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Video Gaming Industry . Lorenzo Pellizzari | Ludovic Beauvois | Soong Kah Weng. Agenda 1. History of Video Gaming 2. Sources of Innovation 3. Types and Patterns of Innovation 4. Timing of Entry Patterns 5. Porter’s 5 Forces Framework 6. Standard War Dynamics

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Video Gaming Industry

Lorenzo Pellizzari | LudovicBeauvois | Soong KahWeng

Agenda

  • 1. History of Video Gaming
  • 2. Sources of Innovation
  • 3. Types and Patterns of Innovation
  • 4. Timing of Entry Patterns
  • 5. Porter’s 5 Forces Framework
  • 6. Standard War Dynamics
  • 7. Lessons from the Past
world first video gaming console
World First video gaming console
  • In 1972, this was available to the public
  • Evolve a lot
  • Exponentially faster
  • Wireless controllers or even no controllers
  • Online capabilities
  • Multiples players
  • 3D Games
  • Colour output and surround sound ……
individual as innovators
Individual as Innovators
  • Ralph H. Baer
    • Tasked to develop the best Television in the world
    • Idea is to include some interactive game
    • But the management did not pursue
    • Developed the first console,

Magnavox Odyssey in 1968

innovation value chain
Innovation Value Chain
  • Technology push, Initially
  • Market pull, Now
innovation value chain1
Innovation Value Chain
  • Creativity
  • Technology push
    • The creativity of Ralph H. Baer to have games played on television
    • When the initial purpose is to develop the best television
innovation value chain2
Innovation Value Chain
  • Creativity
  • Invention
  • Technology push
    • After beginning with the supportresearching interactive television games of defence contractor, Sanders Associates
    • Lead to the invention of gaming console “Brown Box” in 1968
innovation value chain3
Innovation Value Chain
  • Creativity
  • Invention
  • Innovation
  • Technology push
    • The invention is then licensed to Magnavox
    • The video gaming console was in production and sold to the public as Magnavox Odyssey
innovation value chain4
Innovation Value Chain
  • Technology push
    • Technology push because the creativity led to new products which the market has yet to demand for it
    • New knowledge was transform into new product
innovation value chain5
Innovation Value Chain
  • Market pull
    • With 3D television gaining popularity, video gaming console need to have 3D capabilities.
    • Controller-less demands from the market has push Sony and Microsoft Xbox to come out with video gaming console that support gaming without a controller.
    • Higher video games requirements push for newer gaming consoles with more powerful hardware.
    • Online technology
porter s diamond
Porter’s Diamond
  • Magnavox (U.S Co)
  • Atari, Inc. (U.S Co)
  • Sony Playstation (U.S Co)
  • Microsoft Xbox (U.S Co)
  • Sega (Japan Co)
  • Nitendo (Japan Co)
  • Why are U.S so innovative in the video gaming industry ???
porter s diamond2
Porter’s Diamond
  • Factor Conditions
    • During 1980s, US has a large amount of computer science graduates
    • Excellent telecommunication infrastructures
porter s diamond3
Porter’s Diamond
  • Related and Supporting Industries
    • Triumph of the Arcade
    • Computer hardware getting cheaper and at the same time improving
porter s diamond4
Porter’s Diamond
  • Related and Supporting Industries
    • Developers and publishers coming out with greater varieties and newer games
    • Television technology is advancing with better video and audio outputs
    • Newly available video-gaming magazines in the early 1980s
porter s diamond5
Porter’s Diamond
  • Firm Strategy, Structure and Rivalry
    • Game cartridges or disks can only be used by the gaming console of the respective company
    • The gaming console is also backward compatible with games, meaning that old game cartridges or disks can be used on the newer version of the gaming console
porter s diamond6
Porter’s Diamond
  • Demand Conditions
    • The home markets demand for gaming console after the triumph of the arcade in early 1980s.
    • Demand for faster gaming consoles from 8-bit, 16-bit, 32-bit to 128-bit so that greater processing power is available for performance-intensive games.
    • Demand to play games online with the rapid growth of faster broadband.
different dimensions of innovations
Different dimensions of innovations
  • Product Innovation
    • New consoles are more powerful, better graphics, closer to reality than their previous versions
  • IncrementalInnovation
    • PS2 is a PS1 with some adjustments (DVD player)
    • Rumble not in PS3
  • Radical Innovation
    • CD-ROM
    • Wii’smove remote
different dimensions of innovations1
Different dimensions of innovations
  • Competence enhancing innovation
    • Xbox 360 build on technology of Xbox
    • PS2 still in use, games are compatible!
    • Wii’smove remote radical but competence enhancing!
  • Competencedestroyinginnovation
    • CD-ROM replaced the cartridge: cheaperto manufacture and had a largercapacity than the existing cartridge technology
  • More Component innovation
technology trajectory
Technologytrajectory
  • Disruptive tech is Wii (less advanced performance, simpler system)
  • But cheaper than PS3 and
  • Xbox 360 thanks to lower development costs
  • Consumers switch to Wii
  • Both Sony and Microsoft had to create a new controller, to compete with the Wii
sony s and microsoft s reaction
Sony’s and Microsoft’s reaction

The PlayStation®Movefor Playstation 3

Kinect for Xbox 360

yourself are the controller

video gaming consoles entry timing
Video Gaming consoles Entry timing

*indicates the first mover

** indicates the most popular platforms

DD indicates early adaptor and dominant design

Source:

° Innovation and Competition in Standard-Based Industries: A Historical Analysis of the U.S. Home Video Game Market, Scott Gallagher and Seung Ho Park, IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 49, NO. 1, FEBRUARY 2002

° Wikipedia.com

what can we say from the chart
What can we say from the chart ?
  • Out of the 7 Generations of Video Gaming Consoles
    • 2 out of 7 first movers managed to become the most popular
    • Most of the cases, early followers became the most popular video gaming platform
  • Why is early followers more successful?
    • Able to determine the market responses to the products sold by the first movers
    • Waiting for enabling technologies to be more established
    • Able to learn from the mistakes from first movers before launching the new products
in the case for sony playstation
In the case for Sony Playstation
  • Was never a first mover
  • In the 5th Generation, Sony was the 4th company to launch Playstation
    • But it became the most popular platform and set the dominant design for that generation
  • In the 6th Generation, Sony was the 2nd company to launch Playstation 2
    • It became the most popular platform the for that generation
  • In the 7th Generation, Sony was so far the last company to launch Playstation 3
porter s 5 forces framework
Porter’s 5 forces framework
  • To evaluate the attractiveness of the Video Gaming Industry.
competitive rivalry
Competitiverivalry
  • 3 big players with changes in leadership through time
  • Decrease in sales of consoles (-8% in 2010)
  • Competition on differentiation and prices
  • Moderate barrier to exit

=> Overallstrongcompetition

threat of substitutes
Threat of substitutes

New platforms and new business models

Highthreat of substitutes

threat of entry
Threat of entry
  • Space for only3 players(ex: Sega)
  • Importance of « killer apps » and network of developers
  • Backwards-compatibility
  • High developingcosts
  • Entry of Apple?

=> Threatquitelow

power of buyers
Power of buyers
  • Software marketdominated by large developers(ex: Electronic Arts)
  • Locked-incustomersin a console type withspecificgames
  • High pricesensitivity
  • But standardized consoles and pricesensitivity

=> Moderatethreat

power of suppliers
Power of suppliers
  • Sony, Microsoft produceother types of electronics
  • Nintendo mainlydevelopsitsowngames
  • Nintendo (>< Sony, Microsoft) outsources the manufacturing of hardware => dependent of certain suppliers
  • Somelimited components in consoles (ex: blue laser diodes in PS3)

=> Moderatethreat

porter s 5 forces framework1
Porter’s 5 forces framework
  • Unattractive Industry to Enter
  • Apple is the most likely candidates to enter
most important lessons of the past for the present strategic position
most important lessons of the past for the present strategic position
  • History of Video gaming seems to be following the evolution of the vehicle where games appear most — Television and ………..
  • Black/White to Colour
  • Colour to Flat Screen
  • Flat Screen to LCD/Plasma
  • LCD/Plasma to HDTV
  • Next Step: 3D TV and Virtual Retina Display for greater realism and details
most important lessons of the past for the present strategic position1
most important lessons of the past for the present strategic position

andalsoEnabling Technologies

  • From 8-bit, 16-bit, 32-bit to 128-bit
  • Cartridges to CD to DVD to Blue-Ray Disk
  • From multiplayer to online gaming
  • From Wired controller, to wireless controller to action sensor controller …
  • Next Step: 4G gives 100mb/sec connection anywhere
  • No hand gaming, brains will do it
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