apps developers' strategies
DESCRIPTION
Short presentation from the talk delivered at the European Patent Office workshop on IP innovation management. Please check my website for related info and article the talk is based upon.TRANSCRIPT
DEVELOPERS STRATEGIES IN PLATFORM-ORCHESTRATED ECOSYSTEMS:
The Case of Videogames
Intellectual Property Management: In search of New Practices Strategies and business models
EPO Workshop, Munich4th June 2012
Carmelo Cennamo & Marco Giarratana
© C. Cennamo 6/4/12EPO Workshop
Aim & Contribution
• Extending the PFI model to ecosystems innovations context
• Taxonomy for developers’ strategies in POEs
• Endogeneize IPRs and Downstream Assets
• Getting to dynamics of the proposed strategic approaches
© C. Cennamo 6/4/12EPO Workshop
The phenomenon
Customer Ecosystem Platform Developer
Ecosystem
Platform-Orchestrated Ecosystems:
technological interfaces upon which external firms build to develop and launch new products to reach out the mass of platform users
Platform
Third-PartyDevelopers Customers
IPRs
Downstream Assets
© C. Cennamo 6/4/12EPO Workshop
Issues for developers
Strategic
• Downstream complementary assets: platform support vs. direct investment
• Exclusivity vs. cross-platforms selling (ie. multihoming)
• Platform tech–application: co-specialized assets!!!
• investment coordination; hold-up problems; interdependence of commercial success; value sharing.....
• Value capture more problematic: keystone position by the platform
• IP regimes?
• Downstream assets?
© C. Cennamo 6/4/12EPO Workshop
Key dimensions
Strong IPRs
• retain strong control over IPRs
Weak IPRs
• support multiple platforms (ie. multihoming) to lower platform bargaining position
• reduce dependence upon single platform
• higher costs!!! (porting, quality, delayed market release...)
• wave some control over IPRs in exchange of favorable licensing conditions (“exclusivity premium”)
• collaboration with platform: access to platform’s downstream commercializing assets
• higher hold-up problems!!!
© C. Cennamo 6/4/12EPO Workshop
Key dimensions
Strong Downstream Assets
• Pivotal to commercial success in POEs (hit-driven markets; strong competition)
Weak Downstream Assets
• CRM & relationships with retailers particularly critical assets (specific to the firm)
• Game promotion as expensive as development of software
• Involves significant resources and financial risks!!! (may divert resources from quality/innovation investments)
• More suitable to weak position in DA for small developers with quality reputation
• Partnerships for marketing/distribution/CRM >> lower margins!!!
• Focus on product development!!!
© C. Cennamo 6/4/12EPO Workshop
Developers Strategies in POEs
© C. Cennamo 6/4/12EPO Workshop
Cases
© C. Cennamo 6/4/12EPO Workshop
Electronic Arts Founded in ’82. One of largest players
Mainstream products: Dominant position in “sports” and ‘action” segment
Blockbuster, “Hollywood model”
Strong sales/marketing force (direct relationship with retailers; brand recognition) – “IP-cube” approach
Main strategy: Support multiple platforms to gain bargaining position vis-à-vis platform orchestrator
From 99 to 03 > 50 titles > 1 millions unit sales; income increase 435%
Figures: Development (cost/game): $20-$50 millions (up to $100 Ml)
Marketing: $15-$20 millions Retail price: $50-$60
“Spore”: > 1 million copies in 17 days!!! (yet, expected to turn profits in 5 years horizon)
“Our basic competitive advantage is that we can publish games across multiple platforms simultaneously in a cost effective way.....” (Frank Gibeau, EA’s VP)
© C. Cennamo 6/4/12EPO Workshop
Rockstar’s GTA franchiseBritish born startup, today owned by Take-Two Interactive
Major sell: Grand Theft Auto (GTA) game series
Exclusive for Sony’s PS and PS2
In “exchange”, development & marketing support
GTA IV released also for Xbox. Received $50 millions for partial exclusive content, + marketing support + low royalty fees ($3 per unit)
“Microsoft sees GTA IV as a fantastic title to showcase how great Xbox 360 is […] As such you can expect a large awareness campaign from us, showcasing how great GTA IV on Xbox 360 is, and what great value the Xbox 360 console
is too” (Stephen McGill, head of gaming and entertainment at Xbox UK)
© C. Cennamo 6/4/12EPO Workshop
ZyngaFounded in 2007, targets the casual, role-play games niche
Online gaming – Facebook; later on mobile devises
By end of 2011:
> 230 millions monthly active users revenues > $800 millions
market cap. $9 billions
Simple games; constant updates of content & gameplay
Strong game community (curving games to players’ preferences)
“Freemium” business model (free to play basic; in-game virtual goods)
Few weeks to develop; soon to market; several iterations and improvements
Curb dependence on Facebook: Zynga Direct; Publishing Platform (for third-party games)
© C. Cennamo 6/4/12EPO Workshop
Dynamics of Developers Strategies