Game Ecosystems Business Model Innovation in the DigitalEntertainment Sector: Implications for Policy Dr Vili Lehdonvirta LSE Innovation Co-Creation Lab vili.lehdonvirta.com Twitter: @ViliLe
Why Games? $65 Billion industry, bigger than music or cinema Digital game companies are pioneers in innovations that drive today’s digital economy Games have contributed to the worldwide development of computer hardware more than any other application What can we learn from business model innovation in the Finnish game industry?
Finnish Game IndustryTurnover 165 M€ – 90% from export (2011) Represents ~0.25% of Finlands total exports CAGR 22%! (2004-2011)1300 employees (2011) Average employees per company: 16 Young males
Business Model Innovation 1: Digital Distribution Source: Neogames, The Finnish Game Industry 2010-2011
Business Model Innovation 1: Digital DistributionHurdles:1. Fragmented e-payment infrastructure2. Fragmented e-commerce regulation3. Fragmented taxation systemsIntegrated distribution platforms (App Store, Steam)solve this – but at the cost of 30% of revenues toCalifornia→ Policies aimed at creating a seamless digital market
Business Model Innovation 2: Virtual Economies Consumer sells Consumer buys content to other Virtual Currency consumers to earn Consumer uses money/VC Virtual Currency to buy content / Developer redeems Consumer earns Creates content Virtual Currency Virtual Currencythrough gameplay for earnings from or ads publisher From credit card payments to stored value and micro- payments (virtual currency) Users and third-party developers not only consume but also create value (user-created content, microwork) Users and third-party developers can redeem virtual currency for real money
Business Model Innovation 2: Virtual EconomiesRegulatory hurdles: Virtual currencies’ unclear regulatory/tax status (closed loop/open loop, accounting rules, breakage, ...) Micro-employment not recognized in employment regulation Electronic payment infrastructure does not facilitate payments back to consumers PayPal solves this, but at the cost of ~5% of earnings to California→ Explicit policy development on virtual currencies and microwork
Business Model Innovation 3: Crowdfunding Kickstarter.com
Business Model Innovation 3: CrowdfundingRegulatory hurdles: Donations-based crowdfunding Regulations designed for physical donations Global digital online donations Investment-based crowdfunding Heavy regulation of investment offers Number of investors can be 10,000s→ Policies aimed at frictionless donations and micro-investment
Finnish Game Ecosystem The biggest business model innovation in the Finnish game industry is the ecosystem The ecosystem is vital for talent, technology, investment and innovation Consists of developers, universities, industry events & organizations, informal networks, angel investors, public R&D support, gamers, gamer events, media Most important component is game culture: high acceptance of digital gaming in Finnish society & history of hobby game programming competitions→ Policies aimed at promoting grassroots digital culture!
SummaryPolicies needed for: Seamless digital market Virtual currencies Digital micro-employment Digital donations & micro-investments Game culture! Thanks for listening! vili.lehdonvirta.com Twitter: @ViliLe
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