Video Games Industry Final

CASE 14 COMPETITION IN VIDEO GAME CONSOLES: SONY, MICROSOFT, AND NINTENDO BATTLE FOR SUPERMACY PRESENTED BY GROUP 3 FOR DR SYED ZAMBERI AHMAD UNIVERSITY OF MALAYA KUALALUMPUR, MALAYSIA 1

Mohd Zia

Introduction

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Video Games Industry • Over the past 30 years, video games have become an integral part of the lives of the people living in developed countries particularly • Video games industry has become a multi-billion dollar behemoth, as the entertainment industry is taking new shape with video games as a major player • Video games now capture a similar market size as the movie box office and music sales

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Video Games Industry • During the last few years, video games have been appealing to a broader demographic base, and, for example, average American is spending much more time (75 hours in 2003) in playing games than the past • The average game player age is increased to 35, and 65% of American households play computer or video games • In 2008, 26% of gamers were over the age of 50 • Out of total American gamers, 60% are male and 40% are female 4

Video Games Industry

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Video Games Industry

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Video Games Industry

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Video Games Industry

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Competition for the Opportunity • Makers of video game consoles (Sony, Microsoft and Nintendo) are the major competitors in this fast growing industry • Independent game publishers • Microprocessor and graphics accelerator producers like IBM • Makers of graphics processing units (GPUs) to display the HDquality and 3D graphics • PC manufacturers 9

Fierce Battle for Console Market • Prior to the launch of Microsoft’s Xbox360, Sony was enjoying market leadership with its PS2 100 million units sold • But, with the launch of Microsoft’s next generation console Xbox360, in November 2005, a battle for supremacy started in the console technology • Then, at the end of 2006, Sony and Nintendo came up with their next generation consoles (PS3, Wii) 10

Microsoft: • Since its founding in 1976, Microsoft had become the most important software company in the world • It spent almost 15% of its revenues on research and development in 2006 to sustain its competitive advantage • Microsoft entered the video console industry in November 2001 with Xbox system, which was the most technologically advanced game console of the time • Then more advanced console Xbox360 was introduced in November 2005 11

Microsoft: Xbox 360 •

Xbox360 had a 12 months head start on Sony’s PS3 and Nintendo’s Wii

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$299-core system & $399-premium system

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3.2 GHz power processor

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Xbox live online gaming service

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12x DVD, optional HD-DVD at $199

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64 MB memory card with core system

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Wired controller with core system, wireless with premium

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Wi-Fi

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Game Prices $40 to $60

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Compatible with approximately 300 Xbox titles

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Sony: • World’s leading manufacturer and marketer of audio , video, communications, and information technology products • Sony’s video game business had generated two-third of its total operating profits in past years • Sony’s instant success, PlayStation, was introduced in 1995 • Its cutting edge graphics, CD optical drive, 32-bit processor and variety of game titles made it much more appealing • In October 2000 Sony introduced its PlayStation2 with advanced processing speed and backward compatibility with PS One • The combination of technological superiority and large number of hit game titles helped Sony to achieve 70% worldwide market share by selling more than 100 million PS2 consoles 13

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Sony’s PlayStation3 (PS3) •

Launched November 17, 2006

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A complete home entertainment system, equipped with Blu-ray (High Definition) disk and hard drive

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$499 for 20-GB & $599 for 60-GB

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3.2 GHz processor

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256 MB dedicated system memory

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Wi-Fi available with 60-GB version

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Bluetooth wireless controller w/limited motion sensing

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Free PlayStation online gaming network service for demos and add-ons

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Game prices from $50 to $60

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Compatible with most PS 2 & PS One titles

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Nintendo: •

The playing card manufacturer founded in 1889 in Koyoto, Japan, became known as the Nintendo Company Ltd. in 1963

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Its 1981 introduction of a coin-operated video game, Donkey Kong, was an instant success

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By 2007, Nintendo had sold more than 387 million game consoles and 2.2 billion video games worldwide

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Business is limited to the sale of game consoles, handheld game systems, and game software

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Company focuses on earning profits from the sale of game consoles as well as from game software sales

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Never attempted to battle Sony and Microsoft for technological advantage

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Succeeded by developing intuitive and easy to operate game systems

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Mainly targeting the interests of children and casual gamers as Satoru Iwata, president, explained “our goal is to expand the gaming population” 16

Nintendo: • NES October 1985 • Game Boy (handheld system) August 1989, Game Boy was a runaway success • Super NES August 1991 • Nintendo 64 September 1996 • Game Boy Advance (handheld color video resolution system) June 2001 17

Nintendo’s GameCube & DS • GameCube (with twice processing capability than PS2) November 2001, but was the least successful console • Nintendo DS/DS Lite (handheld, Wi-Fi, touchpad system) November 2004

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Nintendo’s Wii:

• Launched November 19, 2006 with company’s biggest innovation of a wireless motion sensing controller • Price $249 (half of PS3) • 729 MHz processor • DVD available on late 2007 models • 512 MB embedded flash memory • Wi-Fi • Online services like shopping, weather, news, browsing & messaging • Game Prices from $30 to $50 • Compatible with almost all Nintendo game titles

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Ungku Alhady

Analysis of Industry

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Analysis of Industry/Market Type of Industry Turbulent and 7th generation / Market High Velocity of console within 30 years Technology

Customer requirement & expectation Products life cycle

Fast changing From simple /rapid graphic to photo-realism Fast evolving Hard core gamers love new challenges Short

Games software evolve every 18 21 months

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Video Gaming History

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Porter’s Five Forces Model

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Porter’s Five Forces Model Threats of New Entrants

Bargaining Power of Customers

Bargaining Power of Suppliers

Very Low

Fairly High

Low

Threats of Competitive Substitute Rivalry Product

High

Very High

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Khairul Anuar

Battle for Supremacy

• PlayStation 3 • Xbox360 • Wii 27

Porter’s Generic Strategies

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Product Differentiation Wii

PS3

Xbox 360

• its 3.2-GHz Cell processor • features a powerful 3.2makes it technically the GHz processor. Xbox live online gaming highest-end game console on • revamped Xbox Live service the market online gaming service 12x DVD, optional HD-DVD 256 MB dedicated system 729 MHz processor memory at $199 DVD available on late 2007 Wi-Fi available with 60-GB 64 MB memory card with models version core system 512 MB embedded flash Wired controller with core Bluetooth wireless controller memory w/limited motion sensing system, wireless with premium Wi-Fi Free PlayStation online gaming network service for Online services like Wi-Fi demos and add-ons shopping, weather, news, Game Prices $40 to $60 browsing & messaging Game prices from $50 to $60 Compatible with Game Prices from $30 to Compatible with most PS 2 & approximately 300 Xbox $50 PS One titles titles Compatible with almost all Nintendo game titles •3.2 GHz power processor

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Product Differentiation • Access to leading scientific research • Highly skilled and creative product development team • Well integrated Supply Chain and Strong sales team • Corporate reputation 30

1. Access to leading scientific research Wii

PS3

Xbox 360

•Concentrates on video •Sony leads in high end •Microsoft concentrates games yet lack of R&D audio video, on software and lack of entertainment, electrical hardware technology •Being sued over Wii appliances •New yet fast forwarding tech by Hillcrest Lab •owns ‘wondertechlab’ in •$7 billion annual •$180 million on R&D research and •Lack of innovation as New York reported by BBC news •$4 billion on games R&D development “The president of games giant Nintendo has said he fears for the future of the industry and has warned that it must innovate or die” 31

Sony’s Competitive Advantage Blu-ray Disc

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2. Highly skilled and creative product development team Wii •praised for doing something different from everyone else •10 – 20 group of 3 people •given free rein to couple •Simple” and “Comfortable”. •a wireless motionsensing controller, makes the most drastic change in user input since the Nintendo Entertainment System

PS3 •Sony Way •Latest tech of hard drive and a Blu-ray disk drive for reading highcapacity game disks and playing Blu-ray movies

Xbox 360 •Collaboration & Integration •A cross-functional team of consultants was assembled, including two lead industrial design (I.D.)

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3. Well integrated Supply Chain and Strong sales team

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Wii -Viral marketing (ambassadors in cities) •Choose one hardcore gamer, one tech savvy mom(alpha mom), one family with spanned from grandparents to kids)

PS3 -Turnaround strategy -Networking marketing •Digital networking (blogs, virtual forum) -Partnership with fashion and style publisher(Marmalade), MySpace

Xbox 360 -Highly innovative viral marketing $150m ad campaign in 2007 -agreement with BurgerKing in promotion

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4. Corporate Reputation Nintendo

Sony

Microsoft

•Pioneer in simple home •Leading manufacturer entertainment products and marketer of like electronic toys, coin technology products operated video games

•The most important software company in the world with its revolutionary software •Known as first mover in like windows, MS Office etc •Limited to the video innovative hi-tech game business only products •Software services are the major business of the •Focus is to “expand the •A trusted name in the company with $12.6 gaming population” market billion net earnings in 2006

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Deborah

Conclusion 37

Conclusion • Nothing is certain in the video games fast morphing business • With both opportunities and risks increasing each day, and new players vying for power, it will require all of the wiles and muscle of the company to win. • The goal: making gamers feel like they’re living the games, not just playing them. • “the advent of new technology… always invigorates everyone in the industry,” says EA Chief Executive Lawrence F. Probst III

Conclusion In this sprawling video games industry, nobody positioned better than Sony. Because, - PlayStation is the Champion product of Sony, according to the 2005 Turnaround Strategy of Sony - unlike any other players it already assembled all the pieces of video game empire. - It makes games such as the popular Gran Turismo racing and Everquest online. - Its own Sony Pictures and MGM movie studios, whose SpiderMan and James Bond franchises have been megahit games for Activision and EA. The combination has helped Sony sell 80 million PS2 consoles worldwide. • Sony’s next-generation technology (Blu-Ray) is expected to out-dazzle its competitors • PS2 has had more than 2,000 software titles, with more than 775 million total game copies sold.

Consoles Comparison:

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Consoles Comparison:

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Our choice…

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REFERENCES: • Wikinvest, “Game Consoles Wars: Xbox360 Vs PS3 Vs Wii” • ESA (entertainment software association) “Essential facts about the computer and video games industry, 2008” • Competitive forces in the video game industry, Dietl & Royer, 2003: 416. • VG Chartz • Collaboration and the creation of the Xbox 360 By David Kemp 43

REFERENCES: • INNOVATION: management, policy & practice; HELMUT M. DIETL and SUSANNE ROYER • Pearce ii, J. And A., Robinson Jr., R.B. (2007). Strategic management: Formulation, Implementation and control. McgrawHill: North America

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