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

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T h a n k Y o u

carmelo.cennamo@unibocconi.itwww.unibocconi.eu