Analysis includes switching to new distribution channels and

Analysis includes switching to new distribution channels and

Analysis of the Home Video Game Industry PLCY 399 Nintendo’s first success At the 1980s, home video game’s sales began to decline and people tend to believe that the home video industry has dead.

But Nintendo managed to recreate the home video game business. First, the head of Nintendo’s United State subsidiary Arakawa had an excellent foresight. He noticed the industry’s further potential and believe in people’s interest in games.

He then implemented the successful marketing strategy which includes switching to new distribution channels and redesigning the machine to cater to American market.Second, when the home video game industry was booming, Yamauchi, the boss of Nintendo, successfully executed two strategies: one was that he developed Nintendo’s own video game machine, which is powerful and at low cost; the other was that they realized that software other than hardware, should be the main source of profit. Third, when focusing on software, Nintendo committed to develop the “most imaginative video games ever”.

He found Miyamoto who combine cartoon with video games, and managed to develop several successful games that hit the market.In total, Nintendo recreated the business by its superior vision and innovative strategies. While Nintendo had successfully recreated the home video business, it then took actions to capture value from this industry.

When their products were redesigned to suit the US market, they embedded a security system to prevent illegal and low-quality games to flood the market. After realizing the increasing thirst for new games, Nintendo licensed the rights to make games. This action made Nintendo to dominate the market with a 90% market share.Meanwhile, they control the quality of product by developing new licensing contract, so that they can consolidate the value. Sega’ success The success of Nintendo’s Famicom attracted Sega to enter into the home video game industry. Its 8-bit system released in 1986 commanded only less than 5% of market, far behind that of Nintendo. However, the leader Nakayama introduced a 16-bit system under the philosophy that great games drive sales and technology enables people to develop more appealing games.

At the same time, Sega recruited licensee using a less restrictive contract compared to Nintendo to find more independent game developers. This philosophy turned out to be successful. Sega began to gain the 16-bit system market, which had been ignoring by Nintendo. Moreover, the sales strategies which including bundle sale, lower price, aggressive advertisement and slogan pushed Sega’s sales significantly. At this point, Sega successfully acquired market share from Nintendo. It was too late for Nintendo to launch its 16-bit system as Sega had gain far more game titles than Nintendo.

DO’s strengths and weaknesses 3DO had certain competitive advantages since the beginning of the company. First, Hawkins’ vision of shifting the home video game business away from the cartridge-based format and toward a CO-ROM-based platform was full of innovation and potential. Second, 3DO had abundant capital when it started-up in the home video game industry. The partners of 3DO were all well-respected companies that could offer assistance. Third, the company had an advantage on technology. It developed a machine with superior storage and graphics-processing capabilities but in a low cost.

All of these features of the machine were believed to be more attractive to game developers and then customers. However, 3DO’s strategies didn’t make the best of its advantages. The main strategy of licensing the hardware for free didn’t reach the outcomes that supposed. The loyalty and quality of game developers were not controlled. And the few game titles could not support but drive down the hardware sales. Meanwhile, 3DO didn’t have enough market research. It didn’t realize that profits should come from software but not hardware.

The price which was too high for a hardware machine had directly led to a slow sale. Sony Playstation’s success Compared to 3DO, Sony Playstation did enough market research. They had a clear target market of males in the 18-35 age range, they marketed the Playstation as alternatives to the outdated Nintendo and Sega cartridge-based system, and they priced originally at $299, which was reasonable and acceptable.

In later days, Sony Playstation continued to lower the price mainly to compete with Nintendo. All of the marketing trategies had been successful and Sony Playstation finally outperformed Nintendo’s Saturn. As to the licensing and game titles issues, Sony Playstation had similar strategy with 3DO. They all license the right to make games to other companies but Sony Playstation charged a relative high loyalty fee of $9 each disc. In addition to recruit licensees, Sony also provided a large amount of development tools to licensees to help them come out games to market. Microsoft’s entering At the end of October 2000, Sony’s new product Playstation 2 launched in the United States.Sony Playstation 2 was a powerful machine that combines the CD player, DVD player and networking capabilities together.

The new machine achieved success in the home video game market quickly. Microsoft, as a personal computer based company, entered in to the industry in response to the potential threat from Sony. Analysts believed Microsoft was concerning that the web-browsing functions could be taken from personal computers since the Internet-ready consoles like the successful PS2 were getting more and more popular.And Microsoft’s research results showed that entering into the home video game industry to keep Sony and other companies in check could make a difference. In addition, they found that the home video game market seemed to have great profit potential and offering sources of growth for the company.

Under the driver of further growth and profit, Microsoft invested large capital to develop Xbox. Analysis of the industry and lessons The home video game industry is a industry that depend heavily on technology and innovation, as the consumers always want a home video game that is both fun and easy to operate.The entry cost was not much at the beginning. However, as technology is growing fast, investing into the new technology requires a large amount of capital.

As a result, cost to exit the industry is also high. In order to succeed, companies need to focus on both hardware and software. A powerful machine is not enough, available games and appropriate marketing research and strategies are equally important. Sony and Microsoft seem to have learned these lessons. They all did enough market research and committed to develop software to support the sale of hardware.Sony strived to speeding new games to come out by licensing and offering development tools after had developed a new machine. It also implemented marketing strategies include setting up in store displays and keeping a close relationship with retailers.

Similarly, Microsoft researched the market carefully to decide whether it should enter into the home video game industry, and assessed its strengths and weaknesses to compete in the market. In addition to focus on developing machine and games, Microsoft also offer additional services to make profit. New generation and Nintendo’s second successAt the year of 2006, Microsoft, Sony and Nintendo all launched their new product. From the release of these products, we can learn that high technology and innovative ideas are playing a more and more important role in the industry. And also, the competition has become tense, which causes the companies to depend more on capital. Nintendo is not the monopoly any more, because Sony and Microsoft seem to have more strength with adequate capital and high technology. However, Nintendo took actions to rebuild itself in the market.

First, it did not compete with Sony and Microsoft in graphics processing power.Instead, it focused on reducing the cost of production and then offering a low price. Second, it came out with an innovative design that enables handheld playing. Third, it extended its range of age groups.

And finally, the games that come out with its new machine were recognizable and innovative: it developed the motion sensitive games that enable people to move their arms and legs to join in the game. All of these successful strategies had enables Nintendo to rebuild itself and outperform its competitor Sony and Microsoft in the new generation.