Business models in the video game industry

Abstract

The video game industry is the industry focusing on the development, distribution and monetization of video games. This industry has grown rapidly during the 21st century and this trend continues to accelerate in the future (Ell, 2018). The video game industry has expanded and evolved through technological advancements which have allowed the industry to escalate at such a fast pace. The video game scene has extended from pure entertainment to educational, competitive and creative purposes. As technology plays a crucial role in the every-day lives of the modern society, so will the video game industry.

To understand the extent of the effect that the video game industry has had we take a closer look at the core of the industry, their business models and how they operate. Business model as a concept has no unified description or model but rather works as a framework to examine the core functions of a business. Therefore, for us to gain a comprehensive idea of the industry, we focused on four centric elements of business; the offering, the customer, the infrastructure and financial viability. Through these four elements we analysed the significant factors we found during our research, affecting the operations of the video game companies.

The offering includes the value proposition of the company. Regarding the value proposition, these companies work as facilitators and inspirers for the value creation. The companies attempt to funnel their resources to facilitate the co-creation of value with the customers and to inspire them utilize these resources. In game development this is seen from the continuous engagement and interaction between the developers and the customers to create value that addresses the fluctuating needs. The customer addresses the segmentation and engagement channels with the customers. The customer base is segmented based on their playing habits. The identification of separate segments allows the companies to focus their development and marketing efforts on the appropriate audience and through the right channels. The infrastructure depicts the key resources that allow the companies to facilitate the value creation process. These resources include the human knowledge and know-how to create and implement the co-created value. These resources can be internal or externally gained through various networks, strategic alliances or acquisitions. Finally, we arrive to the last section of the analysis, the financial viability. Profitability is one of the fundamental pillars for growth and successful business. It is formed as the difference of revenue and costs. Revenue is the monetization of the value delivered to the customers and costs are formed from the resources and assets used to create and deliver this value.

All these elements described play a significant role in enabling the companies to facilitate and inspire the value co-creation with the customers, delivering this value to the customers and monetizing this process cost efficiently, for the companies to grow and continue their profitable operations.