ASSIGNMENT

On

Analysis Gaming Industry (“Nintendo’s Revolution” case) in The Light of

Porters 5 Forces Model

Strategy & Leadership: Seminar, Case Development & Business Project

Course Code: OSL E116

Submitted to
Prof. Dr. Muhammad Abdul Moyeen
Dept. Of Organization Strategy & Leadership, DU.

Submitted by
Syed Md. Moshiur Rahman
ID – 91804011
Batch – 39

UNIVERSITY OF DHAKA

DEPARTMENT
OF
ORGANIZATION STRATEGY & LEADERSHIP (OSL)
EMBA PROGRAM
Porter’s Five Forces Model
Porter’s five forces model is an analysis tool that uses five industry forces to determine the
intensity of competition in an industry and its profitability level.
These forces determine an industry structure and the level of competition in that industry.
The five forces are frequently used to measure competition intensity, attractiveness, and
profitability of an industry or market.

Figure- Porter's Five Forces Model

The stronger competitive forces in the industry are the less profitable it is. An industry with
low barriers to enter, having few buyers and suppliers but many substitute products and
competitors will be seen as very competitive and thus, not so attractive due to its low
profitability. The tool is very useful in formulating firm’s strategy as it reveals how powerful
each of the five key forces is in a particular industry.
Analysis Gaming Industry (“Nintendo’s Revolution” case) in The Light of
Porters 5 Forces Model
The history of video games goes as far back as the early 1950s, when academic computer
scientists began designing simple games and simulations as part of their research or just
for recreation. Early arcade video games developed from 1972 to 1978. During the 1970s, the
first generation of home consoles emerged, including the popular game Pong and various
"clones". The 1970s was also the era of mainframe computer games. The golden age of
arcade video games was from 1978 to 1982. Video arcades with large, graphics-decorated
coin-operated machines were common at malls and popular, affordable home consoles such
as the Atari 2600 and Intellivision enabled people to play games on their home TVs. During
the 1980s, gaming computers, early online gaming and handheld LCD games emerged; this
era was affected by the video game crash of 1983. From 1976 to 1992, the second generation
of video consoles emerged. The third generation of consoles, which were 8-bit units, emerged
from 1983 to 1995. The fourth generation of consoles, which were 16-bit models, emerged
from 1987 to 1999. The 1990s saw the resurgence and decline of arcades, the transition to 3D
video games, improved handheld games, and PC gaming. The fifth generation of consoles,
which were 32 and 64-bit units, was from 1993 to 2006. During this era, mobile phone
gaming emerged. During the 2000s, the sixth generation of consoles emerged (1998–2013).
During this period, online gaming and mobile games became major aspects of gaming
culture. The seventh generation of consoles was from 2005 to 2012. This era was marked by
huge development budgets for some games, with some having cinematic graphics; the launch
of the top-selling Wii console, in which the user could control the game actions with real-life
movement of the controller; the rise of casual PC games marketed to non-gamers; [citation
needed]
 and the emergence of cloud computing in video games.

In 2013, the eighth generation of consoles emerged, including Nintendo's Wii

U and Nintendo 3DS, Microsoft's Xbox One, and Sony's PlayStation 4 and PlayStation Vita.
PC gaming has been holding a large market share in Asia and Europe for decades and
continues to grow due to digital distribution. Since the development and widespread
consumer use of smartphones, mobile gaming has been a driving factor for games, as they
can reach people formerly uninterested in gaming, and those unable to afford or support
dedicated hardware, such as video game consoles.
Analysis in The Light of Porters 5 Forces Model
Threat of New Entry
Threat of entry in the industry of gaming consoles is low due to a range of several factors.
Nintendo, Sony and Microsoft have been around for several years having established such
strong products discouraging potential entrants from entering the market. Entering the
console industry has a high capital requirement because of the high fixed costs and the
continuous investment in research and development of new technologies, advertising and
marketing.

New entrants could also face problems in other areas such as establishing and securing access
to distribution networks and retailers. Since game consoles rely on the video games available
on the platform, retailers will only carry the hardware if there is large library of games
available for the platform. Finally, if a new competitor eventually manages to enter the
industry they should expect some form of retaliation from the other firms such as aggressive
pricing strategies.

Competitive Rivalry
Nintendo mostly target the casual gamer and is more family orientated. Although in terms of
specifications and graphical power, its consoles are not on the same level as Sony’s or
Microsoft’s, they offer unique features such as motion control or the ability to use the
controller as a second screen. Nintendo has also incorporated a low cost strategy offering the
most affordable console, therefore encouraging more sales.
On the other hand, Microsoft and Sony offer very similar consoles, with identical technical
specifications. They are also similarly priced and are targeted towards the hardcore gamers.
Microsoft and Sony charge more for their consoles because they are more powerful. In terms
of product differentiation, there aren’t many differences between the two making Nintendo
more of an indirect competitor. Console prices are generally high when the product is first
released and as a result not many rush out to buy it. It is important for competitors to try and
persuade consumers to buy their product since it is highly being unlikely to switch in the
future due to the high switching costs. Other strategies include releasing limited editions of
their consoles, and bundle deals which offer the console with an array of accessories or
games in order to tempt customers away from competitors, where the total cost is usually
lower than buying each item separately.
Supplier Power
Supplier power is considered to be low to medium in the console industry. Because Nintendo,
Sony and Microsoft generate revenue from hardware and software sales, both suppliers have
integral roles. Companies strive to supply any of the 3 companies because of the assured
profit they will make. For example, AMD, the main supplier for the semicustom CPU for the
Sony’s PlayStation 4 and Microsoft’s Xbox One, managed to become profitable after over a
year of substantial losses. The suppliers of the main hardware components supply all 3
competitors and these components are critical to a console’s success.

Buyer Power
Buyers in the console market do not have many choices since the competitors are only three.
This coupled with the high switching costs of buying another console reduces their buying
power. Also purchases are made in small volumes from a large number of buyers. As a result,
buyers have limited power in the market.

Threat of Substitute Product

Many alternative substitutes exist in the market, with the level of threat considered to be
medium to high. The main compliment for game consoles are the games available for each
platform. Games can either be developed internally or by third party developers. High quality
games can lead to greater sales.
This is the reason that Microsoft, Sony and Nintendo purchase major development studios in
order to produce exclusive games.
Many consumers nowadays own laptops, tablets and mobiles. According to a report from
gaming industry watchdog PC Gaming alliance, the sales of PC games has increased, with
annual growth reaching 8%. Mobile gaming is also on the rise. The introduction of gaming
applications on mobile devices has given gamers the opportunity to have new entertainment
options at their fingertips. It has been reported by Research and Markets that gamers are
moving away from console and PC gaming towards games on mobile devices such as
smartphones and tablets. It is one of the fastest growing segments on the market and is
forecasted to outpace the total online gaming market in terms of growth, with an annual
increase of about 20%.