Business models for video game developers

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Empirical findings and Interpretation

In this section of the thesis we have combined the reporting of the empirical findings with our interpretation of them as to give the reader a more coherent structure, following the building blocks of the BMC. One of the first and perhaps most crucial of our early findings regarding Fatshark and how they operate as an independent video game developer is that they appear to have two distinctive business models. They have one business model from the start of the development of the video game to the actual release of the game. Following the release of the video game, their business model evolves, and they operate with a substantially different business model. In the first stage of development, their business model centres on the question of how to make money. The focus is on creating a good product that is attractive to customers that they will be willing to pay for. During this period, the independent game developer receives no revenue from the product they are in the process of creating. Following the release of the game, Fatshark starts receiving revenue and it is the stage during which they make money from their developed product. Their business model shifts from developing a new product to building on and supporting the existing product to capture revenue and improve the product over a longer period. Fatshark’s business model differ substantially from each other during these two stages of development and they therefore require two different BMCs in order to accurately depict their business models. We have titled these BMCs the pre-release BMC and post-release BMC. In the following section, the first part of the developed version of the BMC, the pre-release BMC, is presented regarding the business model in the state before the release of a video game by an independent video game developer. In the pre-release BMC, some building blocks of the BMC have been renamed to better describe the business model of an independent developer before the release of a video game. Following the pre-release BMC, the second part of the developed version of the BMC, the post-release BMC, is presented regarding the business model in the state after the release of a video game by an independent video game developer.

New BMC for independent video game developers

As have been briefly described earlier, the choice to develop the BMC by Osterwalder and Pigneur (2010) and divide it into two separate canvases, is to better reflect the business model for an independent video game developer. A process suggested by Fritscher and Pigneur (2014) in order to capture and display the business model evolution using the BMC. We aim, through our following description of the pre-release business model of Fatshark, to highlight the need for separate versions of the BMC pre-release and post-release of the video game. The business model of Fatshark evolves throughout the process of developing a video game and we observe a distinct shift in the business model at the time of release of the game. A business model’s elements will change at some point. At the time of change, the overall business model will be transformed so that it is distinguishably different from its previous version (Fritscher & Pigneur, 2014). There is a drastic change in the business model at the time of release of a video game and this evolution requires a new BMC to be created that differs from the previous. Fritscher and Pigneur (2014) outline three basic operations to transform one business model state into its next version for the BMC when a business model evolves. These actions are: Add: adds a new element to one of the nine building blocks to the BMC. Something new that the previous business model did not utilize. Remove: removes an existing element from one of the nine building blocks of the BMC, completely discarding something that was used before. Change: any element that behaves differently or has one of its properties transformed. They further suggest other mutations such as the notion of splitting one element into multiple elements, or merging multiple elements into one, but conclude that these operations can be handled with a combination of remove, add and change operations (Fritscher & Pigneur, 2014). We have utilized these operators in order to best capture an accurate picture with the BMC of how the business model of independent video game developers are expressed at the different stages of development and the evolution from pre-release to post-release.

Pre-release BMC

Pre-release refers to the period of time during the development before the video game is released and through the following section, we aim to outline why this distinction is an important consideration in regard to business models for independent video game developers.

Customer Segments

The first building block of the pre-release BMC is the Customer Segments block. While Fatshark does not actively group customers in different groups with common needs, behaviors or other attributes pre-release, there is still a segmentation occurring where they spot the gap in the market. They conduct a market analysis. Rikard stated how they first saw a gap in the market for a cooperative type of game. The customers they target would be considered a mass market customer segment where they analyze a gap in the entire gaming market and subsequently target all video gamers that may be interested in that type of game. “We believe in identifying opportunities in the market. As with Vermintide 1 we believed there was a gap in the market for cooperative games and a big demand for such games, yet none had been delivered”. Fatshark does not conduct a customer segmentation on the entire gamer market. The reason we consider customer segments a reliable building block is that their chosen customer segmentation is a mass market segment where they conduct a market analysis on the entire video game market and develop a video game that fills the spotted gap. Market analysis and mass market should therefore be considered very important elements of this building block. The Customer Segments is a building block where independent video game developers analyses their customer segment (mass market in the case of Fatshark) prior to the development of their game in order to better understand the market conditions as they start developing their game. This must not necessarily result in gap spotting, as in the case of Fatshark, but could be used for the developer to better understand the needs of the market in general. This is an important element as the game is based upon what developers conceive as the need of the market. If their understanding of this building block is accurate, it increases the chances of a game’s success. We consider it accurate to present this block of the pre-release BMC as customer segmentation but there should be a strong emphasis on the act of market analysis.

Value Proposition

Understanding the target customer segment before creating the value proposition is very important. This building block reflects the previous segment where Fatshark aim to create value and satisfy their identified customer segments. However, it may be difficult to apply value proposition pre-release for a video game, it is the entirety of the game as an experience that makes it worth something to the customer and identifying individual features of the game in the pre-release stage does not accurately describe the value proposition of the game. In the pre-release business model canvas, we believe there must be an emphasis on the vision of the game as an important element of the building block. We believe that Vision of the Game is an accurate representation of how Fatshark create value for their future customers pre-release and create a good and coherent experience for customers. The Value Proposition building block follows and build upon the previous building block, Customer Segments (market analysis). This building block describes how the company create a coherent vision of the game they want to develop. For Fatshark, they often have multiple ideas which are floating around in the company, both among the directorate and the employees. The identification of a gap is then developed into the creation of a vision of what the game can be. The full vision of the game is often inherent in a single person or a small group, and when creating a new game, one of the biggest challenges is for those who have the vision to convey it to the rest of the group in an understandable manner. Rikard further explained: “Something which is very important is to mark down a vision and framework for the game and then continually be able to convey that vision so that the team can relate to it and understand the game we are going to create”

Marketing

In our pre-release BMC the building blocks: Channels and Customer Relationships have been removed and, in their place, a new building block has been added: Marketing. In the pre-release stage of a video game, Fatshark does not have an individual, specific or targeted value proposition to deliver to its customer segments, as we outlined in the previous building blocks. What Fatshark does during this stage is at times communicating the vision of the game and raise awareness through marketing of different kinds. The types of customer relationships that are being established pre-release are very narrow and one-dimensional. The pre-release relationships are solely driven by customer acquisition for the upcoming game release. We therefore find it more apt to remove the Channels and Customer relationships building blocks and instead propose adding a Marketing block for the pre-release BMC that describes how a company communicate with potential customers and deliver their vision of the game to generate interest in their product. For Fatshark, being an independent developer, they conduct most of the marketing themselves with a focus on communicating it online through their own channels and communities. With the majority of the marketing being conducted in favor of online instead of offline, the vast majority of the budget for marketing in terms of buying advertisement is spent pre-release. Rikard mentioned that they have several important channels they use to reach out to the customers, such as the gaming press. Another access point which have developed greatly over the last few years is the influencer community, e.g. streaming video games. Harri mentions that influencers are a big part of their marketing, but that the focus is on building relationships with a few, not to pay them, and give them perks such as early access to new developments. Rikard adds: “(…) another aspect is to quite early work with streamers and influencers, and in the same way you give exclusive access to the press, you try to find people that you work with and give them exclusive access.”

Revenue Model

The revenue model building block describes the revenue model of the game being developed by the independent video game publisher. In the pre-release BMC, we change the Revenue Streams building block to a new block named Revenue Model. The revenue streams are, as to any company, an important consideration for Fatshark. Rikard states: “It is perhaps a drawback with the games industry that you are so dependent on [the success of] your latest product. In our order of magnitude [as a company], you often work on one title at a time and a lot depends on the success of your game”. This speaks to the development process of a video game where there is a long period of time during development where the developer is not getting any source of revenue for their work. When there are large time frames between your large sources of revenue (release of game), the success of each game is critically important. Independent video game developers are solely relying on previous revenues and assets in the pre-release stag, during development of a new game. The games being developed by Fatshark does not create any revenue streams during the development process in the pre-release stage. The old building block Revenue Streams is therefore not applicable in the pre-release BMC and is removed. The revenue model for an independent developer is how the company captures value from the product once it is complete. Alignment is very important; consumers need to feel they are getting value from the product, and the company need to feel they have produced something which is of value to consumers. It is important that the revenue model fits with the other sections of the pre-release BMC. There are different types of pricing options available to an independent video game developer. For Fatshark, Rikard said the choice of the how they price their games comes rather early in the development process: “We decide rather early and we have as a goal to maintain low prices. We rather have our products be a few SEK cheaper and have customers who feel like they are getting their money’s worth rather than to squeeze out that last penny.” It is a conscious choice to price their games low. From a short-term perspective they may be able to earn more if they priced the games higher, however it could be harmful for their reputation and brand if the value of the product is not perceived by the customer. The low pricing is also to be able to see an increase in copies sold of the base game, viewed as their premium product, and to garner a larger customer base for the DLCs. The chosen revenue model of a game is a factor that influence all building blocks of the pre-release BMC and especially the design and vision of the game. The alignment between the game and choice of revenue model is a conscious choice on the part of Fatshark as we can see in how stated by Rikard: “However, if we could find a F2P-model that works in our games then we could use it.”

1. Introduction
1.1 Disposition
1.2 Background
1.3 Problem
1.4 Purpose
1.5 Perspective
1.6 Delimitations
1.7 Definitions
2. Literature Review
2.1 Components of the business model
2.2 Business models for video game developers
3. Methodology and Method
3.1 Qualitative research
3.2 Case study design
3.3 Case selection – independent video game developers
3.4 Data collection
3.5 Data analysis
3.6 Quality of research
4. Empirical findings and Interpretation
4.1 New BMC for independent video game developers
5. Conclusion
6. Discussion
7. Reference list

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Understanding the business model in the video game industry