The essay sample on Responding To The Wii Case Analysis dwells on its problems, providing shortened but comprehensive overview of basic facts and arguments related to it. To read the essay, scroll down.
On the other hand, there are game developers, who provide the games for the specific console with which end-users play. Both end-users and game developers are customers of providers of video game consoles, namely Nintendo (WI console), Sony (Palpitation 3 console), and Microsoft (Oxbow 360 console). They are customers because providers enter into transactions with each of them and both are sources of revenue streams, end users through the purchase of video game consoles and game developers through the payment of royalties for the right to sell games for the video game console.
End users and game developers also carry out transactions between them, namely through the acquisition of games offered for the console. There is a difference though in the number of relationships, as developers establish transactions with all three, while end users only with one of the three providers.
The market is not only an example of a platform, but most importantly of the existence of network externalities in the market. End users find more value In their consoles as the end user base Increases, since each individual would be able to share and exchange gaming experiences with more end seers.
They also find more value in their consoles as the other pool of customers, that is, game developers, increases. This is due to the fact that more game developers imply more games available to choose from.
Developers also find more value in the platform as the number of end users increases, since having a sufficient number of purchasers of their games Is what determines the profitability of their software development efforts. Providers of video game consoles subsidize end users, since these customers are more price-sensitive than game developers and are the ones ho have a higher interest in obtaining high quality from the gaming experience.
When a new console is launched, the price that end users pay for their consoles is generally below or at the cost of production. Prices of games, on the other hand, mainly depend on the quality of each title, on the pool of titles available for each console, and on the relative reputation of game developers and publishers. Game developers pay providers of video game consoles a fixed royalty per game produced for the console. Current competitors for Nintendo are Sony and Microsoft. Up until Wig’s launch, it can be said that the three console providers competed exactly for the same end user market, namely traditional video gamers.
At that point Sony, with the Play Stations 2 and 3 was a clear in the market, based on a better quality product. Nintendo, through the launch of Its WI console, Introduced a radical Innovation, which extended video gaming Into customer segments that had not been reached Deter: Tamales, women, older people, sports lovers, Ana trotter a new way AT playing with the video console much more interactive. This extension is what has given Nintendo the leadership in the market, not superior resources or capabilities that are impossible to replicate.
Competition from established rivals is the most important source of competitive pressure in the industry. Being in a platform market with network externalities, the three providers battle for a broader end user base that will make their platforms even more valuable to both sides of the market. It is important to bear in mind, however, that the platform market is crossing boundaries into the broader home PC and entertainment industries, an issue that is determinant in Microsoft’s decision to enter the video game industry.
This is important to consider when evaluating the profitability of the industry, for low or negative returns of some players do not imply that the industry is not potentially profitable. In particular, Microsoft’s goals are probably more related with strengthening the network effects of the platform with an eye set on offering products and services beyond gaming. Nintendo, on the other hand, is probably more focused on the development of the gaming industry only, with no view to crossing further boundaries.
Additionally, both Nintendo and Sony have a portable console (Nintendo ADS and Sony SSP) which trenches their position in the market and provides a source of economies of scale. Power in the industry lies with providers of video game consoles. Game developers depend on the technological capabilities of the consoles to offer new attractive games. Console providers have the ability to determine which game developers can offer products for their platforms, and it is console providers who offer the development tools and support needed for software development efforts.
End users, although highly motivated by quality, ultimately limit their choice of video game insoles to the offerings of the market, based on their price sensitivity and perceived total cost of ownership. End users clearly value the products offered in the industry, as evidenced by the fact that all latest generation consoles sold out at launch and the three companies experienced supply shortage to meet demand. They additionally face switching costs, given that their purchased games cannot be played with a competitors’ console.
Finally, end users, independently of the console want to have access to all games, so most developers are forced to develop versions for the three insoles, and their power is therefore limited. Microchip producers (Intel, MOM, Toshiba), although supplying a product that is highly important for the technological capabilities of the consoles, lack the capacity to command power due to the fact that their business relation with their customers is not limited to console production but rather encompass the broader consumer electronics industries.
In some cases, specifically with the Oxbow and Palpitations, manufacturing is not carried out by the company itself, but rather is outsourced to manufacturing companies (such as Hon. Ha Precision Industry). These do not hold, however, major power within the industry, given the importance of their major customers in their total sales. Substitutes in this industry are other home entertainment systems that are not necessarily focused on video games. PC-based video games could also be considered a substitute, as well as mobile gaming. However, none of these closely substitute console gaming.
Portable consoles represent an extension, as allow end users to play in another environment. There are high barriers to entry since network effects are strong, multi-homing costs Tort Ana users lead teen to prefer navels one or two consoles, Ana current console providers enjoy market power. A highly developed technology is another barrier. For a new player to enter it would need to offer a superior console, with some sort of compatibility that allows end users to use the games they have invested in, or absorbing the cost that end users would incur when considering the switch.
Console development and marketing, however, require billions of dollars, building relationships with developers, and passive response from current console providers. Envelopment from different platform markets could theoretically be possible, but existing players (mainly Microsoft and Sony) could also be in a position to counter- envelop. As a result of the key players’ experience and capabilities in other technology businesses broader than video gaming, the industry has evolved by including functionalities and services beyond the gaming experience.
Platform envelopment attempts by another platform market could lead to price wars that reduce the attractiveness of the industry to potential entrants. Nintendo, Sony and Microsoft are all well positioned within the industry. They all have growing end user bases and relationships with game developers, leading to network externalities in their platform markets. Nintendo has always had higher operating margins, even when Sony was the leader of the industry.
This is mostly, however, a result of the higher royalty fees that they extract from game developers, a distribution of power that will not necessarily hold to the future, considering that competitors have the potential to offer exciting and attractive capabilities for developers in their new consoles. Higher margins may also be the result of having a higher proportion of Ames developed in-house, which would be a sign that their expertise are in game development rather than in consoles.
Sony and Microsoft, given their technological capabilities, relations with providers and marketing expertise, might be in a better position to further evolve the functionalities beyond the gaming experience as the industry crosses boundaries. Microsoft’s expertise in digital distribution could place it in a better position to reduce costs and expand their reach, and therefore allow them to make some strategic moves that could improve their current market position s a “distant third”.
Strategic Resources and Capabilities of Nintendo and Competitors The video gaming industry, and specifically the provision Microsoft has distinctive capabilities in product development, marketing, and distribution. They are also famous for organizing for creativity, meaning that they encourage disagreement and criticism to spur better creative solutions. They also have strengths in the flexibility of their production, in the sense that they can respond quickly to product development opportunities (partly due to their outsourcing arrangements).
Finally, Microsoft has immense financial resources. This is important when you consider that they can further develop capacities that they need through acquisitions. Sony has had a strong record in consumer electronics industry. It has strong capabilities in video technology. It has a large customer base and strong relationships with game developers. They introduced backward compatibility in their Palpitations, which shows their ability to redefine customer expectations and change industry practices.
From its industry experience Sony has strong relations with movie studios and similar content providers. It also set the standard for high definition DVD format (the negative side of this is that Sony will find it difficult to price its Palpitation below stand-alone Blue-Ray players Tanat ten company NAS licenses to nutcrackers). Nintendo, on the other hand, lacks sustainable superior technological expertise. Their WI console offers considerably lower graphics processing power, no DVD compatibility, and no capability for audio surround sound.
Nineteen’s relations with game developers were not as strong as its competitors’, evidenced by the fact that they had to develop more games in-house. The products’ advantage was its ease of use, its innovation in motion-sensing controllers, and its appeal to a broader audience of end users, aspects that can be addressed by Microsoft and Sony to regain market share. Unlike its competitors, Nintendo relies completely on the video game industry for its revenues. The company has strong experience in cross- functional teams, important for product development.
Evaluation of Strategic Alternatives Based on their strategic resources and capabilities, the recommendation is for Microsoft first to extend the WI functionalities, to retain and increase their current ease of end users. Second, they should also develop their product to target the family segment that Nintendo tapped. Microsoft needs to further strengthen the network externalities of its platform by aggressively expanding its end user base, and has the technological know-how to match and surpass the technological developments of the WI console.
Its strength in product development would allow the company to bring to market a suitable solution relatively quickly, and its marketing and distribution capabilities would allow Microsoft to aggressively compete against WI. The company Leary cannot ignore Nineteen’s leadership, not only because of the end users that the leader is gaining but also because Sony had to attempt regaining market share through matching the WI interactive capabilities, and they have Just launched their “Play Station Move” in France (http://FRR. Allocation. Com/smoke/). A third step would bring additional features that would be of interest to the expanded customer segments, increasing the functionalities offered to end users (playing and downloading movies and music, playbills, internet access, e-commerce, etc). Expanding the customer base to reach individuals in the 34-65 year range means hat Microsoft could bundle some of its non-gaming software products with the console, effectively expanding the usability of the console.
Alternatively, using its platform Microsoft could envelop another unrelated platform from an industry in which the company’s resources and capabilities can be applied. This way the company would exponentially expand the network externalities of its multifunctional platform. For example, Microsoft could challenge incumbents dominance in mobile applications through expansion of its online gaming capabilities into the mobile device. This way, end users who value Oxbow online gaming and mobile gaming would benefit from having a mobile phone powered by Microsoft’s software.
Another example could be using its platform, its expertise in e-commerce and its relationships with content providers to create an online store with the same scope as tunes. Currently games can be purchased online, but there is no challenger to tunes domain in digital music downloads. The objective would be to tie the store to the console, in such a way that end users find it worthwhile to switch to Microsoft as their digital music provider, and eliminating their switching costs.