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Dr. Pard Teekasap
King Mongkut’s University of Technology North Bangkok
Ü Strategy Talk Ü Term project presentation Ü Xbox case study Ü Discuss on Apple case
Term Project Presentation
Q1: How structurally attractive is the videogame console business in 1999?
Ü Why does the price of the console is so low?
How can console producers make profit?
Ü What is the logic of the razor-blades pricing
Ü Who else use razor-blades pricing strategy?
Ü Where does game developers fit in the 5-force
Ü Why are complementors so important in the
Ü Why can’t console makers provide all the
necessary games themselves?
Ü What attracts game developers to develop for
a particular console?
Indirect network effects
Ü What industries have indirect network effects? Ü What industries have direct network effects? Ü Indirect network effects suggest that game
console needs to attract lots of game developers to your console in order to succeed, is it sufficient?
Ü In late 1980s – early 1990s, why did Nintendo
restrict each game developer to 5 games a year?
Ü Playstation don’t limit the number of game for
each developer. Why could they afford to do so without fearing a market crash like the Atari case?
Q2: How do the five forces and industry attractiveness change over the course of a console generation?
Ü Winner of every generation has always been
different from the previous round. Why?
Ü Does it make sense to delay the launch of the
Ü How important is first mover advantage in
releasing the next generation console?
Q3: What should Xbox do?
2 main options
1. Conventional videogame industry approach: a) selfsupply of consoles; b) consoles priced below cost; c) Microsoft screens game developers and developers pay Microsoft a $7 per unit royalty 2. PC model: a) box makers pay Microsoft a licensing fee for the right to make boxes running on Microsoft gaming “operating system”; b) consoles priced as the hardware makers see fit; c) game developers pay no royalties and no restriction to become a developer
The Fall of an American Icon
“The year was 1984. Apple Computer Inc. was the Magic Kingdom. It was the hip, young heart of Silicon Valley – the place where America was showing the world how the combination of technology and entrepreneurship could make a revolution. Apple created the legend of two kids in a garage inventing a computer – and then building a New Age company where the old corporate rules were scrapped….Today, that Apple – the very icon of a post-industrial, hightech America – is barely recognizable in the troubled $11 billion company that bears the name. Years of overlooked opportunities, flip-flop strategies, and a mind-boggling disregard for market realities have caught up with Apple.” (BusinessWeek, 1996)
Ü What are the Apple’s competitive advantages?
Ü Buyer Ü Supplier Ü Substitute Ü Barrier to entry Ü Complements Ü Rivalry within industry
Ü Who were the buyers 15 years ago? Ü Ü How have the buyers changed? Ü Ü Why did the buyers change so dramatically?
Rivalry within the industry
Ü How was the competition in this industry? Ü Ü Why is it so vicious, despite high growth
Ü Ü How bad is price rivalry in this business?
Barriers to entry
Ü How hard is it to get into the PC business? Ü Ü How hard is it to assembly the PCs? Ü Ü How hard is it to sell and distribute the PCs?
Ü Are there any products that could replace PCs
in the future?
Ü Ü Are these products and technologies a
significant longer-term threat?
Ü What are the key complements for the PC
Ü Ü How have they influenced the industry’s
profitability over the last 10 years?
Ü Who are the suppliers of the PCs industry? Ü Ü Where does the balance of power between
manufacturers and suppliers lie?
Why Windows lead the market?