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First and Second Generation
Console 1972 1985
Atari (2600) Controlled and dominated their market.
Started with Pong and then integrated to a console thatused interchangeable games (4bit system).
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Third Generation Console
1986 1991
Nintendo (NES) 8bit system, created legendary games,and protected their systems to control the supply ofgames for their system.
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Fourth Generation Console
1992 1995
Sega (Genesis) 16bit system, a more powerful systemsand games selection propelled this system as marketleader.
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Fifth Generation Console
1995 1998
Sony (PlayStation) 32bit system, Used CD-ROMswhich lowered fixed cost in game manufacturing.
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Sixth Generation Console -
1999- 2005
Sony (PlayStation2) DVD, Games, Graphics, Internetcapabilities and power are the drivers for success.
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Seventh Generation Console
2005 Present
Value and interactive entertainment, innovations are
the drivers of success.
Sales as of 2009
Nintendo Wii 50.4 Million
PS3 26.7 MillionXbox 360 30.2 Million
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Video Game Industry
Porters Five Forces
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Threat of new entrants into
the industry0The video game industry is unlikely to see many new
entrants - Video game and console development,
production, and marketing costs are very high.0 Current industry strongholds (Nintendo, Sony and
Microsoft) have refined their business processes andgained economies of scale.
0 Large Companies the industry will retaliate viamarketing or pricing.
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Bargaining power of suppliers0 Suppliers in the industry are moderately powerful
because the industry provides a unique, patented and
technological product.0 Firms depend on effective parts for gaming consoles,
such as computer chips and video cards.
0The industry faces threats that suppliers of hardwarecomponents could forward integrate and startproducing their own gaming consoles.
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Bargaining power of buyers
Buyers have a fair amount of power in the video gameindustry, especially for Nintendo whereas Sony and
Microsoft have other sources of revenue.
Buyers have options; if they are dissatisfied withNintendos game console or game offerings, they canbuy from Sony or Microsoft
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Threat of substitutes
0 Customers have a wide range of available substitutes,spanning over all sorts of possible forms of
entertainment: television, movies, PC games, boardgames, literature, sports, etc.
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Rivalry
0 Intense in the video game industry. Nintendo, Sony,and Microsoft continually compete to differentiate
themselves from each other.
0 When one company introduces an innovativetechnology, the others must create even moreadvanced products.
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Value Chain of the IndustryComponent Manufacturers
0 Console manufacturers formulate their consoledesigns by sourcing best of breed components. The
Nintendo Wii is produced by the followingcomponents:
Korean company Samsung supplies the DRAM
memory chip. US companies supply the CPU andaccelerator. The controller is provided by an Italian-French joint venture. And the wireless LAN and ACadapters come from Japanese companies.[1]
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Console Manufacturers
0 Console manufacturers provide platforms that aredesigned primarily to play games, which are oninterchangeable discs.
0The manufacturers provide software development
interface to publishers and game developers and certifythe distribution of games.
0They license games are used with their platform oncommercial terms and heavily market and promote
these games.0 Of this $67 billion industry, console manufacturers
capture $25 billion value.
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Developer
0 Responsible for creating games the consumer willeventually play. Some developers are independent whileothers are very large. Large publishers consolidatedevelopment teams of their own and enter contractualagreements with outside developers.
0Their primary role is to enter a cycle of trying andfailing until they can produce a solidified product.
0The process is three-phased. Phase one includesconducting research and designing an initial prototype.
Phase two is implementation and testing. The finalphase is mastering and forming the product[3].
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Publisher
0 Publishers capture a $33 billion value the most outof any individual component in the industrys supplychain.
0 Key to linking developers and distributors they payfor the development of games and through marketresearch identify which titles they will pursue andultimately pass on to distributors.
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Distr
ibutor
0The focus of the distributor is to compound and createagreements to connect publishers and retailers.
Distributors can be in-house (larger publishers typicallyhave in-house publishers) or they can be licensed.
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0Retailer
0 Console manufacturers and software publishers both
distribute their products to different kinds ofretailers.
0 Retailers operate both as brick and mortar (Wal-Mart,Target, Radioshack), and virtually (Amazon)
0 Under brick and mortar retailers, specialty storesexist which are organized purely to carry the videogame industrys products.
0 Retailers combine to capture $9 billion value from thesupply chain.
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Value Chain
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Market Share
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In what sense and for what
reasons is this a Winner-Take-
All Industry?
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Market in which the best performersare able to capture a very large share of
the rewards, and the remainingcompetitors are left with very little.
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Video Game Industry divided into two main
segments:
1. Hardware (Video Game Consoles)
2. Software (Video Games)
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Video Game Console Industry
Oligopoly Few firms in the industry which between themshare a large portion of the industry.
(Sony PlayStation, Microsoft Xbox, Nintendo Wii)
Two key features of an oligopoly:
1. Interdependence of the firms
2. Barriers to entry
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Video Game Console Industry
Oligopolistic Market - Sony playstation, Microsoft Xbox,Nintendo Wii
Video Game Software IndustryMonopolistic Electronic Arts (19.8%), Konami (9.8%),Take-Two interactive (9.9%), Activision (8.8%), Others(52.7%
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Key Success Factors of the
Video Game HardwareIndustry
0 Product Innovation
0
Identification of Niche Market0 Identification of Customer Needs
0 Financial Power
0 Marketing Power
0 Branding
0 Low Pricing0 Network Capabilities
0 Distribution Systems
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What does the success ofNintendos Wii tell us about
the changing basis forcompetitive advantage in thisindustry?
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Innovation
Less processing power and graphics
Interactive Game Play
New Target Market -Family and casual players
Nintendo
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Low Cost0Nintendo strategy focused on gaming quality
rather than graphics and processing power.
0Gaming console manufactured at aconsiderable lower cost than competitorsSony and Microsoft
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First Mover Advantage0Differentiate products from competitors while
satisfying demandFirst Interactive Motion Game Play
Imitation by Competitors
Xbox (Kinect)
Play station (Move) imitate.
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0 Primary focus on family oriented gaming experienceand secondary focus on hard core gamers
0 Changing the game experience to be moreparticipative and to be used for physical therapy
0 Expand target market to social networking andmobile devices
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In relation to the next generation of videogame consoles, make strategy
recommendations for:SonyMicrosoft and
Nintendo.
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Video game consoles and video gaming are important
source of leisure entertainment, education and socialinteraction for all generation.
Gaming consoles are a crucial feature for any
entertainment centre. Consoles like Microsoft Xbox 360,Sony PS3, and Nintendo Wii have revolutionized thegaming system but they continue to lose money
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Rivalry in Video Games0 Video game consoles and video gaming are an
important source of leisure and entertainment,
education and social interaction for all generation.Gaming consoles are a crucial feature for anyentertainment centre. Consoles like Microsoft Xbox360, Sony PS3, and Nintendo Wii have revolutionizedthe gaming system
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MICROSOFT
- XboxProblems
High cost associated with advanced technologyspecifications
Fewer games
Lacks versatility and design.
Sluggish onscreen movements
Consumers require space to play
Separate payment for multiplayer gaming to access onlinefeatures.
The Kinect had difficulty recognizing voices in a noisyroom.
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Recommendation Microsoft must know its market
Engage third party developers to ensure steady
stream of quality video games Have close relationship with third party developers to
ensure that there is no difficulty in developing gamesfor the console.
Develop New titles for console faster than 18 36months.
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Sony- PS3Problems Challenges of designing a console that would be a favourite
among game players
Establishing consoles as the general home entertainment device. The consoles were difficult and expensive to manufacture.
Delay in the HD Blu-ray DVD drive which is a central element for
Sony.
Console were complex and had increased power
Cost of games were produced at a higher cost due to complexity.
Did not have enough products to sell.
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Recommendation Always have enough products to offer during
launching.
Keep tight control with third party developers withregards to licensing fees and buying power
Produced games at a lower cost for the console.
Must have excellent advertising budget
Have knowledgeable team for the launch of theproduct
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Nintendo - WiiProblems
0 technologically lacks the advanced features of the
Xbox 360 and the PS3 and graphics
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Recommendation Vigorously continue scanning the demographic environment Manufacture consoles to attract the non-gamers as this is a very
large market.
Improve on its technological capabilities over those of the Xbox360 and PS3 Include multimedia features such as video and music player, web
browser, hard drives, graphics and other functions so as tomaintain their competitive edge.
Nintendo should also continue to use its R & D, marketingdepartment and its resources to increase its innovation
technology Efficient manufacturing of consoles at a lower cost than its
competitors. Maintain their differentiation strategy.