Game EcosystemsBusiness Model Innovation in the Digital
Entertainment Sector: Implications for Policy
Dr Vili LehdonvirtaLSE Innovation Co-Creation Lab
vili.lehdonvirta.comTwitter: @ViliLe
Why Games?
$65 Billion industry, bigger than music or cinema
Digital game companies are pioneers in innovations that drive today’s digital economyGames 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 Industry
Turnover 165 M€ – 90% from export (2011)
Represents ~0.25% of Finland's total exports
CAGR 22%! (2004-2011)
1300 employees (2011)
Average employees per company: 16
Young males
Source: Neogames, The Finnish Game Industry 2010-2011
Business Model Innovation 1: Digital Distribution
Source: Neogames, The Finnish Game Industry 2010-2011
Hurdles:
1. Fragmented e-payment infrastructure
2. Fragmented e-commerce regulation
3. Fragmented taxation systems
Integrated distribution platforms (App Store, Steam) solve this – but at the cost of 30% of revenues to California
→ Policies aimed at creating a seamless digital market
Business Model Innovation 1: Digital Distribution
Business Model Innovation 2: Virtual Economies
Developer redeems Virtual
Currency for earnings from
publisher
Consumer uses Virtual Currency to buy content / Creates content
Consumer buys Virtual Currency
Consumer earns Virtual Currency
through gameplay or ads
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
Regulatory 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 2: Virtual Economies
Business Model Innovation 3: Crowdfunding
Kickstarter.com
Regulatory hurdles:
Donations-based crowdfundingRegulations designed for physical donationsGlobal digital online donations
Investment-based crowdfundingHeavy regulation of investment offersNumber of investors can be 10,000s
→ Policies aimed at frictionless donations andmicro-investment
Business Model Innovation 3: Crowdfunding
Finnish Game EcosystemThe 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.comTwitter:@ViliLe