CEO Mark Pincus controls the troubled company, owning more than half of its shares. It is not clear if he would be willing to give up now.

That said, he has do something — the company’s stock hit a new low on Friday, tumbling 12 percent to $2.48 a share. At that price, investors are valuing the business at very little, since Zynga has the equivalent of $2.10 a share in hard assets.

That price could get lower, with Wall Street investors and many others becoming even more relentless in their criticism of Zynga.

There have been many concerns already that began after its once close partner, Facebook, changed the way it operates, with the result that its platform did not perform as well as it once did for Zynga, especially for its once popular Ville-style games.

It’s been made worse as consumers continue their shift to mobile, which Zynga says does not always monetize as well as Facebook.

To add to the pile, Zynga has suffered mass exodus of talent, some for better and some not. Over the past few months, it has lost several high-ranking managers, including its COO John Schappert and Chief Marketing Officer Jeff Karp, who were both brought on board for their experience in gaming. Last week came the departure of Paul and David Bettner, the creators of Zynga’s enormously successful Words With Friends franchise.

There was plenty of other fodder for criticism this past week, after the company also wrote down the acquisition of OMGPOP by as much as $95 million, or about half of the total price.

In a memo issued to employees on Friday, Pincus wrote that he was disappointed and is focused on rectifying the situation.

In the near term, he said it might mean considering “targeted” cost reductions. And in the longer term, he noted that Zynga would have to invest more in mobile and a platform approach that enables it to publish third-party game titles.

Whether he can do that easily with intense shareholder scrutiny is questionable, and ditching the public markets would have its advantages.

To get a sense of where Zynga stands, and whether going private is feasible, I talked to a handful of analysts and experts, all whom had mixed opinions.

Michael Pachter, Wedbush Securities:

At this price, yes, Zynga can go private, but I don’t think that will happen. That would trigger more unrest by shareholders, who would say you sold shares at $10 and now you want to buy them back at $3? It would have the appearance of some sort of scheme.

If he [Pincus] wants to send a signal to investors that they are done making acquisitions — since they obviously didn’t do a very good job at it — they should take some of its war chest and buy back stock. He should also personally buy stock. We need to see that kind of commitment.

Peter Relan, executive chairman of CrowdStar, which pivoted from social to mobile gaming this year:

I have three solutions: Mobile, mobile, mobile. Mobile gaming this year globally is a $2 billion to $3 billion business and is expected to hit $18 billion by 2016. I don’t think there’s a lack of growth in gaming; it’s more product strategy.

Mark is a competitive guy and he’s going to fight like hell to transform the company and take it to the next level.

Arvind Bhatia, analyst, Sterne Agee:

They need to restructure the business significantly and do it very quickly, too. We think that they are considerably overstaffed for the level of revenue that they’ll be generating in the coming years.

They need to right-size and preserve the cash. Going private won’t solve the problem … the question is, where will the cash be in a year from now?

Rich Greenfield, analyst, BTIG:

They will generate zero EBITDA in the back half of 2012 based on their new guidance and earnings in 2013 and beyond are totally unclear — the company’s assets are literally walking out the door — you see the Words With Friends team left.

Why would they want to lever up and go private — sounds petrifying … Zynga clearly has no idea how to model/project their business/earnings, in turn, going private would appear to be a very dangerous move, don’t you think?

They need to make great games that have staying power.

FarmVille deserves recognition for its role in social gaming history. The three-year-old game, which has been played by 100 million people, was one of the first social games on Facebook to capture a mass audience.

Amazingly, after all this time, FarmVille continues to attract more than 18 million players a month, making it Zynga’s sixth-most-popular game. It also brings in more revenue than any other Zynga title, accounting for 29 percent of the company’s revenue in the second quarter.

As such an important brand to the company, it makes sense to experiment with creating sequels — which have become the lifeblood of the traditional videogame market. But for the same reasons stated above, it will also be a delicate balancing act. One false move may irritate a legion of players, who have invested thousands of hours and significant amounts of money in the original game.

What’s more, Zynga desperately needs to prove right now that it can turn its past successes into franchises that will continue attracting players for many years to come.

Based on what I’ve seen in a brief online demo provided to me by the creative director and Zynga’s VP of games, the new game has a shot.

FarmVille 2 looks and behaves differently from the original.

In the first iteration, users were motivated to return to harvest crops before they wither. Zynga’s CEO Mark Pincus has famously talked about how its players were so passionate they’d set their alarm clocks to wake up in the middle of the night in order to plow their fields. But in the sequel, withering will not be a central theme.

In the sequel, there are much more realistic scenarios, including classic resource-management challenges. Players must make sure to have enough water to keep their crops alive, and must get fertilizer from the cows to make crops grow. To get eggs, you must feed your chickens; and to get milk, you must care for the cows.

The resources, including the eggs, milk, wheat and fruit from the trees, are then used in your farmhouse kitchen to make scones and other tasty treats that can be sold at your own roadside stand.

Instead of acting out some of these scenarios in solitude as in the original game, in FarmVille 2, the relationships on the farm are symbiotic — without one, the other is not possible.

“We wanted this very tactile and touchable experience,” said Tim LeTourneau, Zynga’s VP of Games. “We are embracing the technical advancements to make the screen come to life. The animals are fully animated and respond to your touch. You have a world that comes to life at your finger.”

In other words, coins don’t just fall out of the sky, LeTourneau said; you have to sell things in the market in order to earn them.

The game is also Zynga’s first developed entirely in 3-D, thanks to Adobe Flash 11.

For instance, shirts and pants are pinned to a clothesline, where they sway in the wind; a rocking chair actually rocks; a campfire crackles and wind chimes jingle in the breeze. Navigation is also vastly improved, making the game far less tedious to play. Instead of having to click on each individual parcel of land to plant new seeds or water, users can click and drag the mouse around on the screen. The movement, which Zynga calls “painting,” looks like a motion borrowed from a touchscreen, not a PC game. Additionally, to move different elements around on the board, far fewer actions are required. Now players must only right-click and drag.

The combination of better graphics and navigation results in much more active and fun game play. When relocating a cow from one side of the farm to another, the beast’s eyes bulge in surprise while the animal is suspended in the air, like a several-ton animal undoubtedly would.

“They don’t hate it, but they don’t love it either,” said Mike McCarthy, FarmVille 2’s creative director.

But the game is not mind-blowingly different — it’s still a game about a farm, as it should be.

Many of the tasks are the same in the two games, and even some of the colors and textures will be familiar. Still, the updates represent many positive changes that should attract some of the 100 million original FarmVille players — who have since retired their work gloves — back to the game.

Zynga is also sensitive to its original players, who are still playing the first FarmVille.

A year ago, it rolled out Mafia Wars 2, which pretty much put an end to the once very popular franchise. Original players of the game felt snubbed when the new version came out and it didn’t live up to expectations. All the time they’d spent on the previous version ended up being a total waste.

LeTourneau, who joined Zynga from Electronic Arts where he worked on the long-standing Sims franchise, said they took that experience into account when developing FarmVille 2. ”Although it’s a sequel, it’s not intended to replace FarmVille,” he said. “It’s not a continuation; it’s a reimagining of FarmVille. We are taking advantage of all the things we’ve learned about social games, and using the technology that’s available to create a new and different farming experience.”

For original FarmVille fans, there will be no way to transfer your accomplishments from one game into the next. Instead, Zynga will keep that version alive by continuing to create content updates for the players who still like it.

One very noticeable difference between the two games is that while the original was about creating a sprawling farm, this one is about the attention to detail. In other words, bigger is not necessarily better. Instead of creating vast spaces to mass-produce more crops, this one is about nurturing each and every tomato and pumpkin. Mini-competitions within the game challenge players to see who can grow the largest crops, like the exhibits you see at county fairs. In this game, strawberries can hit 12 pounds, so imagine how big pumpkins can get.

But just when you may find that too tedious or claustrophobic, players can zoom out and see the countryside. There’s a village off in the distance that’s not available today, but promises additional subplots where you can meet friends, trade goods and visit carnivals and county fairs.

Lastly, this is still a social game, so if you are looking for something different in that regard, you won’t find it here. There are still plenty of ties to your friends on Facebook. You can visit other friends’ farms, where you can potentially find a final ingredient you may need to complete a recipe. Friends are also allowed to visit your farm, where they can be “Farm Helpers.” Each action performed by a farm helper accelerates progress on the farm, including harvesting crops and feeding animals.

But most fun of all, it seems Zynga has learned a mechanic or two from more traditional videogames. At the end of each level, all of the players’ crops grow instantly — with a big “pop,” everything blooms. Not only is it a visually stimulating moment, it’s one that players can strategize around to make sure everything is watered and planted to get the biggest bang possible.

“All of these games are about progression, and feeling the reward and success of that progress,” LeTourneau said. “We want the level-up moment in the game to feel exciting.”

FarmVille 2 is live today on both Facebook and Zynga.com, and will be available in 16 languages, unlike the original, which only launched in English. There are no immediate plans for a mobile version, but with painting motions included in the game play, it only seems like a matter of time before it rolls out on phones and tablets.

AllThingsD has learned that Maytal Ginzburg is joining Zynga as the company’s chief operating officer in charge of new markets, according to her LinkedIn profile.

As recently as July, Ginzburg was the SVP of regulated markets at 888 Holdings, where she was responsible for acquiring customers and other operations.

888 Holdings operates an online portal at 888.com, offering real-money games such as poker, bingo and sports betting, in markets where online gambling is regulated. More recently, it started to investigate the opportunity in social and mobile gaming through the 2010 acquisition of Mytopia from Real Dice.

Ginzburg has not yet started to work at Zynga, but is expected to begin soon. Social Casino Intelligence was first to point out that she was hired by the company. A spokesman declined to comment.

The hire is important for the Facebook games maker because it shows that, while a number of executives have decided to leave, it can still recruit talent at a very high level.

During the company’s last earnings call, CEO Mark Pincus confirmed that Zynga’s first real-money products were in development, and that it believes it has a huge opportunity to leverage its strong casino presence on Facebook, including with Zynga Poker and newer properties, like Bingo and Slots. Pincus said he expects to launch Zynga’s first real-money gaming products in international markets in the first half of 2013, subject to licensing approvals.

At this time, it’s unclear what Ginzburg will be doing at Zynga, but from an interview she conducted with a U.K. publication, you can tell Zynga was very much on her radar.

She told Inside Poker Business that she believed it was important to integrate social features into 888’s existing products in order to make interactions less serious and more welcoming to casual players. One product that social features helped with was PokerCams, which allowed users to see who they were playing with online.

“We want to attract players who will play for casual entertainment, and we therefore needed to deliver social platforms that are easy to use yet provide all the interactive features users expect,” Ginzburg told Inside Poker Business, adding that “the biggest risk we were running was that casual players avoided the product because of a lack of interaction, which is why so many have gone to Zynga.”

As Chief Creative Officer at Zynga, Verdu oversaw a number of the company’s game studios in L.A., Dallas, Baltimore, New York, Boston and San Francisco. During his three-plus years at the company, the EA veteran also managed the company’s creative process, working closely on such games and Empires & Allies, FrontierVille and CastleVille.

Verdu’s departure closely follows a handful of other exits, including a recent restructuring that led to the departure of the company’s Chief Operating Officer John Schappert.

Other recent employees to leave include Alan Patmore, general manager of CityVille, who left to work at Kixeye. Bloomberg also reported that Erik Bethke, a general manager who oversaw Mafia Wars 2; Ya-Bing Chu, a VP in Zynga’s mobile division; and Jeremy Strauser, a general manager, had also left the company.

Earlier this month, I reported that morale was sinking at the company as its stock hit an all-time low. Shares continue to bounce along the bottom, valuing the company at a mere $2.3 billion.

Verdu says his exit is bad timing, but that he’s leaving for different reasons.

“I personally don’t want to add to the noise level,” he said. “I think this will be a good thing for me and for Zynga. … I’m concerned about how this might be viewed with what else is going on, but it’s not a function of anything else going on at the company.”

Verdu said he will be leaving Zynga effective today to start his new venture. He declined to disclose the name of the company, but said that Zynga will both invest in it and that Zynga will be the publisher of his games on its third-party platform.

He’ll be focusing on developing mobile games, he says, which is one of Zynga’s weak spots.

Verdu said one of Zynga’s challenges is in navigating the shift in player behavior from the Web to mobile, and coming up with games — from a creative point of view — in which people use touch and swipe, rather than the mouse.

While Verdu will obviously continue to work closely with Zynga, his presence will undoubtedly be missed as what he calls the company’s “creative conscience.”

“I represented the creatives at the senior management level and I was always careful to make sure their voices were heard, so when the company made the decision about products, I made sure the creatives had a role,” Verdu said, adding that it can be a delicate balancing act, given the company’s metrics-driven approach.

Three of the company’s other creative types — Brian Reynolds, Tim LeTourneau and Bill Jackson — will take over some of Verdu’s responsibilities along with other people.

In parting, Verdu had nothing but good things to say about his colleagues, including CEO Mark Pincus: “I love the guys that I work with; I would go to war with these guys at my side anytime. Leaving them is hard.”

In a statement, Pincus said: “Mike has been a good friend to me personally as well as professionally, and has been an influential creative leader to us all. I’m proud of the legacy that Mike has helped build and the deep bench of creative talent and leaders who will carry the torch and shape the next wave of creativity at Zynga. Zynga will be on the ground floor with Mike on his next venture as an investor in his new start-up. We are excited for Mike in this next chapter in his distinguished career and we are grateful for his contributions to Zynga.”

Here is the full text of Verdu’s goodbye post: 

During my three years at Zynga, I’ve seen the company grow from a small, scrappy start-up on the frontier of interactive entertainment to a large, world-class organization with 20 development studios around the world and a deep well of amazing talent. With just the right mix of Web 2.0 and game DNA, Zynga blends art and science to deliver game experiences that are played by tens of millions of people every day on their computers and mobile devices.

I’m very proud of my part in building this remarkable company, especially in growing and nurturing what has become a vibrant community of game designers, producers, and creative leaders. These are the people who will create the entertainment experiences of the future.

Now, however, it’s time for me to try something new. Being at Zynga in the early days reminded me of how much I love being an entrepreneur. After a lot of soul-searching, I have decided to go back to my roots and start a new company.

It’s tough to leave people I admire and respect - and something that I have helped to build. I thank Mark for his leadership, friendship, and unwavering support. And I thank the people of Zynga for making my time at the company some of the best years of my career.

So, what are they doing for an encore?

Nothing.

While most other developers might try to follow the success of one app by rushing out follow-ups, the brothers Pusenjak have been content to ride Doodle Jump as far as that will take them.

Which turns out to be pretty far. Igor Pusenjak says the brothers have sold 15 million copies of the iPhone game, at 99 cents each. And while the game is no longer routinely perched in the App Store’s Top 10 list, he says it is still selling 300,000 copies a month.

And since the Pusenjak’s Lima Sky company is a tiny one — it’s basically the two of them, along with a handful of contractors — that means they are doing very, very well. After you subtract Apple’s 30 percent fee, iPhone/iPod sales alone have netted them $10.5 million.

And they don’t have any venture capitalists or angel investors to share the proceeds with, because they’ve never taken outside money.

They’ve made some very cautious line extensions — there’s an iPad version of the game, for instance, as well as an Android one, and in the future they’ll finally start licensing the game for things like T-shirts and plush toys. Today, the company has updated the original version of its iPhone game, which includes extra goodies like in-game purchases.

But that’s it.

Why not try to sell more games? Or, alternately, why not try to sell the company to, say, big publicly traded acquirers who need hits?

Let’s let Igor Pusenjak explain himself: