Angry Birds business case analysis UMB School Of Business and Economics by Rune Haugestad

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How did Rovio Entertainment succeed with their smashing hit Angry Birds?

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Angry Birds business case analysis UMB School Of Business and Economics by Rune Haugestad

  1. 1. INN210 – Assignment 1 – Rune Haugestad 1 Angry Birds – A story based on radical innovation and creative success. Rune Haugestad IØR course code: INN210
  2. 2. INN210 – Assignment 1 – Rune Haugestad 2 Contents 1. Introduction ...................................................................................................................................3 2. Some amazing core facts about Rovio Entertainment and Angry Birds:.........................................3 3. Analyzing Angry Birds.....................................................................................................................4 4. Value creation ................................................................................................................................5 5. Value capture .................................................................................................................................5 6. Dominant design and absorptive capacity......................................................................................6 7. Multi-sided markets and multi-sided platforms.............................................................................6 8. Economic success...........................................................................................................................7 9. Building Angry Birds as a passion brand.........................................................................................8 10. Summary and conclusion............................................................................................................9 11. References................................................................................................................................11
  3. 3. INN210 – Assignment 1 – Rune Haugestad 3 1. Introduction My choice of product is one of the biggest new game phenomena from the gaming industry; Angry Birds from Rovio Entertainment Ltd. The main reason to choose Angry Birds as business case is that this phenomenon is interesting seen from several cross disciplinary subjects such as; innovation, psychology, sociology, gaming addiction, viral (Word-Of-Mouth) marketing, branding and how digital businesses works regarding modern; innovation strategies, digital business and multiple revenue models. The business case of Rovio is also a highly inspirational one: Rovio was almost bankrupt when they released Angry Birds! (Source: http://articles.businessinsider.com/2011-03-10/tech/30012723_1_atlassian-accel-partners- angry-birds) Their economic crisis was saved by ONE creative and innovative product: Angry Birds. Because their Angry Birds game got rapid market adaption their revenue exploded in 2010 and 2011, and the value of the company today is amazing: 1 billion USD. Source: AYTM Market Research: http://www.adverblog.com/2011/09/12/the-psychology-of-angry-birds- infographic/ 2. Some amazing core facts about Rovio Entertainment and Angry Birds: • Almost bankrupted before Angry Birds launch in December 2009 (Source: http://articles.businessinsider.com/2011-03-10/tech/30012723_1_atlassian-accel-partners-angry-birds) • 648 million games downloaded in total and 200 million monthly active users of the app (Source: http://techcrunch.com/2012/05/07/rovios-big-year-angry-birds-helps-gaming-company-soar-to-106m-in- sales648m-downloads/) • 2011 Revenue: $106.3 Million; Pre-Tax Income $67.6 (Source: http://www.forbes.com/sites/ericsavitz/2012/05/07/rovio-says-2011-revs-106-3-million-pre-tax-income-67-6- million/) • In 2010 Rovio's revenue was around $10 million. (Source: http://www.arcticstartup.com/2011/12/16/angry-birds-2011-revenue-around-100-million-looking-to-ipo-in- hong-kong-in-2013 • Estimated company value: 1 Billion USD (Source: http://www.adverblog.com/2011/09/12/the-psychology- of-angry-birds-infographic/ • From 28 employees at the start of 2011 to approximately 224 employees May 2012 (Source: http://techcrunch.com/2012/05/07/rovios-big-year-angry-birds-helps-gaming-company-soar-to-106m-in- sales648m-downloads/)
  4. 4. INN210 – Assignment 1 – Rune Haugestad 4 • 21,307,889 (Facebook) “Likes” Angry Birds (Source: http://www.rovio.com/en/our-work/games) • 477.686 Twitter followers (Source: http://twitter.com/angrybirds) • 651,829,262 YouTube video views (Source: http://www.youtube.com/user/RovioMobile) 3. Analyzing Angry Birds Product attributes of Angry Birds The basic attributes of Angry Birds are the following: • Mass market (Casual games for smartphones) + Niche market (Puzzle) + Multi-sided markets (Licensing, franchise and Mobile advertising) • Business to consumers (B2C) • Highly fun – wide target demographics (From children to mature people) Forms of innovation Angry Birds as a new game is a product innovation (Smith 2010 p. 25-26), especially regarding the easy user interface, the low entry skills required, funny and simple cartoon based design, new game characters and new storyline. Types of innovation Product and service innovations can be categorized in a number of different ways (Smith 2010). As a gaming product, Angry Birds differs little among other game developers; the coding framework, back-end servers and delivering platforms etc. are similar to lots of other games. With Henderson and Clark’s framework (Smith 2010 p. 32) for categorizing innovation into radical, architectural, modular and incremental innovation types, I will try to adapt this framework into the software and app development industry. With Henderson and Clark’s the core part of the product belongs to architectural innovation. To quote Henderson and Clark; “the essence of an architectural innovation is the reconfiguration of an established system to link together existing (In this case: software/coding) components in a new way” (Smith 2010 p. 37). All the components developing Angry Birds are existing and common software, code language and delivering platforms (SmartPhone/PC). But in terms of novelty
  5. 5. INN210 – Assignment 1 – Rune Haugestad 5 and consumer adaption by the huge numbers of gamers/consumers, Angry Birds indeed is a radical innovation within the gaming industry. 4. Value creation The core value creation (Smith 2010 p.10-14) of Angry Birds for the consumer/gamer is: Have tons of simple fun! The niche of the product is within puzzle games, and an important side effect of the game is that it is a “time-killer”, highly addictive for a wide variety of people (Wide range of demographics). This is a typical game to be played while a person waiting for something/someone, playing while traveling by bus or train. You simply don’t need to use much brainpower to play it, and that is maybe also one important factor in this kind of niche games. Angry Birds value proposition is easy to understand for consumers; enjoy a fun game with a simple user interface! Angry Birds communicates their innovative game and user benefits easily to prospect gamers (Smith 2010 p. 12-13). 5. Value capture Today Rovio has implemented several revenue streams through their business model and value capture strategies (Smith 2010 p. 14-15). They have combined both current business (Direct sales) model with new models such as licensing, mobile advertising and franchise. You can get a Angry Birds t-shirt, a clip-on, a case for your iPhone, lunch boxes, red flip flops, ties, or a backpack and lots of different toys to mention a few. Forbes says that Rovio noted that merchandise and licensing generated about 30% of revenue in 2011. Rovio has more than 200 licensing partners creating products base on the Angry Birds franchise (Source: http://www.forbes.com/sites/ericsavitz/2012/05/07/rovio-says-2011-revs-106-3-million-pre-tax- income-67-6-million/). This is the same successfully business models both Disney and Marvel have implemented which gives multiple revenue streams and reduced risks. In addition they have incorporated both freemium business model and cross-selling strategies with additional three new Angry Birds games (Seasons, Rio and Space). Rovio has rapidly been able to deliver their game on several platforms and channels. You can get Angry Birds on at least 25 different platforms. While it started on the iPhone, you can also get it on the iPad, Google’s Android OS, an e-reader, Playstation 3, the MAC, a PC version and many more.
  6. 6. INN210 – Assignment 1 – Rune Haugestad 6 6. Dominant design and absorptive capacity Rovio’s product innovation is based on the combination of dominant design and absorptive capacity (Smith 2010 p. 68-69). According to Nordström and Biström, a dominant design or product configuration that comprises “the one that wins the allegiance of the marketplace, the one that competitors and innovators must adhere to if they hope to command a significant market following” (Smith 2010 p. 74). Angry Bird does have a new, unique and dominant game design and usability. Dominant design, first by their consumer preferences and its package of features (Funny, simplified cartoons, addictive storyline) and market power (Smith 2010, p. 76). In addition must game producers like Rovio have a high absorptive capacity to drive new innovations; both by internal learning and internal communication and sharing skills, and to learn from external environment to build knowledge about new gaming development software and coding processes to stay sharp in their field (Smith 2010, p. 78). Rovio has already reinvented Angry Birds into three new products/games to create new markets; Angry Birds seasons, Angry Birds Rio and Angry Birds Space. Rovio’s newest game released summer 2012 is called Amazing Alex, which game features educational elements and revolves around Alex, described as a curious boy with interest in building things. 7. Multi-sided markets and multi-sided platforms Rovio use both multi-sided markets (Licensing, franchise and Mobile advertising) and multi- sided platform’s i.e.; iOS, Android, Playstation 3 and PC. A multi-sided platform grows in value because it attracts more users, this is called the network effect (Osterwalder & Pigneur 2010 p. 77-79). A success factor is that the platform must attract and serve all groups simultaneously in order to create desired value capturing. The platform’s value capturing for one user group depends substantially on the number of users on the platform’s other sides. This is solved by Rovio by both using freemium and cross-selling (from new Angry Birds games) strategies and tactics, helped by the high adaption numbers from the free version of Angry Birds. The term “freemium” is an acronym based on Free + Premium. This means that the Freemium based business model implement both a free (often downscaled) product and one premium version. This business model is often chosen by digital businesses i.e.: Flickr, Skype and Linux.
  7. 7. INN210 – Assignment 1 – Rune Haugestad 7 Infographic source: http://www.adverblog.com/2011/09/12/the-psychology-of-angry-birds-infographic/ The term “freemium” has been widely discussed and promoted by Chris Anderson, the author of The Long Tail and Free – The radical prize of zero. But the term was earlier coined by Jarid Lukin and later popularized by Fred Wilson (Venture capitalist) on his blog (Osterwalder & Pigneur 2010 p. 96). 8. Economic success This game and innovation is an economic success. Here is what CEO Mikael Hed of Rovio points out as reasons for their success: "The strong growth in revenue clearly demonstrates the popularity of the Angry Birds brand.” “The heavy investments made in 2011 to all business areas will be seen in future products. To ensure continuous success we need to be creative and stay focused on entertaining our millions of fans by continuously developing new and innovative products and services." Source: http://www.rovio.com/en/news/press- releases/161/rovio-entertainment-reports-2011-financial-results/ Rovio don’t stop to innovate after their big success with Angry Birds, they know they have to reinvent existing products and produce new innovations (games). “We are very optimistic about 2012 due to significant investments in product development, cutting-edge branding, brand protection and corporate infrastructure“ Mikael Hed said. Source: http://www.rovio.com/en/news/press- releases/161/rovio-entertainment-reports-2011-financial-results/ So Mikael Hed identifies both branding, brand protection and infrastructure as important factors in addition to creativity and to keep on developing new innovative products and services.
  8. 8. INN210 – Assignment 1 – Rune Haugestad 8 Diffusion The usage of Freemium strategy for Angry Birds both help regarding diffusion (Smith 2010 p. 16-17) and for building a strong brand through high volume of free users/gamers and the effect of (digital) word-of-mouth, and as a bait & hook mechanism (Osterwalder & Pigneur 2010 p. 104) from the free version, to direct gamers to upgrade to paid versions. The freemium business model is the main reasons for high user adaption for the Angry Birds game. 9. Building Angry Birds as a passion brand Edwards & Day (2005 p. 78) have identified three main characteristics of passion brands: • They are brands with active belief • They have confidence rooted in capability • They stay vibrant in an ever-changing world The Angry Birds brand score high on all these three characteristics. In addition have Edwards & Day (2005) identified these attributes for creating a passion brand: integrity, trust, difference, loyalty, fame, belief, cohesion, principles, profit and passion. Angry Birds seem to score high and succeed with several of these attributes; integrity (), trust (they deliver what they promise), difference (High fun and simplicity), loyalty (Launch on time), fame (High share-of-voice in the media and lots of buzz amongst the consumers via word-of-mouth), belief (stayed internal focused and dedicated through a crisis), profit (Enormous economic growth, decreased risks with several new games and several revenue stream sources), passion (both internally and by gamers).
  9. 9. INN210 – Assignment 1 – Rune Haugestad 9 10.Summary and conclusion So when Rovio almost got bankrupted in 2009, they turned their crisis to stay focused and create new innovations and reinventions. What insights can be learned from this business case? Business models Rovio both has innovated their core business with ONE radical new product; Angry Birds, and they have also innovated their business at the edges with both changing their business model adding freemium, cross-selling, franchise, advertising and licensing strategies. Innovations Angry Birds is a combination of both radical and architectural innovation. The game feels totally new and fresh and with a high originality factor. But new ideas consist of old ideas and it is important to understand that originality doesn’t rely on creating something from nothing, but it relies on putting together ideas and materials/components in new ways. Organizational It seems that creativity, motivation, passion and belief thrives amongst Rovio’s employees. Rovio has developed several award-winning titles for various mobile platforms, so they are highly innovative. The CEO understands the importance of continuing innovation into new products and services. Change management Success can be difficult. It is to early to predict if Rovio will handle the enormous market and organizational growth in 2011. Change management and strategic leadership skills are the keys to manage fast organic growth, new business models, new innovations, new products and services and fast increased crowd of users/gamers. Marketing and branding So far it looks very good for Rovio. They have successfully implemented both digital cross- platform marketing strategies and tactics, and in addition successfully delivered Angry Birds on many platforms (Platform ubiquity). Both the press and media seem to love them. Most
  10. 10. INN210 – Assignment 1 – Rune Haugestad 10 importantly is their future online branding and online reputation management skills. Trust is something you earn, and to continue to build loyalty they have to focus on delivering what they promise regarding content and launch schedules. Rovio focus on online branding tactics with use of viral and word-of-mouth marketing tactics and as a result they gain an excellent online reputation. Economy Rovio’s new product (s) and innovation (s) in addition to implemented new business models such as freemium and multi-sided platforms and markets (several new revenue streams), modern digital marketing and branding truly saved the company and their investors funding. Conclusion Sometimes big problems need big solutions and change, not an endless myriad of little initiatives. Rovio’s approach was; designing a business model for flexibility with multi-sided platforms and markets, monetizing a free version with freemium business model, reinvention of existing products and most importantly; continuing to innovate! All kind of business will meet hard competition, new innovations, disruption or crisis, sooner or later. One key success factor is how you adapt to changes: You can’t control waves, so learn to surf! (McKeown 2008). Angry Birds are pretty good at surfing.
  11. 11. INN210 – Assignment 1 – Rune Haugestad 11 11.References Curriculum Smith, David (2006). Exploring Innovation, Second Edition. UK: McGraw-Hill Education. Additional books Edwards, Helen & Day, Derek (2005). Creating Passion Brands – Getting to the heart of branding. UK: Kogan Page. McKeown, Max (2008). The Truth about Innovation – A small book about big ideas. UK: Pearson Education Limited. Osterwald, Alexander & Pigneur, Yves (2010). Business Model Generation – A Handbook for Visionaries, Game Changers, and Challengers. US: John Wiley & Son Inc. Internet sources Gobry, Pascal-Emmanuel (10.03.11). Angry Birds Maker Raises Huge $42 Million Round. Located 17.08.12 at WWW: http://articles.businessinsider.com/2011-03-10/tech/30012723_1_atlassian-accel-partners-angry-birds Lunden, Mari (07.05.12). Rovio’s Big Year: Angry Birds Helps Gaming Company Soar To $106M In Sales, 648M Downloads. Located 17.08.12 at WWW: http://techcrunch.com/2012/05/07/rovios-big-year-angry-birds- helps-gaming-company-soar-to-106m-in-sales648m-downloads/ Martina (12.09.11). The Psychology of Angry Birds #infographic. Located 17.08.12 at WWW: http://www.adverblog.com/2011/09/12/the-psychology-of-angry-birds-infographic/ Savitz, Eric (07.05.12). Rovio Says 2011 Revs $106.3 Million; Pre-Tax Income $67.6 Million. Located 17.08.12 at WWW: http://www.forbes.com/sites/ericsavitz/2012/05/07/rovio-says-2011-revs-106-3-million-pre-tax- income-67-6-million/ Vilpponen, Antti (16.12.11). Angry Birds 2011 Revenue Around $100 Million, Looking To IPO In Hong Kong In 2013. Located 17.08.12 at WWW: http://www.arcticstartup.com/2011/12/16/angry-birds-2011-revenue-around-100-million-looking-to-ipo-in- hong-kong-in-2013

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