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Lessons from LEGO’s Digital Economy

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Danish toy company Lego continues to ride the crest of the wave, despite stiff competition by mobile video games.

The Danish company is the second largest in its industry in terms of sales, surpassed only by Mattel, the manufacturer of Barbie, which in 2013 generated lower operating profits than its rival. These successful results were largely due to Lego’s digital economy, which has prevented the company from being pushed aside by new technologies. To examine its business strategy, the first thing to be  considered is that its audience consists of children.

While it’s true that construction games are also a challenge for adults, who can easily take part in the process, play with their children, and take an interest in their kids having fun with this type of toys (before other types of entertainment), the purchase decision is influenced by the demands of the children, and the company targets its efforts at them, as well as the nuclear family as a whole.

Lego’s video games

Lego launched its first computer video game, based on its physical games, in 1997. At that time, the PC had proven itself to be a powerful entertainment platform and was beginning to enter the home. Consoles were still an expensive option by comparison. Since then, the company hasn’t stopped releasing new games and has progressively added supports for its software development as new ones have started to become more popular.

lego’s digital economy

From Windows, it made the jump to Mac OS, and to video game consoles at the end of the 90s and early 2000s, including portable devices like the GameBoy Advanced and Nintendo DS. Lego’s objective has always been to be wherever kids find entertainment, instead of trying to use advertising spending, for example, to try to keep kids from changing their habits.

If kids are playing on the computer, then that’s where Lego breaks in, to position itself among the available play options. Of course, this isn’t the company’s primary business, but the visibility helps the physical games to sell better. Today, smartphones and tablets are the supports that have the biggest influence on children. For years, Lego has been releasing games for these devices, mostly for iOS, abut there are also a few available for Android.

All the mobile video games that are based on Lego’s physical games are free. There are other games that are centred around characters or worlds whose copyright does not belong to the company, like the Batman, Harry Potter or Lord of the Rings sagas. In these cases, the downloads are paid and there is only an iOS version. But in all cases, the main function of the video games is to spread the brand.

Perhaps the biggest challenge in Lego’s digital economy in this area is the video game Minecraft, which is based on building virtual structures with blocks, and will soon release its own movie, perhaps inspired by the ‘The LEGO Movie’ project. The movie was a success for Lego not only in terms of publicity, but also at the box office and among critics. It’s not a shoddy product; quite the opposite, it’s an adventure comedy with refined aesthetics, humour and charisma. It was so well received that the sequel is already being prepared for 2017. In this case, the objective was to generate affinity with the brand, especially with families, which was the film’s target audience.

lego’s digital economy

Unafraid of 3D printing

The popularization of 3D printers is making some companies afraid that their products will be able to be printed at home, giving rise to a kind of piracy that affects certain businesses, just as the creation of P2P networks did for the music and film industries. In response to these concerns, toy manufacturer Hasbro, which makes Transformers, signed an agreement with 3D Systems to allow some of its toys to be produced in the home. And Lego is thinking of taking a step in that same direction.

Lego’s CFO, John Goodwin, confessed to Financial Times just this year that 3D printing represents an opportunity for the company. He said that this technology opens up new paths and added that they are looking for a way to take advantage of it so that consumers can benefit. For example, they recently filed for a patent that allows the customization of the 3D-printed pieces.

Stimulating crowdsourcing among fans

Lego has an online platform where it invites its consumers and fans to upload their own ideas for physical products. If one of the proposals gets 10,000 votes, the manufacturer will consider whether or not it should be launched commercially. This initiative allows the company to be in constant contact with its most loyal customers and to enrich itself with their suggestions.

It also helps to create a circle of fans, which is decisive for a brand, both because of the fans’ loyalty and the publicity that they generate, which is of the best kind.

The manufacturer also has exclusive web content, such as Build with Chrome, which is an application that runs in the browser and allows the user to move and connect Lego pieces, simulating how it would be done in reality. The software offers a 3D environment adapted to the building of structures.

Innovation in toys

In addition to all these actions, Lego has also devoted its energy to innovation in toy manufacture. Robotics is one area that the company has been focusing on for years and its new kits have been expanded to include the latest technology, such as sensors. The company recently announced a project to connect its physical products to the virtual world of video games. Consumers will be able to build a structure and then take a picture of it with a smartphone camera to unlock a game based on the construction. This trial will be limited to the United States for now.

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Entrepreneurship

Science is the Next Big Thing in Startups

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From pharmaceuticals to petrochemical processes: Newcomer companies and investors and investors alike are setting their sights on science. How the start-up scene moves beyond the mobile apps bubble…

For the last two years Silicon Valley analysts and venture capitalists are anticipating the burst of yet another bubble. This time, under the risk are the mobile start-ups which constitute the biggest share of the market. Out of 50 companies listed in Forbes’ “the hottest startup of 2015” (by valuation) only six companies are based on innovations in other-than-mobile area, one company provide cleaning services, while the rest are diverse mobile apps.

Meanwhile many products listed can be barely called innovative. A significant proportion of the listed start-ups are texting apps, apps for people search (starting from business partners to life partners) or delivery services. While those services can definitely facilitate one’s life, in general they differ from their predecessors by only a narrower audience.

Many venture investors expect stagnation if not decrease on the markets, which is why they start to transfer their capitals from start-ups offering customers software to start-ups offering specific solutions for existing businesses. Such companies are expected to demonstrate more stability in the near future.

The Market for Mobile Apps Might be Saturated

Back in 2012 a talented entrepreneur could walk into a venture capitalist’s office, say his startup was a mobile-first solution for pretty much any problem (payments! photos! blogging!), and walk out with a good-size seed investment. “That pitch was enough to get going,” says Roelof Botha, a partner with VC firm Sequoia Capital. “It’s not enough anymore.”

“I think investors are bored with investing in another messaging app. And our idea is crazy enough that it might just work. ”, has declared in 2014 Nadir Bagaveyev a founder of a start-up using 3-D printers to make rocket engines. By 2016 the company attracted investors funding sufficient to launch its first rocket.

Pharma and Biotech Start-Ups in High Demand

Currently the most successful science-based start-ups are the companies offering innovative solutions in the field of pharmaceuticals and biotechnologies. It’s noteworthy that despite the previous revelations and even judicial proceedings the list of the most expensive start-ups still includes Theranos, blood analyzing laboratory, whose story did not descend from the main pages of the global leading media from 2014.

It first amazed the audience with its fantastic take-off and then with its collapse. One of the crucial parts of the success story of this start-up is its fundamental difference from the majority of the services produced in the Silicon Valley. Unlike the others, it was not a story of yet another beautiful gadget for communication or mobile app, but the story of the scientific idea which intended to conquer the world.

The great success stories in other scientific areas are now happening on occasional basis. However certain facts allow to predict that the situation is to change soon. One of such factors is growing interest among the big corporations to attract innovative solutions from outside to develop their businesses.

Given the accelerating pace of scientific and technological development of the world, the activities of internal R & D departments are often turn to be insufficient to ensure stable development of innovative business. Outsourcing of the R&D may become the efficient mechanism to stimulate the growth of the company. And high-tech start-up can certainly benefit from it.

Start-Up Technology for the Petro-Business

In December, 2016 world leading companies in the field of gas processing, petrochemicals and chemicals announced their intentions to enforce their R&D capacities by attracting start-ups. 3M, AkzoNobel, BASF, The Dow Chemical Company, DuPont, Henkel, Honeywell UOP, LG Chem, Linde, Sibur, Solvay and Technip together created a global stage for startups and investors.

“The petrochemicals industry can and must rely on the potential of open innovations to facilitate further inventions and implementation of new solutions in all major application areas, from construction and medicine to packaging and 3D printing. Thanks to the participation of international partners, IQ-CHem is now the largest global project within the industry which attracts innovative solutions and provides for their implementation into practice,” said Vasily Nomokonov, Executive Director of Sibur, a company which coordinates the project.

Positive Experience in Chemicals and Beyond

Some of the listed companies have already gained positive experience in working with start-ups which may have driven them to elaborate a systemic approach to attract innovative companies.

At the beginning of 2016, SIBUR and RRT Global start-up reached an agreement to build a pilot plant for isomerization based on RRT Global technologies in Sibur’s Industrial Park SIBUR “Tolyattisintez”. According to Oleg Giyazov, co-founder and CEO of RRT Global cooperation with a large corporation bring significant advantages to his company.

“By cooperation with Sibur we get a huge industrial experience that enables us to develop technologies and solutions better fitted to the market demand. This advantage is often not given due attention, but we, on the contrary, see significant opportunities in it. Currently, RRT Global cooperates with several companies around the world” he said.

Another petrochemical leader BASF enjoys successful cooperation with Genomatica start-up. In 2013 BASF started the production of 1,4-butanediol based on renewable feedstock (renewable BDO) using Genomatica’s patented process and in 2015 the license was expanded to the Asian market.

Unlike traditional forms of cooperation between a start-up and a venture capitalist, a cooperation between start-up and a relevant corporation allows to minimize the risks associated with investing in a potentially promising idea where the key word is “potential” (but not “guaranteed”). While delivering services in the same field as the start-up the corporation gets an opportunity to more effectively and accurately estimate the market value of an innovative idea and to support its implementation.

Structural Changes Ahead: Outlines of A Coming Market

In the short term prospective, possibly in 2017, the global start-up market will face structural changes – both in terms of start-ups professional orientation and of funding mechanism. In the future science-based start-ups will dominate the market and will change our lives at a deeper level than the way of sending a text message or searching the restaurant for an evening meal. To be more concise this is already happening in the pharmaceutical industry, and the other scientific areas are to follow.

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This article was written by Dominik Stephan of Process Worldwide. See more.

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Entrepreneurship

Do Aesthetics Matter?

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Asa product designer, sometimes I question how important beauty is when it comes to software.

Look at this list of some of the most popular websites on the Internet:

  • Craigslist
  • Reddit
  • Hacker News
  • Wikipedia
  • Drudge Report

These sites have little to no aesthetic appeal, but collectively they are visited by tens of millions people every day.

So I ask myself…

Are we just showing off our design skills to other designers? Does the average consumer notice? Do aesthetics have a direct impact on revenue?

These are questions worth answering.

“No, Aesthetics Don’t Matter!”

Some would point to the above examples (and more) to make the case that beauty is irrelevant. They’d say visual design is mostly un-measurable mushy marketing.

After all, software is a tool. We use it to accomplish tasks like communicating, writing, checking off a to-do, or socializing with a friend.

Giving the user the ability to perform a unique task is far more important than making it look good.

We jump on Wikipedia because it’s easy to get free encyclopedic information. We pull up Craigslist because we want to buy or sell something locally without having to pay for it. We visit Reddit for its distinctive take.

It doesn’t matter that these sites are ugly because they’re the best tools for their specific job.

In fact, part of the popularity of these sites has become their ugliness. It’s as if the user base is saying, “We just laugh at how ugly Reddit/Drudge Report/Hacker News is because we get quite a lot of utility from it, and that’s what matters most.”

You can’t build a valueless product, throw some eye-appeal on it, and expect it to last.

The ever-stunning rain poncho. Source

Take a rain poncho. This is an incredibly ugly piece of clothing. But millions of them are sold every year because they’re really good at their job — keeping you dry.

“Yes, Aesthetics Do Matter!”

Others say beauty is critically important.

stripe.com

For companies trying to build or sustain a brand, visual design matters because it’s part of the package. People recognize Stripe, for example, in part because of their stand-out aesthetics. Paul Rand said:

“Design is the silent ambassador of your brand.”

Something beautiful is also pleasing to use. And pleased customers keep coming back. It’s a piece (however small) of user experience.

When something is beautiful, you can feel that there was some thought put into its creation. That makes it feel professional and gives it an air of having been built on purpose — a feeling that whoever created this thought about you, the user, as they made it. When the opposite is true, it feels like someone just hacked it together.

Those sites mentioned above — Craigslist, Reddit, etc. — those are the exception. They’re popular in spite of being ugly because they were first to market and have an entrenched user base. For those of us building something new, there’s no reason to purposefully forgo aesthetics.

Think back a decade ago to when the very first iPhone came out. The usability and utility were there in abundance, to be sure. But people were also astounded by how beautiful it was. No other phone looked like that. Many people were (and still are) willing to pay an astronomical price for it, in large part because of that beauty.

My Takeaways

Which side are you on?

I don’t think it’s black and white. It’s a matter of priorities.

“Form follows function.” Function certainly comes first, but that doesn’t mean form is nonexistent.

To me, the priority goes like this:

  1. Utility. Does your software help the consumer perform a unique task in a distinctive way? If it doesn’t, the heart of your software is missing and it will eventually die. Who wants a tool that doesn’t help you accomplish something?
  2. Usability. Do you get out of their way so they can execute that task easily and intuitively? Is it reliable, speedy, organized?
  3. Aesthetics. Is it attractive in a way that contributes to utility and usability?

By all means, add beauty. Beauty is wonderful. But utility and usability come first because that’s why people are there in the first place. Build around the purpose, then add aesthetics on top of that.

Your user will thank you for it.

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About the Author

This article was produced by Jordan Bowman of HackerNoon. see more.

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