What is your business model? - That is the question I have been asking industry professionals over the last year. Typical answers included different kinds of answers:
Answers marked by product centric thinking: "Our business model is making great, awesome, engaging games that people love to play." This is not a business model, but a product strategy.
Focusing on partner centric thinking, such as "Our business model relies on steam to drive sales". This is not a business model, but a distribution model.
Finally revenue centric thinking, such as making games free to play and focusing on driving conversion rates and engagement. This is not a business model, but a revenue logic.
This general confusion around the term business model seems to come from its very lax use. Within the industry, the term business model is used to pretty much describe anything you can associate with the success or characteristics of your game company.
So let’s clarify: What is a business model? What are the elements that are defining to a business model, and what are the key strategic decisions within each of these elements?
In this series of blog posts, I try to answer these questions, and attempt to structure terminology and thinking around business models in the game industry. To achieve this, I first reviewed traditional business model literature, then software specific literature in relation to business models. I further interviewed multiple people within game companies to validate my findings.
A general framework
Adapting Rajala, Rossi and Tuunainen's (2003) framework for analyzing software businesses to the videogame industry, I identified three major elements of videogame business models. First, the product strategy, which describes the product in itself, its value to consumers as well as the various design choices related to the player experience. Second, the distribution model, which describes how the company markets the product and brings it to the consumer. Third, the revenue logic, which describes how the company generates revenue and finances its operations. Each of these elements and their various sub-elements will be discussed in upcoming blog posts.
Figure 1: Conceptual Framework for analyzing video game business models
This framework can be used by industry professionals to further understand thinking around business models and gives them better terminology to discuss their respective business models. This can be used to analyze videogame business models and to assess one’s own positioning within the market.
My work further suggest that all these elements are interrelated, in that some choices made within one element has potential impacts on choices in the other elements. This interrelation between elements is nevertheless not subject of this study.
This paper has been composed of parts of my Master Thesis: Business Models in the video game industry: A general framework for strategic decision making.
Rajala, R., Rossi, M., & Tuunainen, V. K. (2003). A Framework for Analyzing Software Business Models. In Proceedings of the 11th European Conference on Information Systems (pp. 1614–1627).
Rajala, R., Rossi, M., Tuunainen, V., & Vihinen, J. (2007). Revenue Logics of Mobile Entertainment Software-Observations from Companies Producing Mobile Games. Journal of Theoretical and Applied Electronic Commerce Research, 2(2), 34–47.