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Management of Technology & InnovationCase Analysis: Electronic Arts in 2002

Group IIIDEVARAJAN K | SHALABH DHANKAR | SONAM BHARGAVA | AMARENDRA KR.GORAI | BHARATH BALAJI | AKSHATA V M | KARTHIKA S| NEELAM | VIGNESHWAR M | AMOY KUMAR DUTTA | KULBHUSHAN SINGH BAGHEL | MAHTAAB KAJLA

Flow of Presentation

Company Brief

Industry Opportunities, challenges and attractiveness

Current & Future Proposed Strategy

Q&A

Gaming industry and internet

Resources , Capabilities & Core Competency

Design & Implementation of Technology Strategy

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Electronic Arts

EA Third party game developer

Operates in Console, PC and online market

EA sports Most recognized sports brand of US

Invested considerably in both marketing and distribution functions

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Electronic Arts in 2002Assignment Question By 2002, how has the Internet affected the video game industry? How does it affect EAs corporate strategy?

Gaming industry

Value chain Console / PC

Console/ PC manufacturing1. 2. 3. 4. Sony Nintendo Sega Microsoft

Game development

Distribution

1. 2. 3. 4.

EA Sega VUG Microsoft

Profit appropriation : Console manufacturers controlled the value chain Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Gaming industry

Console Royalties reduced margins Transitions between generations were difficult

PC market Rapid technology change- every quarter Attractive segment for developers

Wireless High entry barriers

Console 32 bit 64 bit 128 bit

First mover Sega Nintendo Sega

Fast follower Sony Sony Sony

Market leader Sony Sony Sony

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Gaming industry and internet

Brought in online gaming phenomenon Multiplayer online games Massive multi player online games Portal games

Modified value chain

Console/ PC manufacturing

Network infrastructure

Game development

Distribution

Profit appropriation : Power shift from console manufacturers to game developers Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Industry Opportunities and challenges

Opportunities New revenue stream for game developers Ease of penetration into PC based

Challenges Higher upfront investment for game development More complex game engines

gaming market

Higher server infrastructure investment

Increase in number of players(114 million Required dedicated and creative support people by 2006) teams Less than required broadband penetration

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Effect on business models Sega Dreamcast- Huge investment in advanced technological features False start ahead of competitors in online gaming Resulted in huge losses Closed down console business and concentrated on software development

Sony and Nintendo Sony provided adapter for its playstation to enable online gaming Both did not provide network infrastructure

Microsoft Developed and provided proprietary network infrastructure favoring closed network Controlled third party game developers Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Change in industry attractiveness

Pre Internet Phase Bargaining Power of Customers Threat of new entrants Bargaining Power of Complementers Competitive Rivalry Within industry Low High No Change

Internet Phase

High Low Relatively Increases

Threat of Substitute Bargaining Power of Suppliers

NA NA

NA NA

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Effect on EAs corporate strategy

Advent of internet pushed EA from a game developer to service provider

Adopted subscription based business model for an additional revenue stream

Complementary capabilities are required

Developed capability by acquiring substitute platforms like Pogo.com

Joined hands with AOL to exploit online marketing medium

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Electronic Arts in 2002Assignment Question What should EAs corporate strategy be for the next 5 years? Why? How should they execute the strategy?

Resources Capabilities

Talent Pool Organizational Culture Financial muscle to back development (Exhibit 11) Excellent Management Selecting Right Projects and resource allocation Clamped down on science projects during transition period Effective usage of shelf space Outstanding way of managing inventory levels Worldwide time to market < 2weeks Distribution Network

Ability to develop Superior Products

Operational Excellence

Access to Adjacent Business

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Resources Capabilities Training and development Knowledge sharing

Aligned to technology advancement

Marketing Personnel and Skills Focus on Lesser SKUs with more investment per titles Better point of sales promotions

Effective Promotion of Products

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Resources CapabilitiesCapability Rare Value contributed to end product High Difficulty in imitation/ substitution Moderate Competitive advantage in short run Yes Competitive advantage in long run Yes

Ability to develop Yes superior products

Operational Excellence Effective Promotion of Products

Yes

High

High

Yes

Yes

No

High

Low

Yes

Cant say

Access to No Adjacent Business Aligned to technology advancement Yes

Low High

Low High

No Yes

Cant say Yes

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Core Competency

Ability to develop superior productsAligned to technology advancement Operational Excellence

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Growth Strategy

Product Existing Existing Market Penetration New Product Development

Markets

New

Market Development

Diversification

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Online Gaming

Attractive: Constant reservoir of players, played indefinitely (no specific endings) Challenges: Managing content: keep players interested by introducing new content on a regular basis Lifecycle of games extended beyond purchase and launch Reluctance to pay based online games (Initially attracted only hard core gamers); consumer education on pay-for-play gaming, justify the premium by offering attractive content Significant investment in server infrastructure Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Rationale for online gaming Current revenues (2002) = $1724 mn Assumption: growth rate of 25% pa Projected revenues by 2006: $1724*1.25^4 mn = $4208 mn Estimated total online subscribers in 2006: 114 mn Assumption: Market share = 16 % Average revenue per customer per month = $15

Projected revenues from online gaming = 114 mn * 16% * $15/month *12 months = $3283 mn Other sources of revenues: Advertising Less royalties as servers belong to themRisk of giving competition to console manufactures which forms the major share of EAs revenue Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Requirements for online gaming

Requirements

Resources

Availability

Infrastructure for e.g. serversManaging content Maintain servers and customer service Educate customers; Justify the premium

capital required is already thereSeparate creative team People & Capital Good games with exciting content

Possible

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Corporate Strategy Action PlanSet-up infrastructure for online gaming platform status: already done

Outsource the server maintenance + CRM

Come out with online versions of their most popular games like EA Sports

Create a new creative team managing team: need for training

Staggered subscription fees

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Electronic Arts in 2002Assignment Question What is the right technology strategy to support the business strategy? How should this change in view of environmental changes and technology changes?

Porters Generic Strategy

Competitive Advantage Low Cost Competitive Scope Broad Overall Cost Leadership Higher Cost Differentiation

Narrow

Cost Focus

Differentiation Focus

Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation

Business strategy Differentiation New product and innovation Geographical distribution

Technology requi