1. 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
2. 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?
3. 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 Source: Neogames, The Finnish Game Industry 2010-2011
4. Business Model Innovation 1: Digital Distribution Source: Neogames, The Finnish Game Industry 2010-2011
5. Business Model Innovation 1: Digital DistributionHurdles:1. Fragmented e-payment infrastructure2. Fragmented e-commerce regulation3. Fragmented taxation systemsIntegrated distribution platforms (App Store, Steam) solvethis – but at the cost of 30% of revenues to California→ Policies aimed at creating a seamless digital market
6. Business Model Innovation 2: Virtual Economies Consumer sells content to other consumers to earn money/VC 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
7. 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
8. Business Model Innovation 3: Crowdfunding Kickstarter.com
9. 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
10. 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!
11. 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