While mobile phone maker Nokia has hit hard times and looks
unlikely to regain its commanding position in the Finnish economy, nine
years ago it helped feed a newly hatched technology niche in its
homeland.
The cellphone giant, which once made more than half the
world's smartphones and 4 percent of Finnish GDP, funded an award won by
Rovio, now one of the world's two leading mobile gaming firms along
with local rival Supercell, which next week opens a new HQ at former
Nokia premises near central Helsinki.
In an industry where many
are chasing but few make serious money, Rovio's Angry Birds game hit the
big time with a billion customers around the world, most of them using
smartphones of Nokia's deadly rivals Apple and Samsung.
Last
weekend its new Star Wars version of the birds game took top spot in
global download charts from Supercell, which had led for weeks with
strategic battle game Clash of Clans.
With Nokia expected to
report net losses of nearly 5 billion euros for 2011 and 2012, and its
smartphone market share now below 5 percent, the gaming firms offer
promise that Finland will retain its place at the technology table.
Though
they have a long way to go before they fill a Nokia-sized hole, they
could help prevent a brain-drain of technology graduates.
"It's
clear that the direct impacts of startups and gaming firms are not even
close to what Nokia still is, let alone what it was," said Petri
Rouvinen, researcher at think-tank ETLA. But in the long run they are
"necessary for structural change" in an economy, driving
entrepreneurship and creating new growth, he added.
Finland's
economic growth is expected to be less than 1 percent in 2012 and little
more than 2 percent thereafter, as on top of Nokia's problems, its
other major export, forestry products, is in decline.
"We don't
need a new Nokia, to be totally dependent on one company. Instead we
need a couple of hundred Rovios or Supercells," said Christoph Thur,
founder and chief executive of small gaming firm Ovelin, one of the
first to bet on a rising trend of apps combining education and
entertainment.
Ovelin employs only 12 people, but its
guitar-teaching game WildChords has hit the top spot in music charts in
34 countries, as app stores give it instant global reach that earlier
generations of startups could only have dreamt of.
Many of the
Finnish firms are riding the free-to-play model that lets gamers try
before they buy, making life tough for physical game product makers such
as Electronic Arts , Activision Blizzard and Take-Two Interactive Software , whose sales are falling.
Angry Birds
Even
the most successful of them remain of modest scale. Rovio employs
nearly 500, just a tenth of the people Nokia laid off over 2011 and 2012
in Finland, where it still employs 6,500.
But Nokia's woes could be a case of creative destruction.
"Nokia
employees used to stay with Nokia and avoid risky ventures, creating an
insular bubble of tech expertise that did not foster startup growth in
Finland," said analyst Tero Kuittinen from mobile analytics firm
Alekstra.
"Finland's start-up evolution must now run at an
accelerated rate to mop up IT and marketing experts from the labour
pool," Kuittinen said.
Marketing experts are a key part of Rovio's
success story as the firm has expanded its one-hit brand beyond games.
Last year it made 30 percent of its annual revenues of $100 million from
merchandising and licensing.
"We have been consistently building
Angry Birds as a brand, much stronger than the game itself," said Petri
Jarvilehto, games chief at Rovio.
Local research firm Neogames
forecasts Finnish gaming software sales of 250 million euros this year,
two and a half times what they were two years earlier, an estimate made
before Supercell revealed its 58 staff generated daily sales of $500,000
in October.
That kind of growth has made Helsinki the industry hub.
"If
you want to make games for tablets and smartphones, this is the centre
of the universe," said Supercell founder Ilkka Paananen.
It attracts big names like Disney ,
which last year bought local startup Rocket Pack, to get access to
technology that enables developers to make games for different
platforms, and French games publisher Ubisoft , which bought RedLynx gaming studio, known for its Trials driving games.
In
September EA opened its own studio focusing on a mobile version of its
hit life-simulation strategy game The Sims, once the bestselling PC game
in history.
"We feel that the talent base in Finland will be a
strong complement to our existing mobile expertise based around the
world," said Lucy Bradshaw, General Manager of EA's Maxis label.
The sector is expected to employ 1,500 people in Finland this year, up from 1,064 in 2010.
Nokia,
which paid just 150 euros to the Finnish tax man last year, compared
with 1.3 billion euros for 2007, in its prime supported an eco-system of
suppliers, which are now suffering.
Electronics company Elcoteq
filed for bankruptcy last year as Nokia turned to cheaper Asian
suppliers. Of key suppliers, casing maker Perlos was bought by Taiwan's
Lite-On Technology Corp <2301.TW>, while Digia and Elektrobit have cut jobs after making losses.
The gaming firms can't turn back that clock, but they might soon eclipse Nokia in valuation terms.
Alekstra's
Kuittinen has valued Rovio at $6-9 billion, based on expectations of
fivefold sales growth this year to $500 million and a 12-18 times
multiple. That's only just short of Nokia's current market
capitalisation of nearly $10 billion.
© Thomson Reuters 2012