Angry Birds: are they on their way to being grounded?

With the recent launch of a new generation of IPhones and the announcement of a notable  decline in profits of Samsung smartphones, one is tempted to forget that third-party contents in the form of downloadable apps are an integral part of the smartphone ecosystem.

The challenge of achieving durable success as a mobile app developer were underscored last week when Rovio, the Finnish developer of the mobile app game, Angry Birds, in the face of falling app store rankings, announced that it was cutting 16% of its staff (from 244 to 130 staff members). It was only as recently as 2012 that the game had achieved one billion downloads, making it the most popular game yet in the nascent mobile app industry. Riding the crest of its popularity with smartphone users, Rovio pondered plans to roll out various extensions of its game, ranging from a movie to a cookbook and playgrounds. Even an IPO was apparently contemplated. Would Angry Birds become for the model for the 21st century 24/7 connectivity world what Mickey Mouse and Steamboat Willie, here, ultimately became for Walt Disney and the movie/television world in the last century? Based on Rovio’s announcement, such aspirations must be filed under “G” for “guarded”. As described in the on-line piece that appeared on Forbes.com under the by-line of Parmy Olson (“The Viral Curse of Angry Birds: Rovio Cuts `6% of Staff”), here, Rovio’s problem is straight-forward: “Rovio has struggled to develop a game as popular as Angry Birds, which itself took years to develop and almost didn’t see the light of day. Rovio had essentially created a one-hit wonder.” From the management point of view, “success” with the Angry Birds game led to rapid expansion of facilities and manpower. When the company failed to duplicate its success with further products, these investments became a financial burden.

The stark truth seems to be, at least for the current state of the mobile apps industry, that as difficult as it is to create one smartphone app that enjoys the viral success that Angry Birds attained, to do this multiple times is magnitudes of difficulty more daunting. As admitted by Rovio’s chief marketing officer, it is “very tough to produce consistent hits.” One need think only of Zynga, the game manufacturer, which has not been able to create new content with any degree of the success of its FarmVille game, and which itself laid off 520 employees last year, against the backdrop of a stock price that is mired in a pricing trough. And what about the current stock malaise (nearly a 50% decline from the IPO price) for King.com, the developer of the Candy Crush mobile game, which game represents nearly 75% of the company’s revenues?

While this Kat is not an overly active game-player on his smartphone (he leaves that to the younger family Kittens), he follows the industry with interest. In light of Rovio’s recent announcement and the more general fate of even the most successful mobile app developers, he has several observations:

1. Enjoying viral success with your mobile app will only take you so far—The commercial life cycle of even the most successful mobile app is limited. While this Kat hopes that Rovio has been well-compensated for the popularity of the Angry Birds game, a company measures its success on its long-term staying power. “Long-term” is a notion that seems particularly challenging to the mobile apps environment.
2. Will network effects improve the likelihood of success?—The beauty of network effects is that your product, be it a game or otherwise, becomes more valuable the more that other people use it. One corollary is that having multiple players of your game will enhance the game’s value for both them and you as the developer. Presumably, the mobile app business is no different in this regard. It seems to this Kat, at least anecdotally, that the mobile game industry has a long way to go to achieve this (Kat readers?).
3. Brand extension is different from building a mobile game “franchise”—Rovio’s aspiration to leverage the popularity of its game into completely different areas of endeavor reflects a belief that it could already successfully engage in brand extension. In this Kat’s view, brand extension is for a later time. The current challenge for an app developer such as Rovio is to successfully develop a game “franchise”, not in the sense of McDonald’s, but rather of a computer game such as Mortal Kombat. Franchise-building in the mobile app game world is only its infancy, but ultimately it is the name of the game.