Why a Finnish Gaming Company Is Worth $3 Billion

by **Cals** Thu 17 Oct 2013, 15:55

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Supercell's top-grossing games "Hay Day"and "Clash of Clans." Courtesy Supercell
Why a Finnish Gaming Company Is Worth $3 Billion
By Leonid Bershidsky Oct 17, 2013 12:09 AM GMT+0800

U.S. gamers may not give much thought to it, but of the five top-grossing games in the U.S. App Store today, four have been developed by two companies, the London-based King and the Helsinki-based Supercell. The latter has just attracted the biggest investment ever for a mobile application developer: $1.5 billion for a 51 percent stake from Japanese telecom giant SoftBank.

Supercell, now the highest valued mobile app company in the world, started out in May 2010 in a dingy Helsinki office filled with discarded furniture. In 2011, its revenue reached a mere $203,000. The following year, it made a profit of $40 million on sales of $105 million. In the first quarter of 2013, sales jumped to $178 million. All the money comes from two strategy games: Clash of Clans, featuring warfare, and Hay Day, focusing on farming.

There is only one app company that has boasted a higher valuation than Supercell -- Angry Birds creator Rovio, also based in Finland. Analysts have bandied about numbers as high as $9 billion but have since cut their highly speculative estimates. Rovio's sales this year will almost certainly be lower than Supercell's.

What is it about Finland, a snowy country of 5.4 million, that makes the "app economy" prosper so? Quite possibly a unique combination of mobile-game addiction, excellent education and the happy circumstance of being home to one of the early global leaders in mobile technology.

The prevalence of digital gaming in Finland is about the same as in the U.S.: Two thirds of the population plays a video game at least once a month. But Finns play a lot more of those games on their mobile devices. The country has the highest mobile penetration rate in the world, with an average of about 1.8 devices per person. It was only natural that they wanted to develop the games, too, especially since in the 2000s, mobile phone maker Nokia, whose revenue once equaled 20 percent of Finland's economic output, was willing to pay outside developers to produce games for its Ngage and Symbian platforms.

Finland had the talent to do it well. According to the United Nations Conference on Trade and Development, Finland has the world's highest proportion of people employed in information technology and communications -- more than 8 percent. That is a consequence of having one of the world's most advanced education systems. In a recent study of skill levels across the developed world, the Organization for Economic Cooperation and Development put Finnish adults in second place after the Japanese in literacy and numeracy and in second place after the Swedes in problem-solving in technology-rich environments.

The factors came together to produce a veritable boom of app start-ups. The Finnish mobile-game industry now consists of more than 150 companies, 40 percent of them established in the last two years. These are mostly small firms. The entire industry employed 1,800 people in 2012, according to the trade group NeoGames. Yet some of them may well repeat the success of Rovio and Supercell. Companies such as Fingersoft and Boomlagoon have already produced hits. Grand Cru, set up in 2011, recently raised $11 million from a group of investors including Qualcomm and Nokia as it prepared to launch the game Supernauts.

Developers from Finland, and from Europe in general, are benefiting from marketing pipelines built by U.S. companies such as Apple and Google. According to a recent study, the "app economy" in the European Union accounts for 529,000 jobs, which would not have been created if not for the U.S. application ecosystems. Small companies such as Supercell -- or King, which successfully developed Facebook games before branching out into mobile gaming -- would have been hard put to market their products without the open distribution platforms set up across the Atlantic.

Europeans are often proving better than Americans at filling the U.S.-built pipelines with content, at least where game apps are concerned. Apart from their apparent advantage in skills, the Finns have one other trump card: Their start-ups have preserved the spirit of the open-source community, which helped a Finn, Linus Torvalds, develop the Linux operating system. Supercell is a company with no hierarchy, in which small "cells" work on game prototypes that are later accepted or rejected by the entire team. In the SoftBank deal, all its owners sold exactly 51 percent of their holdings, sticking to the company's culture of "all being in this together."

In the app economy, players like these are hard to beat, as long as they keep coming up with marketable ideas, as the Finns have been doing.

(Leonid Bershidsky, an editor and novelist, is a Bloomberg View contributor. Follow him on Twitter.)