INN210 – Assignment 1 – Rune Haugestad

1

Angry Birds – A story based on radical innovation and creative success.

Rune Haugestad

IØR course code: INN210

INN210 – Assignment 1 – Rune Haugestad

2

Contents

1. Introduction ................................................................................................................................... 3

2. Some amazing core facts about Rovio Entertainment and Angry Birds:......................................... 3

3. Analyzing Angry Birds ..................................................................................................................... 4

4. Value creation ................................................................................................................................ 5

5. Value capture ................................................................................................................................. 5

6. Dominant design and absorptive capacity...................................................................................... 6

7. Multi-sided markets and multi-sided platforms ............................................................................. 6

8. Economic success ........................................................................................................................... 7

9. Building Angry Birds as a passion brand ......................................................................................... 8

10. Summary and conclusion............................................................................................................ 9

11. References ................................................................................................................................ 11

INN210 – Assignment 1 – Rune Haugestad

3

1. Introduction

My choice of product is one of the biggest new game phenomena from the gaming industry;

Angry Birds from Rovio Entertainment Ltd. The main reason to choose Angry Birds as

business case is that this phenomenon is interesting seen from several cross disciplinary

subjects such as; innovation, psychology, sociology, gaming addiction, viral (Word-Of-Mouth)

marketing, branding and how digital businesses works regarding modern; innovation

strategies, digital business and multiple revenue models. The business case of Rovio is also a

highly inspirational one: Rovio was almost bankrupt when they released Angry Birds!

(Source: http://articles.businessinsider.com/2011-03-10/tech/30012723_1_atlassian-accel-partners-

angry-birds) Their economic crisis was saved by ONE creative and innovative product: Angry

Birds. Because their Angry Birds game got rapid market adaption their revenue exploded in

2010 and 2011, and the value of the company today is amazing: 1 billion USD. Source: AYTM

Market Research: http://www.adverblog.com/2011/09/12/the-psychology-of-angry-birds-

infographic/

2. Some amazing core facts about Rovio Entertainment and Angry Birds:

• Almost bankrupted before Angry Birds launch in December 2009 (Source:

http://articles.businessinsider.com/2011-03-10/tech/30012723_1_atlassian-accel-partners-angry-birds)

• 648 million games downloaded in total and 200 million monthly active users of the app (Source:

http://techcrunch.com/2012/05/07/rovios-big-year-angry-birds-helps-gaming-company-soar-to-106m-in-

sales648m-downloads/)

• 2011 Revenue: $106.3 Million; Pre-Tax Income $67.6 (Source:

http://www.forbes.com/sites/ericsavitz/2012/05/07/rovio-says-2011-revs-106-3-million-pre-tax-income-67-6-

million/)

• In 2010 Rovio's revenue was around $10 million. (Source:

http://www.arcticstartup.com/2011/12/16/angry-birds-2011-revenue-around-100-million-looking-to-ipo-in-

hong-kong-in-2013

• Estimated company value: 1 Billion USD (Source: http://www.adverblog.com/2011/09/12/the-psychology-

of-angry-birds-infographic/

• From 28 employees at the start of 2011 to approximately 224 employees May 2012 (Source:

http://techcrunch.com/2012/05/07/rovios-big-year-angry-birds-helps-gaming-company-soar-to-106m-in-

sales648m-downloads/)

INN210 – Assignment 1 – Rune Haugestad

4

• 21,307,889 (Facebook) “Likes” Angry Birds (Source: http://www.rovio.com/en/our-work/games)

• 477.686 Twitter followers (Source: http://twitter.com/angrybirds)

• 651,829,262 YouTube video views (Source: http://www.youtube.com/user/RovioMobile)

3. Analyzing Angry Birds

Product attributes of Angry Birds

The basic attributes of Angry Birds are the following:

• Mass market (Casual games for smartphones) + Niche market (Puzzle) + Multi-sided markets

(Licensing, franchise and Mobile advertising)

• Business to consumers (B2C)

• Highly fun – wide target demographics (From children to mature people)

Forms of innovation

Angry Birds as a new game is a product innovation (Smith 2010 p. 25-26), especially

regarding the easy user interface, the low entry skills required, funny and simple cartoon

based design, new game characters and new storyline.

Types of innovation

Product and service innovations can be categorized in a number of different ways (Smith

2010). As a gaming product, Angry Birds differs little among other game developers; the

coding framework, back-end servers and delivering platforms etc. are similar to lots of other

games. With Henderson and Clark’s framework (Smith 2010 p. 32) for categorizing

innovation into radical, architectural, modular and incremental innovation types, I will try to

adapt this framework into the software and app development industry. With Henderson and

Clark’s the core part of the product belongs to architectural innovation. To quote Henderson

and Clark; “the essence of an architectural innovation is the reconfiguration of an established

system to link together existing (In this case: software/coding) components in a new way”

(Smith 2010 p. 37). All the components developing Angry Birds are existing and common

software, code language and delivering platforms (SmartPhone/PC). But in terms of novelty

INN210 – Assignment 1 – Rune Haugestad

5

and consumer adaption by the huge numbers of gamers/consumers, Angry Birds indeed is a

radical innovation within the gaming industry.

4. Value creation

The core value creation (Smith 2010 p.10-14) of Angry Birds for the consumer/gamer is:

Have tons of simple fun! The niche of the product is within puzzle games, and an important

side effect of the game is that it is a “time-killer”, highly addictive for a wide variety of

people (Wide range of demographics). This is a typical game to be played while a person

waiting for something/someone, playing while traveling by bus or train. You simply don’t

need to use much brainpower to play it, and that is maybe also one important factor in this

kind of niche games. Angry Birds value proposition is easy to understand for consumers;

enjoy a fun game with a simple user interface! Angry Birds communicates their innovative

game and user benefits easily to prospect gamers (Smith 2010 p. 12-13).

5. Value capture

Today Rovio has implemented several revenue streams through their business model and

value capture strategies (Smith 2010 p. 14-15). They have combined both current business

(Direct sales) model with new models such as licensing, mobile advertising and franchise.

You can get a Angry Birds t-shirt, a clip-on, a case for your iPhone, lunch boxes, red flip flops,

ties, or a backpack and lots of different toys to mention a few. Forbes says that Rovio noted

that merchandise and licensing generated about 30% of revenue in 2011. Rovio has more

than 200 licensing partners creating products base on the Angry Birds franchise (Source:

http://www.forbes.com/sites/ericsavitz/2012/05/07/rovio-says-2011-revs-106-3-million-pre-tax-

income-67-6-million/). This is the same successfully business models both Disney and Marvel

have implemented which gives multiple revenue streams and reduced risks. In addition they

have incorporated both freemium business model and cross-selling strategies with

additional three new Angry Birds games (Seasons, Rio and Space). Rovio has rapidly been

able to deliver their game on several platforms and channels. You can get Angry Birds on at

least 25 different platforms. While it started on the iPhone, you can also get it on the iPad,

Google’s Android OS, an e-reader, Playstation 3, the MAC, a PC version and many more.

INN210 – Assignment 1 – Rune Haugestad

6

6. Dominant design and absorptive capacity

Rovio’s product innovation is based on the combination of dominant design and absorptive

capacity (Smith 2010 p. 68-69). According to Nordström and Biström, a dominant design or

product configuration that comprises “the one that wins the allegiance of the marketplace,

the one that competitors and innovators must adhere to if they hope to command a

significant market following” (Smith 2010 p. 74). Angry Bird does have a new, unique and

dominant game design and usability. Dominant design, first by their consumer preferences

and its package of features (Funny, simplified cartoons, addictive storyline) and market

power (Smith 2010, p. 76). In addition must game producers like Rovio have a high

absorptive capacity to drive new innovations; both by internal learning and internal

communication and sharing skills, and to learn from external environment to build

knowledge about new gaming development software and coding processes to stay sharp in

their field (Smith 2010, p. 78). Rovio has already reinvented Angry Birds into three new

products/games to create new markets; Angry Birds seasons, Angry Birds Rio and Angry

Birds Space. Rovio’s newest game released summer 2012 is called Amazing Alex, which game

features educational elements and revolves around Alex, described as a curious boy with

interest in building things.

7. Multi-sided markets and multi-sided platforms

Rovio use both multi-sided markets (Licensing, franchise and Mobile advertising) and multi-

sided platform’s i.e.; iOS, Android, Playstation 3 and PC. A multi-sided platform grows in

value because it attracts more users, this is called the network effect (Osterwalder & Pigneur

2010 p. 77-79). A success factor is that the platform must attract and serve all groups

simultaneously in order to create desired value capturing. The platform’s value capturing for

one user group depends substantially on the number of users on the platform’s other sides.

This is solved by Rovio by both using freemium and cross-selling (from new Angry Birds

games) strategies and tactics, helped by the high adaption numbers from the free version of

Angry Birds. The term “freemium” is an acronym based on Free + Premium. This means that

the Freemium based business model implement both a free (often downscaled) product and

one premium version. This business model is often chosen by digital businesses i.e.: Flickr,

Skype and Linux.

INN210 – Assignment 1 – Rune Haugestad

7

Infographic source: http://www.adverblog.com/2011/09/12/the-psychology-of-angry-birds-infographic/

The term “freemium” has been widely discussed and promoted by Chris Anderson, the

author of The Long Tail and Free – The radical prize of zero. But the term was earlier coined

by Jarid Lukin and later popularized by Fred Wilson (Venture capitalist) on his blog

(Osterwalder & Pigneur 2010 p. 96).

8. Economic success

This game and innovation is an economic success. Here is what CEO Mikael Hed of Rovio

points out as reasons for their success: "The strong growth in revenue clearly demonstrates

the popularity of the Angry Birds brand.” “The heavy investments made in 2011 to all

business areas will be seen in future products. To ensure continuous success we need to be

creative and stay focused on entertaining our millions of fans by continuously developing

new and innovative products and services." Source: http://www.rovio.com/en/news/press-

releases/161/rovio-entertainment-reports-2011-financial-results/ Rovio don’t stop to innovate

after their big success with Angry Birds, they know they have to reinvent existing products

and produce new innovations (games). “We are very optimistic about 2012 due to

significant investments in product development, cutting-edge branding, brand protection and

corporate infrastructure“ Mikael Hed said. Source: http://www.rovio.com/en/news/press-

releases/161/rovio-entertainment-reports-2011-financial-results/ So Mikael Hed identifies both

branding, brand protection and infrastructure as important factors in addition to creativity

and to keep on developing new innovative products and services.

INN210 – Assignment 1 – Rune Haugestad

8

Diffusion

The usage of Freemium strategy for Angry Birds both help regarding diffusion (Smith 2010 p.

16-17) and for building a strong brand through high volume of free users/gamers and the

effect of (digital) word-of-mouth, and as a bait & hook mechanism (Osterwalder & Pigneur

2010 p. 104) from the free version, to direct gamers to upgrade to paid versions. The

freemium business model is the main reasons for high user adaption for the Angry Birds

game.

9. Building Angry Birds as a passion brand

Edwards & Day (2005 p. 78) have identified three main characteristics of passion brands:

• They are brands with active belief

• They have confidence rooted in capability

• They stay vibrant in an ever-changing world

The Angry Birds brand score high on all these three characteristics. In addition have Edwards

& Day (2005) identified these attributes for creating a passion brand: integrity, trust,

difference, loyalty, fame, belief, cohesion, principles, profit and passion. Angry Birds seem to

score high and succeed with several of these attributes; integrity (), trust (they deliver what

they promise), difference (High fun and simplicity), loyalty (Launch on time), fame (High

share-of-voice in the media and lots of buzz amongst the consumers via word-of-mouth),

belief (stayed internal focused and dedicated through a crisis), profit (Enormous economic

growth, decreased risks with several new games and several revenue stream sources),

passion (both internally and by gamers).

INN210 – Assignment 1 – Rune Haugestad

9

10.Summary and conclusion

So when Rovio almost got bankrupted in 2009, they turned their crisis to stay focused and

create new innovations and reinventions. What insights can be learned from this business

case?

Business models

Rovio both has innovated their core business with ONE radical new product; Angry Birds, and

they have also innovated their business at the edges with both changing their business

model adding freemium, cross-selling, franchise, advertising and licensing strategies.

Innovations

Angry Birds is a combination of both radical and architectural innovation. The game feels

totally new and fresh and with a high originality factor. But new ideas consist of old ideas

and it is important to understand that originality doesn’t rely on creating something from

nothing, but it relies on putting together ideas and materials/components in new ways.

Organizational

It seems that creativity, motivation, passion and belief thrives amongst Rovio’s employees.

Rovio has developed several award-winning titles for various mobile platforms, so they are

highly innovative. The CEO understands the importance of continuing innovation into new

products and services.

Change management

Success can be difficult. It is to early to predict if Rovio will handle the enormous market and

organizational growth in 2011. Change management and strategic leadership skills are the

keys to manage fast organic growth, new business models, new innovations, new products

and services and fast increased crowd of users/gamers.

Marketing and branding

So far it looks very good for Rovio. They have successfully implemented both digital cross-

platform marketing strategies and tactics, and in addition successfully delivered Angry Birds

on many platforms (Platform ubiquity). Both the press and media seem to love them. Most

INN210 – Assignment 1 – Rune Haugestad

10

importantly is their future online branding and online reputation management skills. Trust is

something you earn, and to continue to build loyalty they have to focus on delivering what

they promise regarding content and launch schedules. Rovio focus on online branding tactics

with use of viral and word-of-mouth marketing tactics and as a result they gain an excellent

online reputation.

Economy

Rovio’s new product (s) and innovation (s) in addition to implemented new business models

such as freemium and multi-sided platforms and markets (several new revenue streams),

modern digital marketing and branding truly saved the company and their investors funding.

Conclusion

Sometimes big problems need big solutions and change, not an endless myriad of little

initiatives. Rovio’s approach was; designing a business model for flexibility with multi-sided

platforms and markets, monetizing a free version with freemium business model,

reinvention of existing products and most importantly; continuing to innovate! All kind of

business will meet hard competition, new innovations, disruption or crisis, sooner or later.

One key success factor is how you adapt to changes: You can’t control waves, so learn to

surf! (McKeown 2008). Angry Birds are pretty good at surfing.

INN210 – Assignment 1 – Rune Haugestad

11

11.References

Curriculum

Smith, David (2006). Exploring Innovation, Second Edition. UK: McGraw-Hill Education.

Additional books

Edwards, Helen & Day, Derek (2005). Creating Passion Brands – Getting to the heart of

branding. UK: Kogan Page.

McKeown, Max (2008). The Truth about Innovation – A small book about big ideas. UK:

Pearson Education Limited.

Osterwald, Alexander & Pigneur, Yves (2010). Business Model Generation – A Handbook for

Visionaries, Game Changers, and Challengers. US: John Wiley & Son Inc.

Internet sources

Gobry, Pascal-Emmanuel (10.03.11). Angry Birds Maker Raises Huge $42 Million Round. Located 17.08.12 at

WWW: http://articles.businessinsider.com/2011-03-10/tech/30012723_1_atlassian-accel-partners-angry-birds

Lunden, Mari (07.05.12). Rovio’s Big Year: Angry Birds Helps Gaming Company Soar To $106M In Sales,

648M Downloads. Located 17.08.12 at WWW: http://techcrunch.com/2012/05/07/rovios-big-year-angry-birds-

helps-gaming-company-soar-to-106m-in-sales648m-downloads/

Martina (12.09.11). The Psychology of Angry Birds #infographic. Located 17.08.12 at WWW: http://www.adverblog.com/2011/09/12/the-psychology-of-angry-birds-infographic/

Savitz, Eric (07.05.12). Rovio Says 2011 Revs $106.3 Million; Pre-Tax Income $67.6 Million. Located 17.08.12 at

WWW: http://www.forbes.com/sites/ericsavitz/2012/05/07/rovio-says-2011-revs-106-3-million-pre-tax-

income-67-6-million/

Vilpponen, Antti (16.12.11). Angry Birds 2011 Revenue Around $100 Million, Looking To IPO In Hong Kong In

2013. Located 17.08.12 at WWW:

http://www.arcticstartup.com/2011/12/16/angry-birds-2011-revenue-around-100-million-looking-to-ipo-in-

hong-kong-in-2013