THE SYSTEM AND SELF-REFERENCE OF THE APP ECONOMY: THE CASE OF ANGRY BIRDS

mainly in relation to mobile technology. By observing the app system (application system), it sets out to describe and understand its social evolution. Employing Niklas Luhmann’s systems theory to examine the popular app game Angry Birds, this study describes the internal structure of the app system, which, in theory, acts as a social sub-system, displaying the following themes and features – fi rst, app software and the broader social system interact and rely heavily on each other, so that, within the existing capitalist market, such interdependence clearly enables the social system-based app sub-system to establish the app platform, the app structure and, even more importantly, the simplifi ed inner principle of apps’ ‘use and download’ function. Second, credited to the mobile terminal, these set principles within the capital market are able to construct a system boundary and inner structure of their own. Third, the software (app) library and quantity of downloads become the common theme (shared concept) used to project the activities of the system. This (re)formulates and simplifi es the complexity of the original system environment to create the self-refl exive app system. Finally, such refl exivity allows the app system to self-generate and maintain itself. Although its functions may have been wellintegrated within the social system, the app system represents a closed type of self-contained/self-production mechanism.

the technology determinists' discourse on the material, technology-driven society. It also reveals the transformation in media ecology, and its theoretical context will be established upon 'socio-technical theory' (Hanssen, 2011). Through interpretations based on the German sociologist Niklas Luhmann's idea of systems theory, which presents a very different approach from traditional market research or studies of ecology and political-economy, this article probes the essence of the app technology, economy and market. Some discussion on social evolution from a social-systems/ functionalist perspective will be further emphasized.

The Historical Context of Angry Birds
In the early days, prior to the advent of smartphones and tablet PCs, the mobile game industry was mostly referred to as the portable game industry, which Nintendo DS and Sony PSP have dominated for more than 20 years. According to a report from American research company Flurry (see Takahashi, 2011a), as the app market fi rst rose in 2008 Apple iOS and Google Android held 19 percent of the market, while Nintendo DS and Sony PSP were in control of 70 percent and 11 percent respectively. But in 2010, Apple iOS and Google Android increased their control to 34 percent, while in 2011 Nintendo DS and Sony PSP's share declined to just 36 percent and 6 percent. The same year ended with Apple iOS and Google Android games earning profi ts of US$1.9 billion together to overtake Nintendo DS and Sony PSP's result of US$1.4 billion in profi ts (Takahashi, 2011a). The changing statistics clearly demonstrate that the increase in the number of games that can be played on smartphones or tablet PCs is changing fi xed public ideas of mobile gaming and putting pressure on old-school mobile game devices. Source: Takahashi (2011a).
Of all apps available worldwide, Angry Birds stands as one of the most successful examples of a game that made the transition from the old technology on personal computers to new mobile media. Angry Birds is easy and simple, and one of the most popular app games. Produced by Swedish software company Rovio, Angry Birds was the biggest success story in terms of mobile gaming in the period 2008 to 2011. Angry Birds' success comes from its production value, huge number of downloads and its tremendous effect on consumers' behaviour with regard to apps.
Looking only at Rovio's Angry Birds could give a misleading impression of the prosperity of the app economy. In 2006, Angry Birds developer Rovio faced a serious operational crisis. Despite two injections of capital, poor company structure and performance saw Rovio on the verge of bankruptcy (see Table 2). But the appearance of a new software system and mobile platforms represented a crucial turning point for Rovio. Apple introduced its App Store in 2008, and the iOS platform through its iPhone, marking a new media era of smartphones and mobile platforms. iPhone does not simply mark the birth of a new kind of phone system or computer, its structuralized touch screens in smartphones, allow simple games, accessible on a casual basis, to be developed. developed in the same year and has set a few records since (Cheng, 2012). First, by mid 2011, Angry Birds had been downloaded 250 million times. That amounts to 1 million downloads per day. Second, Angry Birds players worldwide spent 200 million minutes on the game per day. Third, in the app market where products tend to have short life-cycles, Angry Birds was at the top of the download chart for more than two years, with paid versions downloaded more than free versions. Rovio made an initial investment of only US$140,000 in developing Angry Birds, but this app has brought the company US$70 million in profi t (Kuang and Lin, 2011). Rovio experienced a big change in its external environment and was rewarded by a new market, even though there had been some diffi culties in the running of its business in the past. The key turning point, which should be credited with transforming Rovio's prospects, was the unexpected growth of the Apple system.

Literature Review and Research Framework
In the context of media industry research, most research pieces employ political-economy or business models to investigate the media market. These approaches present either a critique of the media development process, or describe its internal organization, but fail to elaborate on the interaction between a specifi c media system and its external environment. Taking the media ecology as a whole system into account, Niklas Luhmann suggests a new approach of systems theory by which any individual media industry or organization is considered as a sub-system, and the sub-system is always shaped by the impact of the external factors of media ecology. If apps do evolve like a media and have a systematic structure, how does the app system engage in structural 'self-reference' and 'rationalization' to evolve into a modern social structure? Luhmann's notion of systems theory is inspired and infl uenced by structural functionalism and integrates Parsons' (1962) idea of what he calls 'a general theory of action' to collect various core concepts across cognitive biology, cybernetics and phenomenology. Luhmann also pointed out that Parsons' social structure theory lacks two elements -self-reference and contingency (Holmstrom, 2007). According to Luhmann's thesis, the system should be the key object of analysis in capitalist society, and its most important feature is its hidden process of self-production. However, when studying how the system runs, he reminds us that four characteristics should be noted: 1. a self-production system can develop the elements of constructing itself (or its own body); 2. a self-production system normally organizes the self and the boundaries of the self, and develops its inner structure; 3. a self-production system is also self-referenced; 4. a self-production system should be seen as a 'closed system' (Luhmann, 1985).
Luhmann also believes that the continuous differentiation and operation of any social system is a direct result of the meaningful communications within the system. The self-production of the system is sustained by continuous communications and further communications. However, the communications that sustain the system must be meaningful and therefore need to reference other communications (Ball, 1978: 66;Buckley, 1967: 41). This allows communication to sustain itself through a repeated self-reference cycle. In other words, a system of self-production is one that can use the elements it is composed of to produce its own structure through continuous communications and integration. Therefore 'self-reference' has become a necessary feature of a system's operation (Luhmann, 1984: 596-7).
Reference becomes a necessary process internally in order to ensure the system's stability. It includes both internal and external reference. The reference process and the system itself form what Luhmann keeps stressing as signifi cant -a closed system that promotes a consistent self-reference process within the system. The features of a closed system can simplify its external environment and promote internal communications within the system (Luhmann, 1993). To be more specifi c, such a self-referential process of communications is actually the refl ective process of the person (actor) (Kao, 2002: 201-2). Through the refl ective process, the system's self-reference process can be simplifi ed. The communication process relies on and constructs a meaning system, which is presented through the chosen and reasonable symbols and symbol system. In other words, a system always chooses the most suitable symbolic codes from the symbol system to conduct self-reference.
However, we can fi nd two core themes in Luhmann's interpretation of modern social systems. First, he regards 'self-refl exivity' as the key to understanding contemporary society's social system and operations. Second, he indicates that the idea of 'time' can also be seen as another tool to unpack the value of a system. In terms of a system's time dimension, a system refers to its past and future, which means that persons or actors within the system must refer to past experience and potential future development directions to deal with a social system that is full of double contingency (Luhmann, 1995). In short, in a society with multiple forms of information, technology, and media, complicated symbolic structures will relate to any system's time essence, making its time dimension full of expansion and compression, turning time's 'irreversibilitaet' into 'reversibilitaet' (Kao, 2002: 267-8).
From the perspective of the time dimension, 'time' is not only a system's basic infrastructure but also an area for social actors to make social decisions. For the app system, communication and mobile technology is the system's 'social dimension' and smartphones and apps are the system's 'material dimension'. Any app's production is affected by social and material factors, but more importantly, it is time-specifi c in terms of executing production, downloads and consumption. Thus, the app system's time dimension plays a crucial role in this media technology.
Using Luhmann's interpretations of social systems, refl ective process and time concept as a guide, this article now looks at the development of Angry Birds and the app system to identify ways in which app makers construct a closed production system, as well as how the system is transformed during the process. In terms of the broader context, a deeper look is taken at how the structure of mobile technology has been able to adapt and change according ti the conditions under which it is operating. In this regard, this article identifi es three separate research questions: 1. What are the features of the closed self-production app system? 2. What kind of self-reference does the app economy process?
3. What is the time dimension reference of game apps such as Angry Birds?

Analysis and Interpretation
Generally speaking, external infl uences such as existing communication technologies and users' consumption habits trigger a higher contingency in apps development. Therefore, the app economy, or app system, can be identifi ed as what allows apps to adapt themselves in a complicated environment. In Luhmann's way of thinking, Angry Birds and the app system generally are media (and web) of some kind produced in order to simplify the over-complicated environment. However, the process of self-production and social differentiation also carries a risk that the system cannot balance itself. More details will be given in the following sections with regard to the system's 'closed-system' and 'reference' functions.

The Closed Self-production of the App System
Angry Birds established a unique business model in technological culture and reveals the early shape of the app system. The fi rst feature to note is that, as seen in the example of Angry Birds, the app system produces internal elements to form itself. Under the complexity and contingency of the external environment, the app system uses 'app' and 'platform' to create an internal formation. Apple's iOS and Google's Android platforms are not only a transformation of traditional computer operation systems; the platforms have been adapted to become a new medium of communication. The original medium becomes a new pattern of consumption and lifestyle that guides software companies and audience behaviour. Precisely speaking, through the iOS and Angry Birds, 'apps' become the fi rst basic element of the new system and help to further develop the second signifi cant concept of 'platform'. Therefore the platforms of iOS and Android are not only a container full of content and symbols, they are also the system's self-produced elements that link the internal structure and connect with the external world.
The second feature of the app system is self-boundary, meaning that it has to organize its internal order and set a boundary in order to distinguish itself from the outside world. Through the case Angry Birds, we can see that the app system is not given its shape by external forces. On the contrary, outside conditions such as the internet, technology and culture act as limits and uncertainty rather than structural functions that decide internal shape. Within the boundary of an app self-produced system, a triangular business model is produced through the convergence of 'app platforms', 'app software developers' and 'consumers'. From a market perspective, the three actors become a unique production value chain which determines who gets the power in the market (Dedrick et al., 2011). The app system's self-boundary changes the form of previous game ecology. No longer can a new popular game simply impact the entertainment and game industry, the point is that the mixture of a new platform and a new smart terminal device leads to a change of the internal essence of the game business operation. Thus, with easy-to-understand rules of play, a simple device, and intuitive operation, app games like Angry Birds liberate little children and housewives from TVs and computers. This helps those who are traditionally non-game users to adapt to the app as personal entertainment and therefore establish a solid app boundary.
The third characteristic of the app system and Angry Birds is that the system tends to simplify itself. As a functional autonomous system, the establishment of the app system is not the result of interaction between systems and environment, as occurs in political, economic and cultural systems. The app system simplifi es its inner system value through internal communication and self-reference. The value is represented by the core action of downloading and number of downloads. When downloading becomes a self-reference of the system, it formulates a duality of internal communication -download or not download. The duality of download or not download immediately becomes the most simplifi ed rule to manipulate and to guide the app system's social actions and experiences. That is to say, the app system in fact deals with and interacts with media behaviours, media time, media status and audience needs, but it is only through the simplifi ed duality of download/notdownload that the above social external factors can be understood and evaluated.
According to Nielsenʼs survey on app users in 2011 (in Kingsley-Hughes, 2011), the most popular downloaded games could be categorized as shown in Figure 1. The same data shows active users are more willing to pay for game-type apps. In terms of clear orders, the data shows that 64 percent of apps are used for entertainment purposes, 51 percent on map/navigation/ search, 39 percent on news, 21 percent on production tools, and 18 percent on food (Kingsley-Hughes, 2011). The gaming app is fundamentally separate from other app genres, and produces a greater connection with audiences. In this way, consumers and the audience become the decisive focus of software developers and platform providers, and the main resource in terms of triggering and reacting to the environment of the sub-system and its high complexity. When audiences becoming more willing to pay for downloaded apps, app games will be more likely to be able to form a self-propagating system.

The Environment Reference of the App System
As mentioned earlier, the system can draw a boundary to separate itself from the environment. It can also rely on such differences to produce a process of self-evolution. Gaming apps on all platforms have 'smart' features, allowing apps, as an internal part of the mobile system, to be free from conventional physical restrictions in time and space. This means users can use apps everywhere, transforming users' spare time into merchandise without any space restrictions. Of all the app downloads, gaming apps contribute 47 percent, more than any other category (Kuang, 2011), showing that the mobility of apps within the app system gives an advantage particularly to casual gaming. Angry Birds, a game with a simple touch interface, is not hard to learn, has intuitive game rules and it takes only 30 to 90 seconds to fi nish each stage: the perfect evolution of this system (Cheng, 2012).
Second, Angry Birds is more aggressive than other apps when it comes to universality, as it is available on Apple's iOS and Android, on either smartphones or tablets. It has even entered the web browser market, as it is available on Google Chrome. Rovio even formed a strategic alliance to offer Angry Birds on TV platforms through set-top boxes, while the company is also working with Microsoft to enter the PC market. Angry Birds, through expanding to different platforms and gaining access to different information interfaces, has overcome the compatibility problem common among information systems, making itself available in different forms of technologies to users anywhere. The development of devices able to work with multiple technologies determines the potential of smartphones and mobile platforms. As mobile phone communications function converges with computer technologies, the result is a smart communication system that has inherited the system features of two external systems -mobile phones and computers (Cheng, 2012). These features -effi ciency, function and video/audio entertainment -help the system adapt to the language of the external environment. Smart mobile communications appear to be a convergence of traditional mobile phone and computer technologies. In fact, however, there is 'differentiation' and 'division' created in the information system, therefore the two cannot be viewed as identical.
Before Rovio developed Angry Birds in 2009, Kaj Head's strategy was to design games for major companies on a work-for-hire basis, focusing on hardcore games rather than casual games. This experience allowed Rovio to learn how to run apps on a traditional computer gaming structure. Doing this allowed Rovio to create, organize and interact in a system (app system) that did not yet have a clear meaning or a stable structure. But mobile communications and traditional computers are external environments in relation to the app system, making it hard for the app industry to see the market clearly, which meant that the app system entails high risks. Rovio had previously been on the verge of bankruptcy as a result of such problems. This shows that the app industry, in order to adapt and differentiate itself from the conventional computer or information system, takes advantage of complicated computing features from these two systems and refers to the demands of effi ciency and function to change the meaning and essence of electronic information communication, as space becomes more mobile % 2 3 and people spend more time on leisure and entertainment activities. The app market, working under the rules and general structure of a mobile platform, recreates the system boundaries of this soft, small and casual app market. The ability to control the gigantic app economy and market no longer lies with traditional large software or information companies such as Google or Microsoft. This ability has been differentiated from the traditional software economy and evolved away from that system.

The Platform Reference of the App System
If the computer and mobile communications systems defi ne the uniqueness of the app economy and become its external reference, then the app industry also needs to refl ect on the mobile platform, the platform that has brought it tremendous success. In 2008, Apple's introduction of the App Store appeared on the surface to represent a transition from feature phones to smartphones. The result, however, has been that the advantages in hardware and production have transferred to operational platforms. This does not mean that traditional brands (e.g. Nokia, Samsung, LG, Motorola and Sony Ericsson) are losing their advantages, but the system has realized that external hardware does not meet consumers' needs for software as well as apps do. This system change in the industry and market has led to the full emergence of operational platforms. Mobile phone companies that failed to keep up with the trend all faced challenges from the market.
The tremendous potential economic value of the market not only distinguishes the app market from computers, but also traditional mobile phones. More importantly the competition on platforms also distinguishes the app market internally and has become a reference for the development of the app system. In 2010, Apple's App Store dominated the app market (see Table 3). In 2011, the app market quickly split in two: Apple's iOS and Google's Android system, with Nokia's Symbia and BlackBerry trailing behind. Mobile phones are no longer restricted to computing and communication. The platforms have become the language and set the rules upon which apps develop. The app system continues to evolve and defi ne the structural meaning of the system.   (2012).
The platform has become a reference of the system on two levels (Cheng, 2012). First, there has been a redistribution of competitive advantages in terms of the system's supply chain. Second, the defi nition of a closed/open system has changed. Within the old feature phone supply chain, mobile phone companies and service providers sell and market phones and services to consumers. However, within the app system, software developers and platform providers have entered the supply chain, turning mobile phone and telecom companies into technological channels marketing software and platform functionality. Therefore mobile phone and telecom companies are forced to communicate with app developers and platforms. However, with consumers growing more interested in smartphones, this indirectly gives platform providers and developers a greater advantage in the supply chain. The emergence of the app system has cancelled out the competitive advantages of economies of scale and distribution within the traditional mobile phone and computer markets.
The success of Rovio's Angry Birds highlights how app developers have changed their role from being an 'attached software producer' to becoming 'the leading platform and content provider' (Cheng, 2012). Therefore, when Rovio was designing software for Nokia (see Table 4), it was still using the old system structure. As Nokia lost its advantages in the market, Rovio decided to switch to Apple's iOS in 2009. As far as the system is concerned, Rovio did not just change partner but also adjusted itself in the new supply chain. This move helped Rovio to become a major app developer and helped the company to evaluate the platform's advantages. In other words, the evolution of a platform system and its market performance are important reference points for the app system, and should be refl ected upon by companies before entering the market.  (2011).
In addition to a rearranged supply chain, whether or not a platform is open also affects the evolution of the app system. On one hand, a closed/open platform determines the freedom a developer has to develop software. It also determines the concentration level of the system operational rules. Generally speaking, Apple's iOS is a closed system with strict control over its platform portal, only supporting Apple products. Apple has integrated together the entire manufacturing process, distribution and fi nal sales of its products. While most other platforms are becoming more open and supporting more end devices, Apple remains a closed production chain, and the 'Apple sub-system' continues to evolve within the app system. Nevertheless Apple remains the largest app platform, with the benefi t of fi rst-mover advantage and high levels of supply chain support.
In 2011, due to closed management on manufacturing, Apple's iOS accounted for 27 percent of the global market, with 45 percent of the software revenue available in the US, 430,000 apps and 15 billion downloads (see Table 5). Android's open system and platform integration allowed it to quickly expand and account for 18 percent of market share worldwide (Cheng and Lu, 2011). In the US market, Apple's App Store for iPhone has been the most popular platform for US TV company app releases, accounting for 54 percent of all apps launched since 2009, the second most popular platform is the iPad App Store, with 22 percent of the apps released since 2009 to become available for iPad. Google's Android Market is the third most popular storefront, with 19 percent of apps released since 2009 ('TV companies embrace apps ', 2011: 346). This means the app economy is stabilizing its internal operations. Software developers obtain the development principles from platform rules, and this determines the strategy in terms of marketing and launching software, such as whether an app should be paid or made freely available, or come with in-app-ads and in-app-purchase. Software developers such as Rovio show their development strength and results through the number of apps developed and number of downloads. These numbers greatly infl uence platform providers' competitive strategies, which will promote cooperation between sub-systems and the evolution of the app system (Cheng, 2012). In other words, any system platform would benefi t from a successful casual game like Angry Birds to help with the systematic evolution between a platform provider and developer.

The Time dimension of the App System
Within the mobile app system, any kind of app communicated to audiences and consumers through downloads indeed occupies a certain amount of their 'real-time' behaviour. The consumption of the audiences' 'real' and 'social' time represents the combination of external factors. Their choices in terms of spending their time using this or that app form the basis of the app economic evolution. From the industrial perspective, this further symbolizes the continuing divisions between the app production chain, app capital, app platform and app genres.
More specifi cally, observing the app system's external environment, the app economy can be seen to be a contingent evolutionary process in the historical timeframe. We have to remember the App Store set up by Apple in 2008 had a huge impact on the entire economic body and order. It displaced the previous media and communication system and injected higher uncertainty into the environment and system. In order to develop itself as a sub-system within the media system, the app economy needs to simplify its own systemic complexity in accordance with the time order. As a result, the traditional targets for market capital shift. Investments are withdrawn from traditional giant game producers and instead go towards small app developers, not only creating new connections for the app system and changing the order of the external environment, but also rationalizing the app system's selfproduction model. From 2008 to 2010, North American and European consumers' general habits in relation to various types of game content, along with the rise of mobile games, have forced a fall in retail games sales from 25 percent to 20 percent. In contrast, digital and mobile distributions experienced an increase from 6 percent to 10 percent ('Games retailers go digital ', 2011: 317). The transition in consumers' playing habits towards app games has created a new communication style and redefi ned the system's self-boundary.
The new communication mode is not simply about reworking how time is consumed or usage habits; also it means that time is restructured to allow more frequent capital fl ows. So many app games are eating up other entertainment forms' shares, such as TV, movies and music. For example, the global game entertainment giant EA (Electronic Arts) merged with Playfi sh, and in 2011 in acquired PopCap Games, a company based on producing app games like Bejeweled and Plants vs Zombies, for US$1.3 billion. Other examples include Facebook, with 350 million regular users, deciding to move most of its games and apps into mobile communication platforms ('Facebook games and apps go mobile', 2011). As apps increasingly occupy consumers' time, and their engagement grows deeper, app games have changed the concept of time for the system.
Another issue to be considered is that, under normal procedures, consumers choose a device before picking up apps. Therefore, the development of apps can only be decided by/after 'the fi rst choice'. In this regard, Xyologic reported that, when comparing Apple iOS and Google Android, consumers' app choices showed a marked difference. The 100 most downloaded apps in the App Store included 50 non-game apps, while in Android Market, more than 65 are games (Takahashi, 2011b). This number difference demonstrates the important position of 'platform' in the app market. Differences between platforms also decide the direction of production and technical abilities. We can again trace the cause back to 2008 and Apple's iOS platform and App Store. Table 6 summarizes the fi rst 25 leading developers in both App Store and Android Market in 2011. Of note is that, apart from Burbn, all of the other developers in the Apple market are game providers. This explains how Apple gained its leading position upon fi rst entering the market, the result mostly of the fi rm's experience in developing games in the early stages.
The important function of the platform is that it decides the timeline in the app system and establishes consumers and developers' basic understanding. It not only limits the direction of development, but also provides a structural indication for consumers. According to Nielsen's statistics, game-type apps are the most popular, whether in iOS, Android or Windows phones. But in terms of the amount of time spent on app games, iPhone users remain the highest users, averaging 14.7 hours per month for their play. In comparison, Android users spend about 9.3 hours while the users of Windows phone, normal mobile phones and RIM BlackBerry spend 4.7, 4.5 and 4.5 hours respectively on average (Kingsley-Hughes, 2011). Table 6 Key 25 app developers for Apple (iOS and Google (Android)

Conclusion
This article, through observing the app market and Angry Birds, provides a theoretical analysis of the app system and its position in the social environment. The system reveals the following features and themes.
First, the app system closely relates to mobile communication technologies within the wider social system. It therefore promotes a profound interdependent relationship between the app system and smartphones and tablet computers. To put it simply: the increasing complexity creates more possibilities for communication technologies and generates simple rules allowing the app sub-system to establish/develop new app platforms for use and download in the social system. These rules form a protective boundary and inner structure under the umbrella of the capitalist market.
Second, the app system, through reference to traditional computers and feature phones, has confi rmed its position within the evolution of information and telecom industries. It targets pieces of consumers' time outside their working hours and then combines with entertainment under capitalism, and fi nally evolves as a unique app system.
Third, in addition to facing an external system as an environment, the app system's internal division of work has also started to evolve to minimize the impact of the complicated environment on the system. Whether in relation to the external market structure or types of industries, apps have established new market rules (though not yet set or mature) and therefore represent a closed production system.
Finally, working within a marketplace, game apps have had to restructure fi nance, mobile communications and consumer habits to frame the time dimension of the complex system. Through shifting market shares, investment moving away from previously dominant game producers, and the transformation of media channels such as mobile devices, game apps generate a connecting order of internal factors and evolve thereafter on this basis. The differentiation of the app system also shows the modern signifi cance of differentiation within apps' social functions.
The app system provides an opportunity for the modern information or media industry to rethink the current concept of systems. Hence, Angry Birds, App Store and the Android Market should no longer be seen as a simple game or organized store or market. They symbolize more a simplifi ed model of a social system with a fl exible and stable infrastructure. Any single download represents the basic rule of simplifying the app system and is the result of a highly complex environment.