Lorenzo Pellizzari | Ludovic Beauvois | Soong Kah Weng

Video Gaming Industry

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

History of Video Gaming 1

1951Idea by

Ralph Baer

Early 1960sWilly Higinbotham

& Steve Russell

1966Ralph Baer begins

researching interactive TV

games and was supported by

Defense contractor

1968Ralph Baer

patented the first interactive

game

1971First arcade game was released

1972Magnavox Odyssey console

available to the public

1977Atari released

the video computer

system 2600

1978Nintendo enter

the industry

1983 Sega enter the

industry with SG-1000

1994Sony enter

the industry

2001Microsoft enter the industry

with Xbox

Sources of Innovation 2

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

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

Technology push, Initially

Market pull, Now

Creativity Invention Innovation Diffusion

INNOVATION VALUE CHAIN

Technology push

The creativity of Ralph H. Baer to have games played on television

When the initial purpose is to develop the best television

Creativity

INNOVATION VALUE CHAIN

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

Creativity Invention

INNOVATION VALUE CHAIN Technology push

The invention is then licensed to Magnavox

The video gaming console was in production and sold to the public as Magnavox Odyssey

Creativity Invention Innovation

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

Creativity Invention Innovation Diffusion

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

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 ???

Video Gamin

g

Firm Strategy, Structure

and Rivalry

Demand Conditions

Related and

Supporting Industries

Factor Conditions

PORTER’S DIAMOND

PORTER’S DIAMOND

Factor Conditions

During 1980s, US has a large amount of computer science graduates

Excellent telecommunication infrastructures

PORTER’S DIAMOND Related and Supporting Industries

Triumph of the Arcade

Computer hardware getting cheaper and at the same time improving

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 DIAMOND

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 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.

Types and Patterns of Innovation 3

Product Innovation New consoles are more powerful, better

graphics, closer to reality than their previous versions

Incremental Innovation PS2 is a PS1 with some adjustments (DVD player) Rumble not in PS3

Radical Innovation CD-ROM Wii’s move remote

DIFFERENT DIMENSIONS OF INNOVATIONS

DIFFERENT DIMENSIONS OF INNOVATIONS Competence enhancing innovation

Xbox 360 build on technology of Xbox PS2 still in use, games are compatible! Wii’s move remote radical but competence

enhancing!

Competence destroying innovation CD-ROM replaced the cartridge: cheaper to

manufacture and had a larger capacity than the existing cartridge technology

More Component innovation

TECHNOLOGY TRAJECTORY

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

The PlayStation®Move for Playstation 3

Kinect for Xbox 360yourself are the controller

Timing of Entry Patterns 4

VIDEO GAMING CONSOLES ENTRY TIMING

*indicates the first mover** indicates the most popular platformsDD 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

Generation (Time Period)

Rival Platforms (Manufacturers)

Introduction Date

Operating PerformanceCPU Bit ROM

1st (1976-1982)

Channel FDD (Fairchild)* 1976 2 MHz 8  VCS**DD (Atari) 1977 1,19 MHz 8 4KRCA (Studio) 1977 1,19 MHz 8 2KOdyssey2 (Magnavox) 1978 1,78 MHz 8  Gamevision (Texas Instrument)

1978 1,78 MHz    

Home Arcade (Bally) 1978 3,58 MHz 8  2nd (1980-1984)

Intellivision (Mattel)* 1,980 0,5 MHz 16 16KAtari 5200 (Atari) 1,982 1,79 MHz 8  Colecovision** (Coleco) 1,982 3,58 MHz 8 8-32KArcadia 2001 (Emerson) 1,982 3,58 MHz 8 8K

3rd (1986-1990)

NES** (Nintendo)* 1985 1,79 MHz 8 24-32KMaster System (Sega) 1986 3,6 MHz 8 32-131KAtari 7800 (Atari) 1986 1,79 MHz 8 52K

4th (1989-1996)

Sega Genesis** (Sega)* 1989 7,6 MHz 16 64KTurbo Grafix16 (NEC) 1991 3,6 MHz 8 250KSuper NES (Nintendo) 1991 3,58 MHz 16  

5th (1999-2000)

Interactive Multiplayer (3DO)*

1993 12,5 MHz 32 660Mb

Jaguar (Atari) 1993 26,6 MHz 32 660MbSaturn (Sega) 1995 28 MHz 32 660MbPlaystation**DD (Sony) 1995 33,9 MHz 32 660MbNintendo 64 (Nintendo) 1996 93,75 MHz 64 100Mb

6th (1999-2007)

Dreamcast (Sega)* 1999 200 MHz 128 1,1GbPlaystation 2** (Sony) 2000 294 MHz 128 5,6GbGameCube (Nintendo) 2001 485 MHz 128 1,5GbXbox (Microsoft) 2001 733 MHz 128 5,6Gb

7th (2005-present)

Xbox 360 (Microsoft)* 2005 3,2 GHz 256 20GbWii**DD (Nintendo) 2006 729 MHz 64 512MbPlaystation 3 (Sony) 2006 3,2GHz 256 60Gb

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 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 5

Competition Rivalry

Power of Suppliers

Substitutes

Power of Buyers

Entrants

PORTER’S 5 FORCES FRAMEWORK

To evaluate the attractiveness of the Video Gaming Industry.

COMPETITIVE RIVALRY

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

=> Overall strong competition

THREAT OF SUBSTITUTES

New platforms and new business models

High threat of substitutes

THREAT OF SUBSTITUTES

THREAT OF ENTRY

Space for only 3 players (ex: Sega) Importance of « killer apps » and network

of developers Backwards-compatibility High developing costs Entry of Apple?

=> Threat quite low

POWER OF BUYERS

Software market dominated by large developers (ex: Electronic Arts)

Locked-in customers in a console type with specific games

High price sensitivity But standardized consoles and price

sensitivity

=> Moderate threat

POWER OF SUPPLIERS

Sony, Microsoft produce other types of electronics

Nintendo mainly develops its own games Nintendo (>< Sony, Microsoft) outsources the

manufacturing of hardware => dependent of certain suppliers

Some limited components in consoles (ex: blue laser diodes in PS3)

=> Moderate threat

Strong Competition Rivalry

Moderate Power of Suppliers

Lot of Substitute

s

Moderate Power of Buyers

Low Risk of

Entrants

PORTER’S 5 FORCES FRAMEWORK

Unattractive Industry to Enter Apple is the most likely candidates to enter

Standard War Dynamics 6

3 DOMINANT DESIGNS

Cartridges:- Start: Atari- Supremacy: NES

CDs:- Start: PS- Supremacy: PS- Parallel DD: cartridges

« Move remote »:

- Start: Wii- Supremacy: Wii- Parallel DD: Classical remotes

Lessons from the Past 7

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 POSITIONand also Enabling 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

The EndQ&A