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Lego’s $50 Million Open Innovation Failure

November 13, 2011 15inno 10 Comments

The headline screams like a disaster. It’s not really that bad. Yes, Lego took a loss around that size when they decided to shut down their online game, Lego Universe, but they also learned some valuable lessons.

Jyllands-Posten, a Danish newspaper, did a story on the closing of Lego Universe, a so-called Massive Multiplayer Online Game (MMOG). It was a good article with interesting comments from Lego executives that were useful to extract some lessons on (open) innovation that go beyond Lego.

Lego admits they did things wrong with Lego Universe. A big mistake was that they required people to buy a DVD in a store before they could start playing the online game. The reason for this was that extensive research had shown Lego that kids really want a physical product that they can touch and feel.

Ok, the use of market research sounds fair enough, but Lego’s approach still highlights an important lesson on innovation. Extensive research can be dangerous.

In this case, it not only created a barrier for using the game although it should be noted that successful MMOG’s use a similar model. However, it seems as if Lego also started to rely too much on research as they allowed it to impact the game as well. This is in stark contrast to Apple for which Steve Jobs famously stated that they do not use market research to create their products.

I think companies need to find a proper balance on market research. It can be relevant, but it is interesting that Mads Nipper, a Lego executive, notes that they should probably have gone a little wild and “just” have sent out the game, listen to the users and then develop it further from there.

The second lesson to extract on this story is that you cannot do everything by yourself. Even though Lego is a pretty big company with around $3 billion in revenue and healthy profits, Lego early on realized they lacked key competences and thus needed a partner. Some companies with big pockets might be tempted to just do things themselves although the open innovation mindset seems to be growing in most industries.

Hopefully, failures like this one will not allow companies – in this case Lego – to fall back into the trap of believing that since the partner approach did not work, they should just do everything by themselves in the future. I don’t think so, but executives and open innovation leaders must be aware that an event like this might make internal open innovation skeptics stronger.

A third lesson is that you need to take chances. Yes, Lego lost a big chunk of money, but in the long run, you need to take chances to win. Perhaps Lego even learned that they should have taken even bigger chances – Nipper’s comment on going a bit wild – and this lesson might help them on future challenges.

If you like to read more about Lego and their open innovation initiatives, you should check out this blog post: You Gotta Love Lego – Crowdsourcing meets Open Innovation!

 

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Currently there are "10 comments" on this Article:

  1. Jacob says:

    Why do You classify this MMOP project as Open Innovation?

    /Jacob

    • Stefan Lindegaard says:

      Hi Jacob, I think Lego could have created LegoUniverse by themselves, but they decided to work with a partner – and share risk/rewards – as they understood they lacked some core competences. In my view, this is a key element for open innovation.

  2. Cam says:

    Stefan,
    I do not think Jobs said that "Apple do not do market research". I believe that he said that you should not ask consumers (directly) what they want. Those are two entirely different things and are often confused by people with little understanding of market research.

    $50m is an expensive way to learn some things that could have been learnt from well-constructed research and the money could no doubt have been put to much better use.
    Cam

  3. Jens Høgh Simonsen says:

    VELUX founder Villum Kann Rasmussen stated that "One experiment is better than thounsind expert views". I strongly believe that you can minimize your risc and exposure by testing new innovative concepts in an early stage in controlled surroundings.

    For me open innovation is not partnership with 1, 2 or five partners.
    /Jens Høgh Simonsen

    • Stefan Lindegaard says:

      Jens, your points make sense. However, there is a fine line between "minimize your risc and exposure by testing new innovative concepts in an early stage in controlled surroundings" and losing out on opportunities by not opening up enough in the early as well as the late stages. Not sure we disagree here, but just wanted to mention that balance is the key.

  4. I agree with Jens here, Open Innovation is not a partnership with a few partners! It's not just a renaming of cooperation/partnership to open innovation. Just as I heard a few years ago when some people called the R&D department for the Innovation department instead, it makes no sense.
    Innovation is beond R&D and Open Innovation is beond partnership and cooperation.
    /Steen Koldsø

  5. JeanneYocum says:

    Sounds like Lego forgot the wisdom of fail early/fail often. If they had done as the one quoted executive said and just released the game and let players tell them what worked/didn't work and developed it on the run from there, they probably wouldn't now be looking at a $50 million line item in red.

  6. I agree that many new ventures are best done without market research because the consumer does not know what he wants. This insight is the basis for the Lean Startup movement and the Eric Ries book discussing it.

  7. […] toys. Yet as the digital revolution took hold, they often struggled with the transition – once losing over $50M on the launch of a massive multiplayer online game (MMOG). Yet they reversed this trend by […]

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