2019 Case Study C2 - Pokemon Go PDF

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Chair of Banking and Behavioral Finance Prof. Dr. Markus Nöth SVI-Endowed Chair for Dialog Marketing Prof. Dr. Kay Peters

Entrepreneurship & Digital Transformation Winter Term 2019/20

Case Study C2: Pokémon Go

General information: 

Please solve the case study independently at home to be prepared for your final exam. You do not submit your results. Notice that no solutions will be published.

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Questions regarding this case study can be asked via e-mail ([email protected]) until November 24th, 2019. These questions will be discussed during the consultation hours on November 26th, 2019. Further information can be found at www.bbf.uni-hamburg.de/en/teaching/courses/bsc-edt.html. Please note that no further questions will be answered thereafter.



Exam: – The final exam will be based on EDT course content (40%), on the case study type C (40%) and on course content covered in ‘TPWA’ (20%). – The exam part ‘case study type C’ will contain two (2) assignments (one for each case study, C1 and C2). – You will only answer one of the two (2) assignments (either C1 or C2). The choice is yours.

The redistribution of the case study documents is strictly prohibited due to various intellectual property restrictions!

Good luck! 1

Chair of Banking and Behavioral Finance Prof. Dr. Markus Nöth SVI-Endowed Chair for Dialog Marketing Prof. Dr. Kay Peters

Augmented Reality Augmented Reality (AR) can be defined as the enrichment of physical reality with digital information in real-time.1 AR enhances user’s physical environment with virtual elements that are related to the real situation. As a first application of AR, Ivan Sutherland and Bob Sproull from the Harvard University built a “Head Mounted Display” in 1968. However, their display was so heavy that it had to be suspended from the ceiling (Figure 1).2 Figure 1: Head Mounted Display

Source: Excelsior State University of Ohio (2017).

Technological advancements and an ongoing increase in computational capabilities allow AR applications to become increasingly available to customers. As an emerging technology, AR receives massive attention from companies in recent years.3 Providers of AR applications can overlay real environments with virtual information while customers are directing their mobile devices towards TVs, streets, buildings, or any other object.4 With the introduction of the iPhone 8 and 8Plus in September 2017, Apple progressively presents far-reaching options for companies and customers to make use of AR.5 For example, IKEA introduced a new AR version of their app: Customers can use their smartphones or tablets to see IKEA’s furniture in their rooms (Figure 2).6 Another application of AR is the “AR mirror” of the multinational cosmetic company L’Oréal that allows customers to virtually experience L’Oréal’s facial makeup products.7 Today, AR is frequently used in various fields such as medicine, entertainment, R&D, architecture, education, and especially in games.

1 2 3 4 5 6 7

cf. Yim, Chu, and Sauer (2017). cf. History of Information (2017). cf. Yim, Chu, and Sauer (2017). cf. ITWissen (2016). cf. Apple (2017). cf. CNNtech (2017). cf. Yim, Chu, and Sauer (2017).

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Chair of Banking and Behavioral Finance Prof. Dr. Markus Nöth SVI-Endowed Chair for Dialog Marketing Prof. Dr. Kay Peters

Figure 2: Two AR examples - IKEA’s (left) and L’Oréal (right) Augmented Reality App

Source: CNNtech (2017), RealityTechnologies.com (2018).

Augmented Reality based Games In 2012, Niantic Inc., one of the pioneers of AR-based smartphone games, released “Ingress”, an AR location-based game with a sophisticated background story in science fiction. Players conquer each other’s territory in two teams: The “Enlightened” try to reach the next step of human evolution by collecting “Exotic Matter” (XM), a substance that provides humankind with exceptional skills. The second team, the “Resistance”, aims to preserve the status-quo. Both teams can gain power by conquering “Portals” that are located at places of real-world significance (e.g., at famous sights).8 When players are close to a Portal, they can conquer it, set up defenses, or link the Portal to the rest of their team’s territory.9 After only 3 years, Ingress recorded over 14 million downloads across 200 countries.10 The success of the game led to several advertising partnerships. For example, Niantic entered an advertising agreement with the telecommunication provider Vodafone in 2013: All Vodafone shops acted as Portals and Vodafone offered special contracts with higher data volumes and passcodes for the game. 11 Although the contract with Vodafone expired in 2015, Ingress is still cooperating with other companies such as AXA, Mitsubishi, and Softbank.12 However, some critical issues with Ingress have been discussed widely in public. For example, several Portals were located at Holocaust memorials or former concentration camps. This led to a lot of criticism and protest against the game whereupon Niantic deleted most of the criticized Portals.13 Pokémon Go Initially, Pokémon was introduced in 1996 by Nintendo as a series of video games for the Game Boy. In these games, players strive to collect and train virtual creatures (“Pokémon”), trade them and battle against friends.14 Over the past two decades, Pokémon has evolved into a social and media phenomenon. In 2016, Niantic released the AR-based game “Pokémon Go” that became even more successful than Ingress and caused a huge hype among players all around the world. Just like 8 9 10 11 12 13 14

cf. Ingress (2017), Zeit (2015). cf. The Guardian (2014). cf. Niantic. Inc (2016). cf. Spiegel.de (2013). cf. Borgmeier (2016). cf. Prüfer and Mondial (2015), Zeit (2015). cf. Pokémon (2016a), Boyes (2007).

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Chair of Banking and Behavioral Finance Prof. Dr. Markus Nöth SVI-Endowed Chair for Dialog Marketing Prof. Dr. Kay Peters

Ingress, Pokémon Go is based on the GPS location of the user’s smartphone. Depending on the user’s location, players can locate, collect, and battle peers with virtual creatures (Pokémon). If a character is nearby, the App alerts its users and players can use the camera of their smartphone to catch the Pokémon. In order to catch as many Pokémon as possible, players must throw “Pokéballs” that can be collected at “Pokéstops” spread out across the world (Figure 3).15 Figure 3: Pokémon Go

Source: Pokémon Go (2017).

Only a few days after launch, Pokémon Go became an instant success. The famous Guinness Book of World Records awards the game with five world records: Most revenue grossed by a mobile game in its first month, most downloaded mobile game in its first month, most international charts topped simultaneously for a mobile game in its first month (downloads), most international charts topped simultaneously for a mobile game in its first month (revenue), and fastest time to gross $100 million by a mobile game.16 Right after introduction, users of Pokémon Go were even more engaged in playing the game than being active on Twitter or Facebook.17 The stellar success of Pokémon Go can be attributed to several reasons: The challenge to collect Pokémon in real-life surroundings and the innovative technology in combination with the well-known background-story lured many players to actively engage in the game.18 As a consequence, new business ideas around Pokémon Go emerged: Travel-agencies offer guided tours to collect Pokémon19, restaurants near Pokéstops offer discounts that are only eligible for gamers20, and insurance companies offer special policies for Pokémon Go players21. However, only after a few months, the number of daily active users started to decline. Since 2016, Niantic Inc. lost around 15 million active daily users and revenues fell from $16 million

15 16 17 18 19 20 21

cf. Pokémon (2016b). cf. Guinness World Records (2016). cf. Kuhn (2016), Tech Crunch (2016). cf. Kuhn (2016). cf. TimeOut (2016). cf. Forbes (2016). cf. Welt (2016).

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Chair of Banking and Behavioral Finance Prof. Dr. Markus Nöth SVI-Endowed Chair for Dialog Marketing Prof. Dr. Kay Peters

to only $2 million per day.22 Obviously, Niantic Inc. faces significant challenges in keeping players engaged and overestimated the long-term success of Pokémon Go. Diffusion Models Companies have a great interest in accurately predicting the diffusion of innovations. Depending on the success in the market, companies need to answer several questions: How can companies plan production, service, and distribution capacities? When should companies advertise? Which key customers should be targeted in order to adopt the new product? What drives or hinders the diffusion of innovations? Over the last century, academic research put a great effort in answering these questions by forecasting product introduction patterns. The number of noncumulative and cumulative adoptions of new products typically follow the following paths: Figure 4: Typical (Non-)Cumulative Adoptions according to the Bass Model N

Source: based on Mahajan, Muller, and Bass (1990).

As Figure 4 illustrates, the number of noncumulative adoptions per time period typically follows a bell-shape, whereas the number of cumulative adopters can be characterized by an s-shaped curve.23 One of the most frequently used models to predict such diffusion patterns is the Bass model. Originally developed by Frank M. Bass in 1969, the Bass model describes the diffusion of new products in a social system. The basic assumption of the model is that the timing of an initial purchase is related to the number of previous buyers that already adopted the product.24 Mathematically, the Bass model can be represented by a simple formula: Formula 1: Bass Diffusion model 25 𝑋𝑡−1 𝑑𝑋𝑡 = (𝛼 + 𝛽 ) (𝑁𝑡 − 𝑋𝑡−1) 𝑑𝑡 𝑁𝑡

22 23 24 25

cf. Kawa and Katz (2016). cf. Mahajan, Muller, and Bass (1990). cf. Bass (1969). based on Jain, Mahajan, and Muller (1991).

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Chair of Banking and Behavioral Finance Prof. Dr. Markus Nöth SVI-Endowed Chair for Dialog Marketing Prof. Dr. Kay Peters

where:

Xt Nt 

Total number of people who have adopted the innovation by time t Total market size Coefficient of innovation



Coefficient of imitation.

In this model,  and  capture the impact of two different groups of adopters (innovators and imitators) that determine the actual path of the diffusion pattern.26 The initial success of new products is mainly determined by innovators, whereas imitators play a more important role for the success of innovations in later stages. Figure 5: Differential Impact of Innovators and Imitators over Time

Source: Noratikah and Ismail (2013).

Does the stellar initial success followed by a steady decline in the number of active users of Pokémon Go clearly contradict these established diffusion patterns? Figure 6: Framework of Factors Leading to Innovation Adoption and Take-Off

Source: Rogers, Diffusion of Innovations (2003).

26

cf. Bass (1969).

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Chair of Banking and Behavioral Finance Prof. Dr. Markus Nöth SVI-Endowed Chair for Dialog Marketing Prof. Dr. Kay Peters

(Exemplary) Assignments 20 points

1. Augmented Reality a) Explain how Augmented Reality can be used in the Digital Marketing field.

b) Please illustrate three (3) additional examples of AR-based applications from other fields (e.g., medicine, entertainment, R&D, architecture, education) and discuss why AR can contribute to the advancement in these fields.

20 points

2. Bass Diffusion Model

a) Please describe the main difference between noncumulative and cumulative adoptions (illustrated in Figure 4). How can companies use information on noncumulative adoptions (left-hand side of the figure) to calculate cumulative adoptions over time (right-hand side of the figure)? b) Taking a closer look at the mathematical representation of the Bass diffusion model (Formula 1), please discuss the meaning of the first (

𝑋𝑡−1 𝑁𝑡

) and second term (𝑁𝑡 −

𝑋𝑡−1 ). In addition, please explain why it is sensible to multiply the first term and the coefficient of imitation [].

3. Diffusion of Pokémon Go

20 points

a) Please discuss potential reasons why Niantic Inc. was not able to maintain high levels of active gamers after the stellar launch of Pokémon Go. b) What are options for Niantic Inc. to motivate former players to reengage in playing the game (e.g. regarding relative advantages)? Please propose two (2) potential options and discuss how Niantic Inc. can raise the diffusion of Pokémon Go.

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Chair of Banking and Behavioral Finance Prof. Dr. Markus Nöth SVI-Endowed Chair for Dialog Marketing Prof. Dr. Kay Peters

References: Apple (2017), A11 Bionic, https://www.apple.com/de/iphone-8/?&mnid=s3Kln3w4Tdc_mtid_20925qby39952_pcrid_220908440826_&muid=4758a53d-d9dd-4dc0-bc94b2eac2c0aec7&mtid=20925qby39952&aosid=p238&cid=wwa-de-kwgo-iphone-%7Bcid_ seasonal%7D-slid---iphone%208-e-productid-#a11, Internet-Source, accessed 10/09/2017. Bass, Frank M. (1969), A new product growth for model consumer durables, Management Science, 15(5), 215-227. Borgmeier, Elmar (2016), Augmented Reality Marketing mit Pokemon Go und Ingress, http://www.syngenio.com/de/blog/posts/ngf/Augmented-Reality-Marketing-mit-PokemonGo-und-Ingress-Ernsthaft.php, Internet-Source, accessed 09/28/16. Boyes, Emma (2007), UK paper names top games franchises, http://www.gamespot.com/news/6164012.html, Internet-Source, accessed: 09/01/16. CNNtech (2017), Apple teases the Future of Augmented Reality Apps, http://money.cnn.com/2017/08/29/technology/apple-augmented-reality/index.html, Internet-Source, accessed 10/09/2017. Excelsior State University of Ohio (2017), A Critical History of Computer Graphics and Animation, https://excelsior.asc.ohio-state.edu/~carlson/history/lesson17.html, Internet-Source, accessed 10/09/2017. Forbes (2016), 5 Brilliant Ways Restaurants are using Pokémon Go to level up Sales, https://www.forbes.com/sites/yehongzhu/2016/07/16/5-brilliant-ways-restaurants-areusing-pokemon-go-to-level-up-sales/#3acee0337646, Internet-Source, accessed 10/09/2017. Guinness World Records (2016), Pokémon Go Catches Five new World Records, http://www.guinnessworldrecords.com/news/2016/8/pokemon-go-catches-five-worldrecords-439327, Internet-Source, accessed 10/09/2017. History of Information (2017), Ivan Sutherland and Bob Sproull Create the first Virtual Reality Head Mounted Display System, http://www.historyofinformation.com/ expanded.php?id=1087, Internet-Source, accessed: 27/09/2017. Ingress (2017), Wahl der Fraktion, https://support.ingress.com/hc/de/articles/207441277Wahl-der-Fraktion, Internet-Source, accessed 10/09/2017. ITWissen (2016), AR, http://www.itwissen.info/definition/lexikon/augmented-reality-ARErweiterte-Realitaet.html, Internet-Source, accessed: 09/01/16. Jain, Dipak; Vijay Mahajan, and Eitan Muller (1991), Innovation Diffusion in the Presence of Supply Restrictions, Marketing Science, 10(1), 83-90. Kawa, Luke; Katz Lily (2016), These Charts Show That Pokémon Go is already in Decline, http://www.bloomberg.com/news/articles/2016-08-22/these-charts-show-that-pokemongo-is-already-in-decline, Internet-Source, accessed 09/07/16. Kuhn, Thomas (2016), Pokémon Go: Fünf Lehren aus dem Erfolg des Spiels, http://www. wiwo.de/technologie/digitale-welt/pokemon-go-fuenf-lehren-aus-dem-erfolg-desspiels/13904754-all.html, Internet-Source, accessed 09/07/16.

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Chair of Banking and Behavioral Finance Prof. Dr. Markus Nöth SVI-Endowed Chair for Dialog Marketing Prof. Dr. Kay Peters

Mahajan, Vijay; Muller, Eitan; Bass, Frank M. (1990), New Product Diffusion Models in Marketing: A Review and Directions for Research, Journal of Marketing, 54(1), 1-26. Niantic Inc. (2016), Ingress Official Report https://plus.google.com/+Ingress/posts /Ukz8S5dx9sP, Internet-Source, accessed 09/21/16. Noratikah, Abu; Ismail, Zuhaimy (2013), An improved parameter estimation of bass model for forecasting new car demand, https://www.researchgate.net/publication/258849854, Internet-Source, accessed 09/21/16. Pokémon (2016a), Company History, http://www.pokemon.co.jp/corporate/en/history/, Internet-Source, accessed: 09/01/16. Pokémon (2016b), Pokémon Go, http://www.pokemon.com/uk/pokemon-video-games /pokemon-go/, Internet-Source, accessed: 09/01/16. Prüfer, Tillmann; Mondial, Sebastian (2015), Wenn Google im Konzentrationslager spielt, http://www.zeit.de/zeit-magazin/leben/2015-07/ingress-smartphone-spiel-google-nianticlabs-kz-gedenkstaette, Internet-Source, accessed 09/07/16. RealityTechnologies.com (2018), L’Oréal Partners With Facebook To Create AR Makeup Experiences, https://www.realitytechnologies.com/loreal-partners-with-facebook-to-createar-makeup-experiences/, accessed 11/08/2019. Rogers, Everett M., Diffusion of Innovations, 5th edition, Free Press, New York, 2003. Spiegel.de (2013), Vodafone macht Werbung in Googles “Ingress”, http://www.spiegel.de/netzwelt/games/vodafone-macht-werbung-in-googles-ingress-a915363.html, Internet-Source, accessed 10/09/2017. Tech Crunch (2016), Pokémon Go tops Twitter’s daily users, sees more engagement than Facebook, https://techcrunch.com/2016/07/13/pokemon-go-tops-twitters-daily-users-seesmore-engagement-than-facebook/, Internet-Source, accessed 20/09/2017. The Guardian (2014), Ingress: The game that reveals Google’s secret war to control London https://www.theguardian.com/technology/2014/jun/04/ingress-the-game-that-revealsgoogles-secret-war-to-control-london, Internet-Source, accessed 09/07/16. TimeOut (2016), You can now go on a ‘Pokémon Go’ guided tour of London, https://www.timeout.com/london/blog/you-can-now-go-on-a-pokemon-go-guided-tour-oflondon-080216, Internet-Source, Internet-Source, accessed: 10/09/2017. Welt (2016): Lohnt für Trainer die neue Pokémon-Go-Versicherung?, https://www.welt.de/finanzen/verbraucher/article157664787/Lohnt-fuer-Trainer-die-neuePokemon-Go-Versicherung.html, Internet-Source, accessed 10/09/2017. Yim, Mark Yi-Cheon; Shu-Chuan Chu, and Paul L. Sauer (2017), Is Augmented Reality Technology an Effective Tool for E-Commerce? An Interactivity and Vividness Perspective, Journal of Interactive Marketing (Vol. 39), 89-103. Zeit (2015), When Google plays Games in a Concentration Camp, http://www.zeit.de/zeitmagazin/leben/2015-07/ingress-smartphone-game-google-niantic-labs-nazis-concentrationcamp, Internet-Source, accessed 10/09/2017.

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