(Adds analyst comment)
By Gerry Shih and Malathi Nayak
SAN FRANCISCO, July 1 (Reuters) - Games publisher Zynga Inc has replaced chief executive Mark Pincus with Don Mattrick, the Microsoft Corp executive who headed the critical Xbox business, Zynga announced on Monday.
The news, reported first by AllThingsD, sent Zynga shares up more than 11 percent earlier in the day. The shares rose a further 3 percent to $3.17 when Zynga confirmed the appointment after the bell.
Pincus, 47, who controls a 61 percent voting stake in the gaming company he founded in 2007, will remain as the company's chairman and chief product officer after personally helping to recruit Mattrick from Microsoft.
"Don is unique in the game business," Pincus said in a statement. "He can execute in multiple domains - hardware, software and network, and he's been the person responsible for game franchises like 'Need for Speed,' 'FIFA' and 'The Sims.'"
Zynga's business model, which relied heavily on selling virtual goods to gamers on Facebook Inc's platform, began to disintegrate a year ago as users tired of Facebook games and shifted to playing on mobile devices.
The company's shares have hovered at just 25 percent of its $10 initial offering price in December 2011 as Pincus has struggled to turn around the company named after his pet bulldog.
Mattrick's new role leading a game maker that publishes social media-based titles and smartphone games will be a marked departure from the world of big-budget, packaged console games embodied by the Xbox and Electronic Arts Inc, the game publishing firm where he had worked for 15 years.
In a statement, Mattrick emphasized that Pincus willingly recruited him and described their working relationship as that of "partners."
"I joined Zynga because I believe that Mark's pioneering vision and mission to connect the world through games is just getting started," Mattrick said. "Zynga is a great business that has yet to realize its full potential. I'm proud to partner with Mark to deliver high-quality, fun, social games wherever people want to play."
Although Wall Street embraced Mattrick's appointment, many analysts said questions remained about Zynga's ability to produce hit games that could prop up its shrinking revenues.
"Bringing in someone who has worked at a larger company to assist in management duties I think is a relief right now," said Richard Greenfield, an analyst at BTIG Research.
"But Pincus is still the chief product officer. So the question is, what's actually changed day to day in terms of making hit games?"
Mattrick joined Microsoft in 2007 after spending 15 years at EA, where he worked under Bing Gordon, a well-known gaming industry executive who went on to join venture capital firm Kleiner Perkins Caufield & Byers.
Pincus and Gordon, who sits on Zynga's board, led the effort beginning this spring to recruit Mattrick, who had expressed an interest in leaving Microsoft to lead a company, according to people familiar with the situation.
Pincus, who joins Groupon's Andrew Mason among high-profile tech entrepreneurs who have relinquished their jobs as chief executives, publicly backed Mattrick's appointment.
"I've always said to Bing and our Board that, if I could find someone who could do a better job as our CEO, I'd do all I could to recruit and bring that person in," Pincus said. "I'm confident that Don is that leader."
At Microsoft, Mattrick helped turn the Xbox business into a profitable venture after years of losses, eventually propelling it into the No.1 selling console in the United States.
Mattrick's departure comes just as Microsoft gears up to launch the third version of its console, called the Xbox One. Unveiled in May and scheduled to hit stores later this year, the machine has already stirred controversy.
Gamers attacked the high price, Microsoft's plan to require an Internet connection at least once a day and attempts to limit the sharing of used games. Last month, Microsoft reversed its position on the Internet connection and said it would allow game sharing.
Mattrick has been rumored to be departing for months. After EA's CEO stepped down in March, industry sources speculated he was in the running to lead the top games publisher, where he previously held numerous leadership roles. (Reporting by Malathi Nayak, Gerry Shih and Alexei Oreskovic in San Francisco and Bill Rigby in Seattle. Editing by Andre Grenon)