4 November 2015

Candy Crush, Minecraft and why Sweden’s gaming boom doesn’t deliver jobs


In 2003 a number of IT-entrepreneurs founded the game company King in Sweden. Nine years later the firm launched its first mobile game, Bubble Witch Saga. Another game, with a quite similar name, was also launched by King in 2012: Candy Crush Saga. The latter release, a candy-themed puzzle, soon captivated a global public. The game is essentially free to play. However, after players lose their lives they can either wait for new lives to be replenished, or pay a small sum to buy new lives. These small transactions, made by millions of users on a regular basis, stack up to create steady revenues. Candy Crush Saga and a number of similar games have made King massively profitable. This is why Activision Blizzard announced yesterday that they will buy King for £3.8 billion.

We can see all this as an example of high-impact entrepreneurship in Europe. Equally interesting is the fate of one of Kings former employees, Markus “Notch” Persson. Notch began developing a game as an independent project while working for King. The game which he developed is called Minecraft. As many readers surely already know, Minecraft was largely developed by Notch himself and has very simple graphics. Still, it has proved quite popular. Originally released in an early version in 2009, and then completed in late 2011, it has since reached a global audience. In mid-2014, Microsoft acquired Mojang, the firm Notch had formed in Sweden to commercialize Minecraft, for £1.2 billion.

It is great to see how individual thrift, resulting in popular games, creates great sums of value. But there is something quite concerning about the modern economy where the creates of Candy Crush Saga and Minecraft are the prime examples of entrepreneurship: these firms generate much value, but few jobs.

Consider as a comparison how a large international firm (Ford) bought a major Swedish firm (Volvo Cars) in 1999 for the equivalent of £4 billion. At the time, Volvo Cars was a venture which employed some 27,000 people around the world. King, which was recently sold at a price very similar to the 1999 level for which Volvo Cars was acquired, employs merely 1,400 people. Mojang, which sold for a quarter of the price, had as few as 28 employees at the end of 2013.

Of course, as export-oriented businesses, King, Mojang and Volvo Cars have one thing in common: they indirectly have a broader effect on job creation. Besides direct employment, these firms also create jobs among various sub-contractors. Additionally, the wealth they generate contributes to greater local purchasing power, making it possible to consume more local services. All three firms create much value for society. Still, it is worthwhile to compare the three Swedish firms (which have all moved their ownership outside the country now) based on the number of people they directly employed at the time of purchase. Clearly, King and Mojang involved far fewer people in creating great value compared to Volvo Cars.

This is a sign of the benefits created by the modern IT-sector. But it is also a sign of worry. Digitalization means that relatively few talented individuals can create firms with £ billion value. In the new world we are progressively moving to, high numbers of jobs are no longer necessarily (at least directly) created by successful ventures.

The conclusion, of course, is not that we should not celebrate King, Mojang and the like. Policies should encourage such entrepreneurial success stories. However, this must be complemented with encouraging entrepreneurship in other fields – such as staff-intensive manufacturing, personal services and the like – that actually do create massive employment alongside massive wealth. During the 20th century the policy challenge was simpler: jobs arose with wealth. Today, it is alas more complicated. The success of King and Mojang tell us much about the challenges of the future.

Dr. Nima Sanandaji is a research fellow at CPS.