What contributed to Rovio identifying their business opportunity? The founders had been creating and selling games for other companies since 2003. They had the experience of developing games for others before they decided to create their own IP to take to the world. They knew other gaming companies had strong distribution channels, so competing with them would have been very difficult if they had decided to do so in the early 2000’s. They spotted an opportunity with the launch of the App Store by Apple, which allowed global distribution of apps. They focused solely on creating a mobile game, abandoning other platforms such as PC, consoles etc, where distribution was much harder. The founders of Rovio had patience in developing 51 games until they came up with Angry Birds, and the timing of launching the game plays an important role in the global reach they achieved. They had the right team, the resources and capabilities, and they also spotted a new opportunity in the games industry. When Apple introduced the iPhone in 2007, it opened a whole new market for mobile games developers, and the Hed cousins seized that opportunity. In addition, the Hed cousins had a strong vision before they even created Angry Birds. They had the ambition to build a global entertainment empire, comparable to Disney. That strong vision kept them going for 8 years, until the timing was right – they had the right distribution channel – the App Store, a strategy – to become the top ranking app on local markets, and the right IP that would win the hearts of the public. Rovio has shifted their products between games, activity parks, movies, licensing etc., how have they handled different steps in the entrepreneurial process? After developing Angry Birds, Rovio started to grow massively – both in financial terms, and also in the number of employees. They went from being almost bankrupt in 2009, to generating over 160 million in total operating profit by the end of 2013. The company grew from 40 to 800 employees in just 4 years. In attempts to build a global entertainment brand, they partnered with hundreds of brand partners that helped them reach new geographic markets and industries beyond gaming. They started new ventures based on the Angry Birds IP, such as activity parks, books, and movies. However, the rapid growth and shifting their product offering beyond the mobile game, took a toll on the company that had lost its entrepreneurial agility. They admitted they lost focus and tried to do too many things. The decision to divide their operations up to two units – games and licensing – helped them to regain focus. When the mobile games industry moved to the freemium business model, Rovio failed to respond quickly, causing chaos in the company, resulting in extensive layoffs and having to completely redesign the games, spinning off business ventures and an operating loss in 2015. It was a lesson that brought Rovio back to their entrepreneurial roots and to their core capability, creating games. Despite having to change their business model and streamlining business units, Rovio did not give up on their grand vision. The new CEO said they still have the ambition to be a leading entertainment company, with mobile games at their heart. How has Rovio changed their business model over time? What are the advantages and disadvantages of a freemium business model? Rovio’s Angry Birds game was originally designed as a pay-to-download game, meaning the game was purchased with a one-time payment and could then be played uninterrupted by ads or waiting times. By 2013, freemium became the dominant business model in the mobile games industry. Games such as Candy Crush and Clash of Clans exceeded the popularity of Angry Birds and Rovio thus had to tackle the new business model. Rovio then committed to changing their business model to a freemium model which meant completely redesigning the way they monetized from the games. The official sequel to the 2009 original hit title, Angry Birds 2 was built as a freemium game. The massive launch of Angry Birds 2 did not meet the company’s expectations, but they did not give up on the game or new business model. Rovio had to redesign the entire game logic and learn how to develop freemium, since they had never designed freemium games before. They continued to improve the game with new features and it eventually paid off. They were at one point falling behind from all the other mobile games developers who started off with the freemium model, but they eventually mastered the freemium model, as Angry Birds 2 is now their most profitable game. The advantages of a freemium business model: Potential to unlock viral growth for the app because it is free to downloadIncrease audience size without any barriers to entryNew revenue streams – advertising and upselling inside the appRecurring revenues versus a one-time payment from the user The disadvantages of a freemium business model: Low free user to paid customer conversions rates – meaning a high percentage of free users never convert (the average conversion rate for an iPhone game app is 2-4%)High competition in the App Store/Play Store – users have hundreds of thousands of free apps to choose from When apps are free, users are more likely to “throw away” apps that they just download to try out onceThe games have to provide enough value to keep the user coming back to the app, but also persuade upgrading at some point, to create the balance is not easy. Users might turn away if there are too many ads or too many waiting times that disrupts the game playIncremental overhead and performance problems – support for freemium users can potentially be a large expense How has Rovio evolved through the stages of entrepreneurial growth? At what stage of the entrepreneurial life cycle (see 10.4) is Rovio currently? Do you agree that the company is ready for their next phase of growth? In 2009-2010 the company was in the startup stage. The growth stage came quickly, they grew considerably in 2011 and 2012, as seen in Figure 1. There were management issues and problems with the business model that led to a decline in profits from 2013-2015. The release of the movie helped Rovio to start their second phase of growth. This time, the entrepreneurs handled the growth stage better, which led to the IPO in 2017. The founders exited and the leadership within the new management team is following the strategic foundation laid out by the founders, they are still building an entertainment company, with mobile games at its heart. The previous growth cycle was closely related to the movie, which attracted new fans and new players to their games, so it is possible that the next phase of growth comes together with the movie sequel. In addition, Rovio is keenly aware of the changes in the gaming industry and wants to be among the first innovators. The future of the gaming industry at the moment seems to be augmented/virtual reality and eSports, Rovio is already one of the first mobile game brands to actively explore and participate in both of these areas.
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