mti electronic arts in 2002

Flow of Presentation

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

Company Brief

Gaming industry and

internet

Resources , Capabilities &

Core Competency

Industry Opportunities, challenges and attractiveness

Current & Future Proposed Strategy

Design & Implementation

of Technology Strategy

Q & A

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

Electronic Arts


Electronic Arts in 2002

Assignment Question By 2002, how has the Internet affected the video game industry?

How does it affect EA’s corporate strategy?

Console/ PC manufacturing

Game development Distribution

Gaming industry

Value chain – Console / PC

1. Sony 2. Nintendo 3. Sega 4. Microsoft

1. EA 2. Sega 3. VUG 4. Microsoft

Profit appropriation : Console manufacturers controlled the value chain


Console First mover Fast follower Market leader

32 bit Sega Sony Sony

64 bit Nintendo Sony Sony

128 bit Sega Sony Sony

Console

• Royalties reduced margins

• Transitions between generations were difficult

PC market

• Rapid technology change- every quarter

• Attractive segment for developers

Wireless

• High entry barriers

Gaming industry


• Brought in online gaming phenomenon

– Multiplayer online games

– Massive multi player online games

– Portal games

• Modified value chain

Gaming industry and internet

Console/ PC manufacturing

Network infrastructure

Game development

Distribution

Profit appropriation : Power shift from console manufacturers to game developers


Opportunities Challenges

•New revenue stream for game

developers

•Ease of penetration into PC based

gaming market

•Increase in number of players(114 million

people by 2006)

•Higher upfront investment for game

development

•More complex game engines

•Higher server infrastructure investment

•Required dedicated and creative support

teams

•Less than required broadband

penetration

Industry Opportunities and challenges


• 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

Effect on business models


Change in industry attractiveness

Pre Internet Phase Internet Phase

Bargaining Power of Customers

No Change

Threat of new entrants Low High

Bargaining Power of Complementers

High Low

Competitive Rivalry Within industry

Relatively Increases

Threat of Substitute NA NA

Bargaining Power of Suppliers

NA NA


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

Effect on EA’s corporate strategy



Assignment Question What should EA’s corporate strategy be for the next 5 years? Why?

How should they execute the strategy?


Resources Capabilities

Ability to develop Superior Products

Operational Excellence

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

Access to Adjacent Business

Distribution Network



Aligned to technology advancement

Training and development Knowledge sharing

Effective Promotion of Products

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



Capability Rare Value contributed to end product

Difficulty in imitation/ substitution

Competitive advantage in short run

Competitive advantage in long run

Ability to develop

superior products

Yes High Moderate Yes Yes

Operational

Excellence

Yes High High Yes Yes

Effective

Promotion of

Products

No High Low Yes Can’t say

Access to

Adjacent Business

No Low Low No Can’t say

Aligned to

technology

advancement

Yes High High Yes Yes

Core Competency


Operational Excellence

Aligned to technology

advancement

Ability to develop superior products

Growth Strategy

Product

Existing New

Mar

kets

Exis

tin

g

Market Penetration Product Development

Ne

w

Market Development Diversification



• 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

Online Gaming

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 them


Risk of giving competition to console manufactures which forms the major share of EA’s revenue

Requirements for online gaming

Requirements Resources Availability

Infrastructure for e.g. servers

capital required is already there

Managing content Separate creative team

Maintain servers and customer service

People & Capital

Educate customers; Justify the premium

Good games with exciting content

Possible


Corporate Strategy – Action Plan


Set-up infrastructure for online gaming platform – status: already done

Create a new creative team managing team: need for training

Outsource the server maintenance + CRM

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

Staggered subscription fees


Assignment Question What is the right technology strategy to support the business

strategy? How should this change in view of environmental changes and technology changes?

Porter’s Generic Strategy


Competitive Advantage

Low Cost Higher Cost

Co

mp

etit

ive

Sco

pe

Bro

ad

Overall Cost Leadership

Differentiation

Nar

row

Cost Focus Differentiation Focus

• Business strategy – Differentiation

– New product and innovation

– Geographical distribution

• Technology requirements – Significant investment in high-availability server infrastructure

– 24X7 CRM capabilities

• Environmental Changes – Emergence of multi-player online, MMOG and portal games


• Competitive advantage

– Marriage between creative and technical skills • Top talent in the industry

• Significant effort in training and development

• Strong culture of knowledge sharing among studios

• Marketing Strategy

– Word-of-mouth

– Advertising

• Publishing and distribution strategy


Design and Implementation of Technology Strategy: An Evolutionary Perspective


• Defining technology strategy for online gaming development – Outsource server maintenance and CRM support

– Co-creation to handle challenges faced by the developers due to higher upfront investment

– Providing platform for development

– Development plus publishing wherein the development is handled by third party studios and testing, marketing and distribution by EA

– Open innovation • Acquiring IP through licensing and acquisitions

Technology Strategy


Enactment of Technology Strategy

Y Y

Y

Y Y

Y Y

NA


Thank You


mti electronic arts in 2002

Documents

eas corporate strategy

ea sports

game development

gaming industry

online gaming

core competency

technology strategy

group iii