business models mindtrek

Innovation and new business models in video games -

learnings from the evolution of the Internet

Tommi PelkonenStrategist

S A T A M A Amsterdam

October 4, 2007

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Copyright September 30, 07 Satama. All rights reserved.

• Leading European interactive agency• Headquarters in Helsinki, Finland• 400 experts in business development, design and technology• In 2006: 1000 projects delivered in 23 countries• Net revenues 2006: €35.8; Operating profit €0.2 million.• In the Netherlands: 68 people, strong growth track

Satama in brief

“We combine talent with technology to make work and customer dialogue simple, fun and profitable.”

Helsinki

Stockholm

Tampere

Amsterdam

Düsseldorf

Turku

PERFORMANCEMARKETING

SALES ANDMARKETING

SYSTEMS

MOBILE EXPERTISE

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Leading digital services company

Turnover by sector in 2006

Net revenues: €35.8 mEUR

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Innovation and new business models in computer games

• Internet - where are we in 2007?

• Innovation and business modeling

• Towards Blue Oceans

• Games as services: threat or opportunity

• Conclusions

4

Quick journey to internet growth

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Copyright © 2007 Satama Interactive

200,000,000 blogs

9.8 million residents

>100,000,000 videos(65,000/day)

www.ebay.com 21 Nov 200614,463,346 auctions

Almost 5,300,000 articles(100 languages)

“It’s only just begun” – this is just the beginning

•1,1 Billion internet users – and expanding rapidly•Global presence, global opportunity•New ways of working•New ways of networking•Evolution / Transformation – from information to communication

What is happening?

39 million users (Aug’07)

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# 5. Copyright September 30, 07 Satama. All rights reserved.

Web 2.0 is rapidly shifting towards true productivity

Lähde: Gartner, August 2007

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The era of building brands namely through mass media advertising is over.

We need to find ways to get consumers to invite brands into their lives.

BusinessWeek

New era for media is dawning...

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http://www.businessweek.com/magazine/content/05_31/b3945098.htm

http://www.businessweek.com/magazine/content/05_31/b3945098.htm

Outcome...

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Innovation and new business models in video games





• Conclusions

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What is innovation?

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What is innovation?1. the process of making improvements by introducing something new

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2. the act of introducing something new: something newly introduced (The American Heritage Dictionary).

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http://en.wikipedia.org/wiki/The_American_Heritage_Dictionary_of_the_English_Language




3. the process of translating new ideas into tangible societal impact (Krisztina Holly, Vice Provostt, UCSC)

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4. the introduction of something new. (Merriam-Webster Online)

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http://en.wikipedia.org/wiki/Merriam-Webster






5. a new idea, method or device. (Merriam-Webster Online)

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6. the successful exploitation of new ideas (Department of Trade and Industry, UK).

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http://en.wikipedia.org/wiki/Department_of_Trade_and_Industry


http://en.wikipedia.org/wiki/United_Kingdom








7. change that creates a new dimension of performance (Hesselbein, 2002)

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8. A creative idea that is realized (Harvard Business School Press, 2004)

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9. "The capability of continuously realizing a desired future state" (John Kao, The Innovation Manifesto, 2005)

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9. "The capability of continuously realizing a desired future state" (John Kao, The Innovation Manifesto, 2005)

10. "The staging of value and/or the conservation of value." (Daniel Montano 2006.)

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think outside-of-the box

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think outside-of-the box

People assume that everything that is going

to be invented must have been invented already.

But it hasn’t.

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four areas of innovation

business model innovation

product & service innovation

process innovation

technology innovation

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technology innovation[Osterwalder (2006]

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process innovation

[Osterwalder (2006]

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product & service innovation

[Osterwalder (2006]

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business model innovation

[Osterwalder (2006]

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E-commerce - process and business model innovation

In short, greatest revolution of the internet was to enable direct dialogue between the manufacturer and consumers

Source: Laudon & Traver, 2004

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E-commerce - process and business model innovation

Figure 2.3, Page 98

In short, greatest revolution of the internet was to enable direct dialogue between the manufacturer and consumers


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Business model?

a business model describes the value an organization offers to various

customers and portrays the capabilities and partners required for creating, marketing, and delivering this

value and relationship capital with the goal of generating profitable and

sustainable revenue streams

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Key Ingredients of a Business Model


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INFRASTRUCTURE CUSTOMER

[Osterwalder (2004) The Business Model Ontology]

business model framework

VALUEPROPOSITION

OFFER

WHAT

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ACTIVITYCONFIGURATION

CORECAPABILITIES

PARTNERNETWORK

HOW

VALUEPROPOSITION

OFFER

WHAT

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CORECAPABILITIES

PARTNERNETWORK

HOW

VALUEPROPOSITION

OFFER

WHAT

CUSTOMERRELATIONSHIPS

CUSTOMERSEGMENTS

DISTRIBUTIONCHANNELS

TO WHOM

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COSTSTRUCTURE




CORECAPABILITIES

PARTNERNETWORK

HOW

VALUEPROPOSITION

OFFER

WHAT


CUSTOMERSEGMENTS


TO WHOM

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REVENUESTREAMS

COSTSTRUCTURE




CORECAPABILITIES

PARTNERNETWORK

HOW

VALUEPROPOSITION

OFFER

WHAT


CUSTOMERSEGMENTS


TO WHOM

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REVENUESTREAMS

COSTSTRUCTURE




CORECAPABILITIES

PARTNERNETWORK

HOW

VALUEPROPOSITION

OFFER

WHAT


CUSTOMERSEGMENTS


TO WHOM

FINANCE

HOW MUCH PROFITS

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HOW WHAT TO WHOM

HOW MUCH PROFITS

Case:Skype

free VoIP & value added services

software development

website

global(non segmented)

deliver voice & video quality

“eBay”

large scalelow margin

internetsoftware development

free voice-over-IP VoIP telephony & value-added services


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Five Primary Revenue Models


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Table 2.2, Page 66

Five Primary Revenue Models


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B2C Business Models


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B2C Business Models (cont’d)


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Innovative Business Models

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Table 2.5, Page 88


Innovative Business Models

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compound annual growth rate over five years

[Source: IBM, CEOs are expanding the innovation horizon: important implications for CIOs]

Operating Margin Growth in Excess of Competitive Peers

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percent of respondents

[Source: IBM, Global CEO Study 2006]

Benefits Cited by Business Model Innovators

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reality: everything else than planned[Osterwalder (2006]

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Here

CEOs10°


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Here

CEOs10°

Managers60°

Here


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Here

CEOs10°

Managers60°

Here

Staff360°

Ok


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MEDIA: Two-Sided Marketplace

Media AudienceAdvertiser

Demand

Supply Demand

Supply

Production

Attention

EyeballsEuros Middlemen

What role can video games play in marketing?

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Adaptive landing pages

From simple model into marketing planning complexity in 2007...

R E A N

Own Store purchases

Lead generationProgram,

Subscriptions

MSN

RSS feeds

SMS campaign

Banners

Adaptive flash banners

Podcasting

SEM Prestudy

Banners linking to

online store

Newsletter

Landing page 1

Landing page 2

Landing page n

Other buy page?Amazon etc.

Viral

My Space

You Tube

Second Life

Targeted SEMSeasonal,etc.

Partner sites

Video Banners

Own Storepurchases

Indy Storepurchases

Call centers

Channel sales

Seeding

Instore Advertising, POS materials

On device demos

Retail screens

Retail games

ONLINE

Continuous analysis and metrics

Seeding

Community Seeding

Flickr

Competition

Google

Yahoo

Indy Online Storepurchases

Reach activities Engage activities Activate=conversion Nurturing existing customers

Seeding

CRMmarketing

Internal Links

Free external links

Mobile campaign

Partner StorepurchasesCompetition

OFFLINE

Self serviceLogins

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Opportunity for video games..

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• Conclusions

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> market boundaries are not given

> they are reconstructed by the actions & beliefs of industry players

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Two worlds …

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Blue Ocean Logic: The Core Principles

Reconstruct Market Boundaries

… overcome believes.

Reach beyondexisting Demand

… go for uncontested space.

Get the strategic sequence right

… value [innovation] first.

VIVI

COST

VALUE

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Two worlds …

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

Exploit existing demand. Create and capture new demand.

Make the value-cost trade-off. Break the value-cost trade-off.

Align the whole system of a strategic firm's activities with its choice of differentiation or low

cost.

Align the whole system of a firm's activities in pursuit of

differentiation and low cost. VALUE INNOVATION

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Illustrate options with canvas

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• Innovation and business modelling



• Conclusions

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Traditional media consuption metrics

Reading newspapers (not online)

Reading magazines (not online)

Watching TV

Watching DVDs or VHS

Listening to the radio (not online)

Using the Internet for personal purposes

0 10 20 30 40

Media consumption in the US: 2007 (hours/week)

Early Adopters Mainstream Consumers Sidelined Citizens

Source: Forrester Research, 2007

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Gamer metrics

•69 % of American heads of households play computer and video games. The average adult woman

plays games 7.4 hours per week in the US. The average adult man plays 7.6 hours per week. (ESA,

2006). 44 % of they play games online

• The average MMORPG gamer (addicted or not) spends

20-25 hours per week MMORPGs, (Kimberly

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http://www.counselor-education.org/mmorpg/results.php




Booming game markets...

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...yet, business model in challenges

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Case: Wii and the Blue Ocean

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Wii: Strategy canvas

Source: DFC Intelligence, Sep 2007

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Wii: Strategy canvas1. Wii will sell the most hardware units in Japan and could be the overall worldwide winner. However, the PS3 could be a strong second. Furthermore, by 2012 the PS3 may actually lead in software revenue even though the Wii has sold more units.

2. Under DFC's best case scenario for the Xbox 360, the system is in a virtual tie with both the Wii and the PS3. However, unless the Xbox 360 can kick it into gear in the fourth quarter and through 2008, the system will probably finish in a fairly distant third. A big challenge for the Xbox 360 is building a base outside North America.

3. The PS3 is looking to make a strong play for 2009 and beyond. For software revenue, the PlayStation 3 looks to be a solid platform for the 2009-2012 time period.

Source: DFC Intelligence, Sep 2007

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Strategy canvas for video games

0

2,5

5,0

7,5

10,0

Broadcast Television Internet media usageOffline video games Online video games

PriceSelection

AvailabilityInteractivity

PortabilityCommunity

Rich experiencePersonalisation

Ease of use

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• Conclusions

48

Focusing on customers


Fitting the user needs (utility)

Easy to use (usability)

Pleasurable experience

(satisfaction)

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(satisfaction)

Good ExperienceI tell 4 people

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(satisfaction)

Good ExperienceI tell 4 people

Bad Experience

I tell 18 people

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Elements of a good experience


The Rich

Experience

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The Rich

Experience

I find things where I expect them

I like the brand and visual design

It is nice to do things at this location

I saved a lot of time doing things via the service

I feel the service ‘understands’ me

I get things done more efficiently than by myself

I got exactly what I needed know

I am impressed by the service

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The Rich

Experience

I find things where I expect them

I like the brand and visual design

It is nice to do things at this location

I saved a lot of time doing things via the service

I feel the service ‘understands’ me

I get things done more efficiently than by myself

I got exactly what I needed know

Any form of service / entertainment should lead to a relevant and rich experience

I am impressed by the service

I had fun with this service

I want to recommend my friendsto use this service

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Video games - innovate and network

• Video games industry need to innovate to continue on the growth track and reach new customers

• Incremental innovations needs to be supplemented with consumer and rich experience-oriented innovations

• The online generation lives online - games should be geared towards leveraging this networking, too.

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Tommi [email protected]@gmail.com

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mailto:[email protected]


