Blight On The Farm(ville): Zynga Sneaks In Major Layoffs During Apple Press Event

Update: Zynga just provided us with a copy of an internal letter sent out today by Zynga CEO and co-founder Marc Pincus. It appears reprinted in full below.

Anyone who knows the tech industry will tell you: the best time to announce bad news is smack dab in the middle of an Apple announcement. Actually, ask Zynga, the ailing maker of Facebook games, which today snuck out some very bad news indeed -- that CEO Mark Pincus (above) had sprung a surprise layoff on his game developers, laying off 5% of the company's total workforce.

As the collective tech blogosphere had its blinders on during today's iPad mini announcement in San Jose, reports bubbled up on Twitter that Zynga had quietly let go more than 100 employees in its Austin office. This afternoon, Zynga confirmed with us that it had not only culled its Austin team, but just announced the closure of its Boston office. Zynga intends to also close its bases in Japan and the UK.

One (now former) Austin Zynga employee confirmed with us that the company had just announced a round of layoffs in Austin, and that TheVille along with another new IP "are both done." According to the source, who requested not to be identified, employees who got the axe were given "less than two hours to vacate the premises, turn in [their] computers, phones and badges."

Many of the people let go in Austin had been with Zynga for more than two years. Naturally it sounds like once they collect the physical remnants of their time at Zynga, they'll be headed to the bar.

Why didn't anyone see this coming? Oh wait, we did

Here at ReadWrite, we're not wholly surprised by the end, though the means were certainly conspicuous, both given the timing of the Apple event and the extreme short notice that our source reports. As our own Richard MacManus wrote back in June, Zynga's fortunes are dangerously bound up in Facebook these days:

"Social gaming company Zynga had an outstanding 2011, leading to a well-hyped IPO in December. But Zynga's biggest risk was always an over-reliance on Facebook, with most of its revenue and users coming from the social network. It's now six months after Zynga's IPO and its stock price has halved, currently sitting at under $5. That's because many of its high profile gaming products are tanking.

"At the time of its IPO in mid-December, Zynga had the top five games on Facebook by daily active users. But, according to app tracking website AppData, three of those five apps have declined dramatically in Daily Active Users (DAI) since then."

We're a long way from November 2010, when John Doerr of Kleiner Perkins called Zynga was one of the best investments his company had ever made. In February of 2011 Kleiner Perkins and others invested $490 million in Zynga at a valuation approaching $10 billion. Today the comapny is worth $1.7 billion. Zynga stock has plunged 85% from its peak last summer, now trading at $2.21 per share.


INTERNAL NOTE FROM ZYNGA CEO AND FOUNDER, MARK PINCUS

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