Rovio layoffs signify maturing mobile games market

When a CEO like Mikael Hed announces layoffs of “a maximum of 130 people” you know something’s up. As Rovio’s leader, he himself is about to step down at the end of this year to be replaced by former Nokia marketing exec Pekka Rantala. Stating that the company had anticipated faster growth than it was able to realize, the firm is forced to reduce its headcount. But if one of the most successful mobile game companies to date starts to make cutbacks, you have to ask if we’re not looking at larger industry trend. Is Rovio the canary in the coal mine? (Yup. I just did that.)

Rovio Layoffs

ROVIO LAYOFFS THE BEGINNING OF THE END?

With an enviable 200 million active players, Angry Birds is still going strong. But keep in mind that this is a 24% drop since 2012 when the game was its peak. Despite this drop, the company’s revenues have remained roughly the same with a slight year-over-year increase, from $192 million in 2012 to $197 million in 2013. We’ve seen similar trends before with companies like Zynga, where revenues initially stay at the same level as its user base decline, because the non-payers are the first ones to cycle out and move on.

Over the past two years, the mobile games market has also seen the emergence and dominance of several new mobile game companies, most notably Supercell. By comparison, Supercell manages to generate $892 million in 2013 with a total staff of 132, compared to Rovio’s $197 million with a headcount of 800. Suffice to say that Rovio, while at first the undisputed king of the mobile games market, no longer can claim this position.

EARLY BIRD. WORM. YOU GET THE IDEA.

But Rovio wasn’t born yesterday. It’s common knowledge that the firm spent its early years in relative obscurity developing games for major publishers like Electronic Arts, Bandai-Namco and RealNetworks. Once Angry Birds reached the success it did, Mikael Hed quickly realized that replicating this success was nearly impossible and, instead, the company should focus on building a massive business around its hit title. At its peak, Rovio would receive between 60 and 80 proposals to cross-promote, license or collaborate in some other way. But since then, the market shifted.

Mobile gaming is big: it’s grown into a $21 billion a year industry (2014E), in which literally hundreds of thousands of developers compete over a global audience. A failure to successfully capitalize on the free-to-play mobile market, where players spend an average of $23.94 every month is costly (United States, August 2014). And it is here that Rovio has been unable to replicate its earlier success. Certainly, Rovio’s free-to-play offerings Angry Birds Go!, Angry Birds Epic and Angry Birds Stella have all done well, but none have managed to come close to the success of Clash of Clans (Supercell) or Candy Crush Saga (King).

NARRATIVE ECONOMY

To build out a brand to the size of Mickey Mouse or Star Wars, two franchises that Rovio likes to invoke when outlining its vision for the future, one needs a strong narrative economy. But in laying out the core values of its design, including the need for wordless game play, Rovio has ultimately limited its ability to tell a story. Stories are what provides depth to characters, allows players to establish an emotional connection to their avatars and the rules of their universe. Releasing a never-ending stream of new levels and expansions is, of course, a great way to stay on the radar, but even that is likely to turn stale in the face of the equally never-ending influx of new content.

Because of its broad appeal, mobile gaming caters to a wide audience. Taking a wide approach, then, makes sense. But after an initial phase in which people surprise themselves by figuring out that “they’re gamers now!”, this same group will also start demanding more challenging and more sophisticated content. The same happened to social games, and the same is now happening in mobile.

MOBILE ALL GROWN UP

If Rovio is indeed facing a decline, the silver lining may very well be that we have entered the next stage in the evolution of mobile gaming. Consumer expectations have shifted, marketing has become more challenging and development costs continue to increase–all of which results in radically different mobile gaming landscape. It means that mobile gaming is not a fad, as some initially suspected. It provides proof of the idea that mobile is a maturing game market, allowing big brands and innovative publishers to make long-term investments.

No doubt many of the soon-to-be former Rovio employees will re-emerge. There’s a tremendous amount of momentum and believe in the ability of especially Finnish game developers. More likely, these recent changes amount to a revised strategy as Rovio enters the next stage in its existence. It’s already changed several times before and, no doubt, will again in the future. Let’s see if they can navigate their brand through what comes next.