Chair Group: Business, Management, and Organisation (BMO) Supervisor: A (Annemarie) Groot Kormelinck Examiner: dr. WJJ (Jos) Bijman Wageningen University and Research THE DEVELOPMENTS OF BUSINESS MODELS IN VIDEO GAMES DUE TO CHANGES IN DISTRIBUTION CHANNEL BSc Thesis Management and Consumer Studies Draft Version Chair Group: Business, Management, and Organisation (BMO) Supervisor: A (Annemarie) Groot Kormelinck Examiner: dr. WJJ (Jos) Bijman Wageningen University and Research Course Code: YSS-81812 Date: 10-02-2020 Andre Evic 990304233230 1 Abstract Business models in video games have changed as a result of the introduction of new distribution channels. Studies have analysed these developments related to physical, digital, and more recently cloud distribution, showing several developments that were a result of a change in distribution channel. This study aims to develop a general overview of these developments, categorising them into four business model components. Elaborating on existing work, the question is: What have been the developments of business models in the video game industry concerning physically distributed, digitally distributed, and cloud distributed video games? In the context of this study, a business model has been divided into four components: (1) Value proposition, (2) customer relationship, (3) network of partners and (4) revenue- and cost model. Based on a literature review on the developments of business models in the video game industry, the following findings were found. The components of the business model are influenced by the change in the distribution channel. The value proposition was mainly a product, which was the video game. This changed to video games being offered as a service. Here the video game is a service offered through the internet rather than a product the customer purchases and receives. Regarding the customer relationship, new communication channels made it possible for firms to reach the customer easier and collect information about them easier. Looking at the network of partners, the newer distribution channels made it possible for stakeholders like retailers to become obsolete and changed the roles of the stakeholders in the network. Lastly, the revenue- and cost model changed from generally paying to play the game infinitely, to becoming ‘freemium’, and with cloud-distribution to an increase in the popularity of renting video games. In conclusion, there is a relationship between the different business model components and distribution channels, thus it can be argued that changes in distribution channel influence the business model components. Possibilities for future research are, to look at the interdependencies of the business model components, or to use a more elaborate operationalisation of the business model and distribution channel. This can lead to further insights into the developments of the business models of video games. 2 Table of Contents Abstract ........................................................................................................................................................ 1 1. Introduction .............................................................................................................................................. 4 1.1 Introduction of Topic ................................................................................................................................... 4 1.2 Structure of the Thesis ................................................................................................................................. 5 1. Theoretical Framework ........................................................................................................................ 6 2.1 Research Objective and Questions ............................................................................................................. 6 2.2 Definitions of Core Concepts ....................................................................................................................... 6 2.3 A Theoretical Framework on Business Models ............................................................................................ 7 3. Research Methods ..................................................................................................................................... 9 3.1 Unit of Analysis: Thee Categories of Video Games ...................................................................................... 9 3.2 Search Method .......................................................................................................................................... 10 4. Sub question 1: What have been the developments of the business models regarding the value proposition of the firm? .............................................................................................................................. 11 4.1 Physical ...................................................................................................................................................... 11 4.2 Digital ........................................................................................................................................................ 11 4.3 Cloud-distributed ....................................................................................................................................... 13 5. Sub question 2: What have been the developments of the business models regarding the customer relationship? ............................................................................................................................................... 14 5.1 Physical ...................................................................................................................................................... 14 5.2 Digital ........................................................................................................................................................ 14 5.3 Cloud-distributed ....................................................................................................................................... 15 6. Sub question 3: What have been the developments of the business models regarding the network of partners? ..................................................................................................................................................... 17 6.1 Physical ...................................................................................................................................................... 17 6.2 Digital ........................................................................................................................................................ 19 6.3 Cloud-distributed ....................................................................................................................................... 21 7. Sub question 4: What have been the developments of the business models regarding the revenue- and cost models? ............................................................................................................................................... 23 7.1 Physical ...................................................................................................................................................... 23 7.2 Digital ........................................................................................................................................................ 23 7.3 Cloud-distributed ....................................................................................................................................... 24 8. Conclusion ............................................................................................................................................... 26 8.1 Value Proposition ...................................................................................................................................... 26 3 8.2 Customer Relationship .............................................................................................................................. 26 8.3 Network of Partners .................................................................................................................................. 27 8.4 Revenue- and Cost model .......................................................................................................................... 28 8.5 Main findings of the Study ........................................................................................................................ 28 9. Discussion ............................................................................................................................................... 30 10. Scientific Literature ................................................................................................................................ 31 11. Grey Literature ...................................................................................................................................... 33 4 1. Introduction 1.1 Introduction of Topic The first video game, space war, was created almost 60 years ago in 1962 (History.com Editors, 2019). Since then, video games have been released that can be considered as well- known by many fans of video games e.g. Donkey Kong in 1981, The Legend of Zelda in 1987, and Final Fantasy in 1988. These physical video games were published on dedicated platforms that were made specifically for video games (Dillon & Cohen, 2013), e.g. Wii Sports being released for the Nintendo