porters model for the gaming industry
TRANSCRIPT
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INTRODUCTION
Over the past 30 years, video games have become an integral part ofthe lives of the people living in developed countries particularly
Video games industry has become a multi-billion dollar behemoth,as the entertainment industry is taking new shape with video gamesas a major player
Video games now capture a similar market size as the movie boxoffice and music sales
During the last few years, video games have been appealing to abroader demographic base, and, for example, average American isspending much more time (75 hours in 2003) in playing games than
the past The average game player age is increased to 35, and 65% of
American households play computer or video games
In 2008, 26% of gamers were over the age of 50
Out of total American gamers, 60% are male and 40% are female
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PORTERS FIVE FORCES MODEL
CompetitiveRivalry
Threat ofnew
entrants
Bargainingpower ofSuppliers
Bargainingpower of
Customers
Threat ofsubstituteproduct
(Very Low)
(Medium to High)
(High)(Very High)
(Fairly High)
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DEGREE OF RIVALRY
Industry Concentration
Concentration for the video game system industry is very high
We use the herfindahl index.
If the herfindahl index is greater than 1800, then it can be assumed that the
potential for rivalry is reduced
It is evident in our HI calculation of 4,502 that the preceding statement is
true for the video game system industry.
Amount of Video Game Systems sold in 2008 for the Three Competitors
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This is typical for this industry, because when a new system hits the market it is
priced incredibly high due to consumers excitement about the newest product
innovation.
However, once that system has been on the shelves for a considerable amount of
time, the price decreases in order to keep the sales level high.
Prices for PS3, XBOX 360, and Wii from 2006-2007
Most of the original systems were discontinued after a short period of time and
replaced with consoles that had higher gigabytes of memory - Major contributing
factor to the reduced price over the following years.
DEGREE OF RIVALRY
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Switching Costs The biggest switching cost to consider is the fact that when a
consumer wants to switch to a new system, they have to buy a
whole new console and all of the necessary controls and
accessories that go along with the new system
The second issue that arises with switching systems is the gamesthat go along with it. Competitors have their own games that can
only be played on that specific system. Thus these two switching
costs reduce the level of rivalry dramatically, and encourage
consumers to steer towards one particular system maker.
Furthermore, consumers may be more likely to purchase anIPhone over the PlayStation Portable or the Nintendo DS because
of the multiple uses the IPhone offers.
DEGREE OF RIVALRY
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DEGREE OF RIVALRY
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THREATS OF SUBSTITUTES Personal Computers
In 2003, according to the US Census Bureau, 61.8% of householdshad a computer. and the Entertainment Software Association hasreported that computer game software sales totaled $701.4 million.
Recent announcement by Valve to release its Steam content deliveryplatform to Macintosh operating systems.
Considering Apples recent increases in the market share of personalcomputers, in particular premium priced units, their chances forsuccess as it relates to video games should be promising
Hand-held devices
Recent statistics show that the IPhone is a force to be reckoned withwhen it comes to using it as a gaming device.
Since July 2008 over 30,000 games have been released in the IPhoneApp Store.
By 2009, Apple was responsible for the sale of 19% of all portablegame software, which is an increase of 5% from their 2008 numbers
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BARGAINING POWER OF SUPPLIERS
Supplier Concentration
The suppliers in this industry are very concentrated to ensure consistency with
the manufacturing of the gaming console. This will allow a better relationship
between the suppliers and the companies in our industry; however having
concentrated suppliers could potentially decrease future profits.
Supplier Substitutes This industry tries to maintain good relationships with fewer suppliers because
they want consistency in the production of their consoles. The demand of these
systems is huge which puts a lot of pressure on both the manufacturers and the
big three.
Importance of Supplier Input
The suppliers depend on the design offered by the big gaming producers like Sony,Microsoft, and Nintendo. The suppliers then manufacture the gaming console as
well as provide feedback on how to be more efficient and cost effective
Threat of Forward Integration
Even though the suppliers have the manufacturing know how, we feel the threat is
very low because Sony, Microsoft, and Nintendo have already established
themselves as brand leaders in this industry.
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BARGAINING POWER OF BUYERS
Switching Costs Switching between suppliers may lead to different ordering systems,
purchase agreements, and possible shipping standards and also consolesystems
Availability of Full Information Basic information on different products in the industry will be available
through trade groups, news articles, and key publications. Threat of Backward Integration:
Even though the industry requires a great deal of in house design teams andthird party developers, a big box store like Wal-Mart could get someone todesign a console for them. Large retailers have been known to produceprivate label items. These store brands are likely to cost less and have fewerfeatures
Buyer Size The retailers selling video game consoles are some of the largest and most
influential operators on the planet. Wal-Mart has tremendous control overtheir suppliers and vendors to get a low price. Best Buy is the leader inelectronic retail space. They have gained bargaining power with suppliersover the past few years
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SWOT ANALYSISSony Play Station 3
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STRENGTHS
Strong brand name of both Sony and PlayStation with a large
installed base of the PS3
Strong network of game licensees
Strong global market position since Sony is a highly diversified
corporation
High quality Blu-Ray function
Strong multimedia support with graphics and audio
capabilities
Best raw computing power provided by its Cell processor High vertical integration
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WEAKNESSES
A product invention backlog which leads to a delay in launch
Less innovation when compared to its competitors like Wii-
move and the Xbox-Kinect
Basic online service portal as compared to additional features
offered by other competitors
No remote control for Blu-Ray playback.
No self-owned OS that establishes loyalty of customers
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OPPORTUNITIES
Blu-Ray may become the new high-definition standard since
demand for Blu-Ray is growing exponentially
Voice controller under development which leads to
tremendous room for innovation
Synergies with other products of Sony.
Production cost could go down via manufacturing scale-up
and improvements
Since, majority of raw-materials are outsourced, up-scaling could
be used as a strategy to benefit from economies of scale
High demand of 13% CAGR for a larger variety of games could
lead to loyal customers
Capitalising on console-specific gaming could also strengthen
consumer base
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THREATS
HD-DVD may become the new high-definition standard
making the USP of the Blu-Ray player redundant
Continuous improvements by competitors may lead to loss of
market for the PS3
Sony must rapidly build a larger network to attract gamepublishers for PS3
Entering into console-specific games could be beneficial for PS3
Communication of the game console as also a Blu-Ray player
may lead to conflicting messages understood by consumers
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S-O Summary
Blu-ray emerges as one of the latest trends in the technologicalarena.
The Blu-ray market in USA grew by 58% in the third quarter of 2011.
Sonys high quality Blu-ray function exploits this opportunity sincethis type of discs enables huge storage capacity and prevents copying
of discs. Brand name, reputation and reliability plays a key role in the
purchase of a high value item like the PS3.
Production of other multimedia products creates positive synergiesfor Sony with the PS3 which works tremendously well withconsumers.
There exists great scope for different game releases every year.
Sonys strong network of game licensees enables Sony to cater to
these demands.
The best audio and video functionality can lead to develop moreadvanced products.
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S-T Summary
The PS3 has incorporated multiple functions including high-
end gaming, Blu-Ray playback and various others.
However, advances in the HD-DVD market could prove
discouraging for the sales of the PS3
Sony should market the PS3 as a core component to a homegame and entertainment system allowing various accessories
as a bundled offer.
There exists a great need of a variety of games for specific
consoles.
Sony has various licensees in order to exploit the threat posed by
various competitors.
To increase the value of the PS3, the Sony could imitate the
Wii-move, which can be called PS-move.
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W-T Summary
Competitors like the Nintendo and Microsoft surpass Sony inthe domain of innovation.
As compared to 18.2 million units of Xbox 360 sold by Microsoft,Sony sells only 10 million units per year.
Sony may further loose market share if it does not keep track of
the inventions that could be made in this sector
Level of trust in the OS by Microsoft greatly influencespurchase decision for choosing a console.
Hence, a highly developed, bug-free OS backed by the Sonygoodwill in the hardware sector must be emphasised.
The greater online experience provided by Xbox-Live could beanother deterring factor for purchasing the PS3.
Adding to features provided by Sony could sustain its stand for alonger period.
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Future Trends in Gaming
Industry Artificial Intelligence
Technological Convergence
Console Less gaming
Multi-Industry growth potential Anti-Piracy Measures