Researched and analyzed information regarding the past and future competitive success of Electronic Arts Inc., identifying the company/industry driving forces, key success factors, and opportunitie...
Case Strategic Management - Electronic Arts
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Industry Opportunities and challenges
Opportunities
New revenue stream for game
Challenges
Higher upfront investment for game
•
•
developers
development
Ease of penetration into PC based
More complex game engines
•
•
gaming market
•
Increase in number of players(114 million
Higher server infrastructure investment Required dedicated and creative support
•
•
people by 2006)
teams Less than required broadband
•
penetration
Effect Effect on business models •
Sega Dreamcast- Huge investment in advanced technological features features False start ahead of competitors in online gaming Resulted in huge losses Closed down console business bu siness and concentrated on software development –
–
–
–
•
Sony and Nintendo –
–
•
Sony provided adapter for its playstation to enable online gaming gaming Both did not provide network infrastructure
Microsoft Developed and provided proprietary proprietary network infrastruct infrastructure ure favoring closed network Controlled third party game developers –
–
Change in industry attractiveness
Pre Internet Phase
Bargaining Power of Customers
Internet Phase
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
Effect on EA’s corporate strategy
Advent of internet pushed EA from a game developer to service provider
Adopted subscription based business model for an additional reve revenue nue stream
Complementary capabilities are required
Developed capability by acquiring substitute platforms like Pogo.com
Joined hands with AOL to exploit online marketing medium
Electronic Arts in 2002 Assignment Question What should EA’s corporate strategy be for the next 5 years? Why?
How should they execute the strategy?
Resources
Capabilities
Talent Pool Organizational Organiz ational Culture Financial muscle to back developmen developmentt (Exhibit 11)
Excellent Management Excellent Selecting Right Projects and resource allocation Clamped down on science projects during transition period Effective usage of shelf space Outstanding way of managing m anaging inventory levels Worldwide time to market < 2weeks
Distribution Network
Ability to develop Superior Products
Operational Excellence
Access to Adjacent Business
Resources
Capabilities
Training and development Knowledge sharing
Marketing Personnel and Skills Marketing Focus on Lesser SKUs with more m ore investment investment per titles Betterr point of sales promotions Bette
Aligned to technology advancement
Effective Promotion of Products
Resources Capability
Rare
Capabilities Value contributed to end product
Difficulty in imitation/ substitution
Competitive advantage in short run
Competitive advantage in long run
High
Moderate Mode rate
Yes
Yes
Yes
High
Hi gh High
Yes Yes
Yes
No
High
Low
Yes
Can’t say
No
Low
Low
No
Can’t say
Yes
High
Hi gh High
Yes Yes
Yes
Ability to develop Yes superior products
Operational Excellence Effective Promotion of Products Access to Adjacent Business Aligned to technology advancement
Core Competency
Ability to develop superior products Aligned to technology advancement Operational Excellence
Growth Strategy
Product
s t e k r a M
g n i t s i x E
Existing
New
Market Penetration
Product Development
w e Market Development N
Diversification Diversification
Online Gaming •
•
Attractive: Constant reservoir Attractive: reser voir 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 Reluct ance 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
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 Aver age revenue per customer c ustomer 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 EA’s ’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 infrastructur infrastructure e 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
Electronic Arts in 2002 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
e p o c S e v i t i t e p m o C
Low Cost
Higher Cost
d a o r B
Overall Cost Leadership
Differentiation
w o r r a N
Cost Focus
Differentiation Differentiation Focus
•
Business strategy –
–
–
•
Technology requirements –
–
•
Differentiation New product and innovation Geographical Geographic al distribution
Significant investment in high-av high-availability ailability server ser ver 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 developmen developmentt
•
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
Technology echnol ogy Strategy
•
Defining technology strategy for online gaming development –
–
–
–
–
Outsource server maintenance and CRM support Co-creation Co-creatio n to handle challenges faced by the developer developerss due to higher upfront investment Providing platform for development Developmentt plus publishing wherein the development is Developmen handled by third party studios and testing, marketing and distribution by EA Open innovation •
