Industry’s dominant economic traits:

Market size & growth rate

 Till 2008 about 300 million people worldwide played video games.
 Value of entire industry was said will grow from $35 billion (2005) to $51 billion (2010), i.e.
growth of dash 68%.
 According to us industry is in growth phase, as indicated by Nividia CEO “industry is still a good
solid 10 years away from photo realism”. There is a lot of opportunity for growth.
 When exhibit 3 is studied the projected growth rate for global video games market is 45%.

Companies Market Share in %

Nintendo 62%

Sony 30%

Microsoft 7%

Number of rivals
 There are 3 no of rivals namely Microsoft. Sony and Nintendo.
 The market share of them are following:

Scope of competitive rivalry

 All the 3 rivals compete globally because gamers are globally spread.
 Nintendo based in Japan has captured a solid lead in hand held game category with DS selling
more than 8.5 million units in America with 3.8 million units of Sony PSP were also sold.

Number of buyers
 Buyers are end users, electronic retailers and retailers.
 Advance improvement in technology, backward compatibility, system appearances are the few
factors that influence buyers to choose between different systems.
 The average age of game players was raising and therefore rivals wanted to customized there
systems according to new users wants. For example Nintendo focuses on non-gamers.
Degree of product differentiation
 In this industry company who don’t differentiate product can fail to attract specific attention of
users to its product.
 Rivals kept each of their products unique hence there isn’t much price competition.
 More price competition among retailers in video game accessories segments.

Product innovation
 Innovation was not rapid the industry.
 Product life cycle is not short. According to table 1 in case study, it shows that PS2 is still running
and other products are also not vanished from the market within a year.
 R&D is really important in this industry. As you can see that Microsoft spends 15% of its revenue
on R&D and Wii took 1 year to develop wand controller.

 There are some opportunities to overtake key rivals by being first-to-market with next
generation products. Microsoft get edge over its rivals because it launches Microsoft Xbox 360
1year before from the release of generation console by rivals.

Production capacity
 Short supply not creating sellers market.
 The industry is not in surplus capacity pushing prices and profit margins down.

Pace of technological change

 Advancing technology play a strong role in the industry because gamers have high anticipation
regarding advancing technology.
 All the member of the industry needs strong technological capabilities that are why they allied
with IBM to make microprocessors.

Vertical integration
 There is no vertical integration because not all the component can be made by any of the rivals.
 There is a partial integration in all companies, as they have alliances with microprocessors and
graphics accelerators producers, resulting in competitive disadvantage.

Economies of scale
 There is no economy of scale in the industry.

Learning and experience curve effect

  Companies are not characterized by learning curve effects.

Porter Five forces Model

Threat of New Entrants / Entry Barriers

Factors HUFA MUF Neutral MFA HFA Comment

(1) A (2) (3) (4) (5)

Economies of Small * Large

Scale

Capital Required Low * High

Expected Low High

*
Retaliation

Differentiation Low * High

Access to Ample Restricted

Distribution *
Channels

Brand Loyalty Low * High

3+4+4+4+2+2=19/6=3.16

Exit Barriers
 Factors HUFA MUF Neutral MFA HFA Comment
(1) A (2) (3) (4) (5)

Specialized Assets High * Low

Strategic Interrelationship High * Low

4+2=6/2=3

Competitive Rivalry

Factors HUFA MUFA Neutral MFA HFA Comment

(1) (2) (3) (4) (5)

Composition of Equal Size Unequal

*
Competitors Size

Market Growth Slow High

*
Rate

Scope of Global Domestic

*
Competition

Degree of Commodity High

*
Differentiation

3+3+2+3=11/4= 2.75

Power of Buyer

Factors HUFA MUFA Neutral MFA (4) HFA Comment

(1) (2) (3) (5)
 Number of Important Few Many
*
Buyer

Threat of backward High Low

*
Integration

Product Supplied Commodity * Specialty

% of buyer’s Cost High * Low

Profit earned by Low High

*
buyers

4+5+4+4+2= 19/5=3.8

Power of Supplier

Factors HUFA MUFA Neutral MFA HFA Comment

(1) (2) (3) (4) (5)
 # of important Few Many
*
Supplier

Switching Cost High * Low

Availability of Low High

*
Substitutes

Threats of Forward High Low

*
Integration

Suppliers product an
important input to
Highly Less
the buyer’s business *
important importan
t

2+3+2+4+1=12/5=2.4

Threat of Substitute Product

Factors HUFA (1) MUFA (2) Neutral (3) MFA (4) HFA (5) Comment

Threat of *
obsolescence of
industry’s product
Hi Low

Switching cost Low * High

Perceived Hi * Low
price/value

5+4+4=13/3=4.3

Overall Industry Attractiveness

Factors Unfavorable Neutral Favorable

Entry Barrier 3.16

 Exit Barrier 3

Rivalry among
2.75
existing firms

Power of
3.80
Buyers

Power of
2.4
Suppliers

Threat of
Substitute 4.30
Product

Overall Industry Attractiveness of the industry is Favorable =3.23

Strategic Group

Mapping Strategic Groups in the U.S. Metal Container Industry

High

Sony

Microsoft
Price

Nintendo

Low

Low Product Variety High

Industry dynamics on dominant strategic groups

(Porter five forces of competitive)

Group (Microsoft,Sony)
  Threats of new entrants: Low
The market share is safe from any new entrants.
 Rivalry among existing firms: High
Competition in terms of innovation, customer-oriented features

 Threat of Substitute Products or Services: Low

There are substitutes available but people are not too much attracted towards it.

 Bargaining Power of Buyers: Low

The demand of product is very high.

 Bargaining Power of Suppliers: High

There might be chances of the micro processor suppliers dictate term to the gaming console
industry.

Drivers of change:

Technological change:

Due to high computing power and graphics every console maker adjusted its technology
accordingly and resulting in global market of to increase by 67%.

Exit of major firm:

Sega unable to achieve success withdrew in 2001 because it just had one hit game which was
not enough to attract customers, therefore game software developers focus their efforts on
Nintendo and Sony.

Emerging new internet capabilities and applications:

In 2007, 76% of Wii users went on line to play games and Xbox and PS3 owners went online
70%.

Changes in who buys the product and they use it:

By 1983, consumers were bored of simple arcade type games and therefore the industry was
dying, but Nintendo rescued the industry by offering popular super Mario Bros game and
Nintendo also allowed users to take their games outside the home through the Game Boy. As
video games spread in categories of hand held devices, Pc’s and mobile phones the average age
of game players rose. Nintendo created the Wii fitness game which allowed users to evaluate
their posture, balance and body mass index. Xbox Live provided users who had broad band
access the capability to play online games, chat, watch game trailers etc. Sony also released
such features but there content was very limited and no match for Xbox Live.

Spread of technical knowhow:

In making new systems all three companies allied with IBM and Nvidia to produce micro
processors and graphics processing units respectively, allowing all gamers to play highly
sophisticated and life like games.

Product innovation:

Nintendo successfully developed Wii appealing non-gamers which analysts say “will further
expand market for video games.

Growing preferences for differentiated products:

Industry sales slowed considerably between 2003 and 2005 as gamers postponed purchase
until they eagerly awaited next generation of console games become available.

Key Success factors:

Technological factor:

Nintendo ability to rescue industry with innovative game systems gave other rivals opportunity
to survive in the industry.

Manufacturing:

Nintendo’s low cost system resulted in low relative development cost needed for its video
games, therefore video game developer believed there was more opportunity for immediate
profits from Wii games than those for PS3 and Xbox 360.

Industry Matrix/ Competitive Profile Matrix (CPM)

Strategic Factor Weigh Sony weighted Nintendo weighted Microsoft weighted

 t Rating score Rating score rating score

Technology 0.25 4 1 4 1 4 1

Innovation 0.20 3 0.6 4 0.8 4 0.8

Famous Games 0.18 3 0.54 3 0.54 3 0.54

Consumers 4 0.6
anticipation 0.15 3 0.45 3 0.45

3 0.36
Installed based 0.12 3 0.36 4 0.48

Meeting 2 0.20
demand 0.10 2 0.20 2 0.2

1 3.15 3.47 3.50