Slides of the presentation I gave at the World Bank/infoDev Training Program on Innovation Policy for ICT @ Aalto University 7 June 2012 Thanks to KooPee Hiltunen and Neogames for the figures!

1. Game Ecosystems
Business Model Innovation in the Digital
Entertainment 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 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

4. Business Model Innovation 1: Digital Distribution
Source: Neogames, The Finnish Game Industry 2010-2011

5. Business Model Innovation 1: Digital Distribution
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

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 Economies
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

9. Business Model Innovation 3: Crowdfunding
Kickstarter.com

10. Business Model Innovation 3: Crowdfunding
Regulatory 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

11. 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!

12. Summary
Policies needed for:
 Seamless digital market
 Virtual currencies
 Digital micro-employment
 Digital donations & micro-investments
 Game culture!
Thanks for listening!
vili.lehdonvirta.com
Twitter: @ViliLe