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Wednesday, April 13, 2011

Competition in video game console industry

Video game industry has continued to grow dramatically over the past decade and for now industry is poised for significant growth, but many sectors have already matured. The three main players of the industry are Nintendo, Sony, and Microsoft. Nintendo is the one of the key players among three big giant in the industry and Sony and Microsoft both fall in to the latter category. Thus, safe in a fairly differentiated position, Nintendo is in a dominant position in the marketplace paying off the Nintendo’s sales of the Wii far outpacing original expectations. Sony is no longer dominating the market, and compared to the previous distribution of demand for gaming consoles is losing significant ground.
The consumer market is segmented mainly by age. Nintendo is aggressively courting non-traditional gaming groups outside the traditional profile in an attempt to increase the size of the console market therefore it does not compete with the others as much. In contrast, Sony and Microsoft court the hardcore gamer and expect console sales to trickle down to more casual gamers. Therefore, the fight in the console industry traditionally was based on the technology, features, graphics and games sophistication to attract the hardcore gamers. For example, Microsoft X-box which exceeds all the areas of Sony Play station before Sony introduced its PS3 and later Sony responded with an improved PS3 incorporating a Blu-ray drive within every S3. To win the competition, Nintendo introduced Wii targeting a new group of customers segment and carve out a niche for itself. In its new console system Nintendo designed a wireless controls which allows players to mimic life like actions for gaming control.
In my opinion some of the major strategies used by the gaming industry is differentiation, low cost and focus strategy by different players. For example, applying broad differentiation strategy Microsoft new Xbox 360 system effectively doubled the bandwidth and added eight times the memory of the original Xbox. In addition, its CPU had ten times the processing power of the Xbox. These additions of enhanced graphics and playing power attracted new customers. Microsoft also created a service, known as the Xbox Live. Subscribers have the unique experience of interacting with other gamers, streaming media, and even buying add-ons to games. This differentiation strategy has proven extremely successful, and even in the recession has a record number of sales.
Microsoft’s approach to Porter’s four competitive strategies for the Xbox would be focus in the video game industry (focus strategy), and differentiation of their product from others. Xbox is labeled under focus, because it is only dealing with one section of the technological world which is the video game industry. It is also labeled under differentiation because Microsoft offers a specialized product with various features, making it stand out from the competition.
Sony, on the other hand differentiates its Play station 3 incorporating Blue ray DVD functions and finally Nintendo differentiate itself from the Microsoft and that of Sony in terms of target market. With its differentiation strategy, Sony creates a console and games that appeals to people who had been ignored by Microsoft and Nintendo. Furthermore, its key feature was a new form of player interaction and a wireless controller that could detect its position in space. In addition to using buttons and joysticks to control games, users could swing or point the new controller as they would with a sword or tennis racket. This provides gamers with a more enjoyable experience and much more intuitive interface than other consoles, especially if the game involves swinging swords or tennis rackets.
In addition to this, Nintendo Wii had price leadership strategy. The system was the least expensive to make and then sold for lowest price. As a result, the system was more accessible to more people. Nintendo has always been the cost leader, and this time that advantage really helped the Wii take off in sales. Beside this, Nintendo innovated with new controllers that included motion control, the nun chucks, using the remote as a pointer device, a wireless, motion-control steering wheel, a wireless light gun, and a balance board. They also released innovative games like Brain Age, Wii Play, Wii Sports, Wii Fit, and Wii Music etc.
Sony was the market leader in the Console industry offering its PS2 and sold more than one hundred million units just before the introduction of the Xbox360 by Microsoft and Wii by Nintendo. Another launch of PS3 by Sony blew the whistle and the battle for supremacy started where three giant competed with each other with their mainstream consoles. These 7th generation consoles, hence, are competing in the turbulent and high speed industry with rapidly changing technological advancement such as from a simple graphic to advance photo-realism used in the current sophisticated environment.
The video game industry is marked by massive growth, volatility and opportunity. Although the market has clearly evolved from its pioneer days into a state of maturity, dynamism created by technological competition continues to influence the behavior and strategy of the key players in the industry. Competition among big three manufacturers is expected to spark a price war in the future that will lower the price of consoles. Since the industry is already in the maturity stage therefore the broad differentiation strategy may not be effective in the future. The reason is that only differentiation strategy is not enough for sustainable competitive advantage. Beside this, now industry should be able to implement and manage the cost leadership strategy to remain strangest in the competition. As more businesses enter the market and as the rate of demand growth declines, competition becomes fierce. At the same time, the opportunities for improving product quality had been exploited and therefore, product differentiation is less. As a result, the competition in the maturity stage is largely price competition.  Consequently, the key to profitability in this stage is cost structure.  Therefore console industry now should focus on cost reduction strategies such as cost leadership rather than on product differentiation. Furthermore, due to the maturity stage of the product life cycle in the Console industry, competition has entered and these entire three rivals product will try to cannibalize each other. To remain in the competition rival company now should reduce the price of their product and expand product offering to protect their market share.
In conclusion, the video gaming industry market size has grown very little in the past few years, which means everyone who want to own and play video games have already bought and decided on their favorite game consoles. In order to break into the market, Nintendo, Sony and Microsoft must seek market shares from a completely different angle. Attracting casual gamers such as professional, party gamers, families and active adults is what Nintendo tries to do with the game console Wii.


Thompson, A.A., Strickland, A.J. & J.E. Gamble (2010) Crafting and Executing Strategy: The Quest for Competitive Advantage 17th edition. New York, McGraw-Hill Irwin

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