SONY PLAYSTATION STRATEGIES IN THE VIDEO MARKET José G. Vargas-Hernández, MBA, PhD Martin O. Velasco-Guzmán University Center for Economic and Managerial Sciences University of Guadalajara, Mexico 265
Introduction Video games production is a solid industry with the process of creating and marketing its products. The video game industry involves the development, marketing, sales and services that accompany this process of commercialization, which has a large global economic impact. The video game industry should be understood as a set of producers of goods for a mass global audience, where one of its main bases is the development and investment in high-tech resources (Frias, 2010). The video game industry is an industry with huge potential. Only in 2013 it generated more than 21 billion dollars in revenue, out of which $ 15.4 billion are associated with video software sales of all kinds including pc, handheld and downloadable games (Entertainment Software Association, 2013). This has led to a rivalry between firms which have taken the strategy to make the most of their products. The success of a console departs from the use of the capabilities and resources of the firm. As it has been seen the best technology is not always sticking but outstanding in the industry, taking into account the ability to excel under the management of dynamic capabilities of each firm, and see whether it is adapting quickly and effectively to the environment or market demand. In addition, technological advances and externalities become an important factor for the industry. The new information and communication technologies, and especially internet and computer networking in general, are fundamental for information economies which are essentially based on the processing and communication (William, 2002). Also it is worth mentioning that the main reason of PlayStation staying on the market is that it has been able to play its dynamic capabilities. Background Chandler (1990) argues that modern industry can be defined as a set of operating units, each with its own facilities and dedicated staff, whose combined resources and activities are coordinated, monitored and assessed by a hierarchy of middle and senior managers. Thus PlayStation has been self-positioning in the front of the market; it has its own development team, design, distribution and sales of both consoles and video software. In addition there is always a head, which looks and runs the entire organization for positioning over others, at the top of the pyramid. However, PlayStation must take care of its industry position, as it is not the only one in the market; along with the other two competitors, Microsoft and Nintendo, they create an oligopolistic industry (Varian, 2010; Burnham, 2001). This is a market where there are few competitors, but not so many to claim that each of them has a direct effect on prices. The goal of a video console is to be on the market as long as possible and use its maximum capabilities to attract the attention of consumers, but certainly such factors as quality, price, brand identification etc., contributes to the success or failure of it. In
the case of PlayStation which it is mentioned came from a broken agreement with Nintendo. The latter gave birth to the competitor who would come to take the first place in terms of market concentration, especially from a strategy collusion between them both because Nintendo already had market concentration and also the experience he had earned years ago, and Sony had the ability to develop new technology for data storage that happened from cartridges to CD-Rom. However, the plan was to develop a console that would be able to work simultaneously with storage drives, cartridges and CD's, but an agreement on who would lead to gain for each one was never reached and then collusion breaks. After all Nintendo did not change his use of cartridges, while Sony had no experience in the game industry. Despite the fear of failure and the shame that made it to compete with products that was considered as toys at some point, Sony decided to enter and compete with the largest agent at that time. Sony had already surpassed a project and that is especially the insistence of PlayStation project director that convinced the managers to continue, simply on the grounds that if a firm that does not take seriously its capabilities it will not win. Nintendo currently poses no potential threat on Sony, because over the years it has been dropping by bad decisions, such as the conservation of cartridges. These cartridges were very expensive, difficult and took a long time to produce them (from 10 to 12 weeks), which caused Nintendo not to react quickly to falls below the actual market demand. In contrast PlayStation took about 10 days to produce a new game. Also another important point, that had positioned a PlayStation, is that it started to work with independent game developers, who though had no real capacity to distribute their creations. Sony with its subsidiary Sony Music was commissioned to mass distribution of CDs. It was an advantage to work this way because the work was divided and distributed according to the best capabilities of each one. Thus, a company is essentially a set of resources, the use of which is organized in an administrative framework (Penrose, 1959). Moving on and picking up the current environment, the competitor PlayStation faces directly Microsoft Xbox. Nowadays technologies share very similar characteristics in addition to the gameplay and similarity in prices. Unlike Xbox, PlayStation sticked to the decision of the project manager, which was to keep the console video as it is and not try to guide it to a path of media diversification, without reaching austerity. It is now the last generation of consoles, where Xbox saw the opportunity to embrace the multimedia market, where it can be used the console in an extraordinary way for playing movies and online programs as long as there is an access to internet, other way the console is obsolete. PlayStation also has these functions, while not extraordinarily and exclusively, but remained in the decision to follow the path of improved graphics, gameplay, and storage improvements for video games. That's why consumers perhaps lost sight of the essence of Xbox and decided to stay or change for PlayStation. After all, the entire trend shows a video console that plays video or film as preferred, rather than a movie player with which the user can play video games. It seems that the dynamic capabilities do not mean just to be dynamic in the industry, but rather it is the knowledge of the right time to take, improve or change strategy. Although this decision is detrimental to the company, which is what happened to Xbox, simply because it wanted to take advantage of the latest generation of
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consoles from a false trend in the market of the need to watch TV programs or entertainment services such as Netflix on video consoles or other devices such as video or Smartphones or tables. Previously Sony had implemented an advantage over Microsoft that was playing BlueRay discs. This has three times the storage of a DVD format that was working with an earlier generation of Microfoft (Xbox360) which would be at a disadvantage first. So according to Penrose (1959), a firm is more than an administrative unit, a company is also a collection of productive resources, where the choice of the different use of these resources over time is determined by administrative decision. Definition of the Problem PlayStation being a new company in the industry, it has come to be positioned very well after having difficulty of walking in an unknown way for Sony. So the main question is: What is the importance of knowing how to handle the dynamic capabilities around to achieve great goals while sometimes such growth within the industry was not expected? Justifications Each brand makes its own console with the same purpose; to provide the consumer with the possibility to enjoy leisure time watching television through interactive controls. However, what are the small differences? As seen, Sony and Microsoft are the first two competitors and direct rivals at the same time, because they practically used the same technology in their consoles, having the same capacity of video, memory, titles, gameplay, play video and being able to be used with boxes for viewing video online. However, Sony introduced the PS3 blue ray reader that gives the advantage over Xbox, that only plays DVD. This gives a great advantage to Sony because when the DVD is obsolete, the blue-ray will remain functional. The strategy then implements Microsoft in the next generation of its consoles XboxOne also as expected to improve the video and increase memory capacity, integrates blue ray reader and besides implements a number of functions for video and playback TV internet. In other words, it becomes a console to play games that can watch videos on, in a console to see videos that can be played on it. Xbox seems wrong with market preferences as apparently what consumers want after leaving a fast car is an even faster car, and not something that lose the essence that identifies it. That's why many players do not like much the idea of Xone, investing in a central online video in which the user can play. It seems that after all the strategy, that Sony has applied from the beginning, to differentiate the console as a device for playing games is still expected by consumers; it seems that preferences are maintained, with a slight improvement in a quality of video, memory capacity and identification with the product. Another important point is the prestige of the brand. Although it is well known that the three brands are respectable, any mistake can be hardship. As in the case of Xbox360, it had many problems with their consoles after it came out, because it had a manufacturing defect; after several hours of play the calleed lights of death suddenly appeared, which nothing but the permanent breakdown of the console is. This brought many complaints for Xbox also lost due to the warranty offered with each console.
This story is well known among consumers of video games. That's why prestige is also an important factor to decide in which brand to invest, and thereby it ensures product satisfaction. Assumptions Dynamic capabilities have contributed to the progressive development and overall market positioning of a product. It has been the dominant strategy implemented Sony PlayStation, to position itself as a leader over the years in its sector. Theoretical Framework To better study the industrial organization there are used different types of tools. One of these tools is the game theory as an area of applied mathematics that uses models to study interactions, formalized incentive structures and is used to implement decision processes. Game theory theoretical study the optimal strategies and as well as the expected and observed behavior of individuals in games. Apparently different types of interactions may in fact introduce similar incentive structures and, therefore, can represent a thousand times the same game together. Dynamic capabilities are the organizational and strategic routines by which managers’ record and alter their resource base, acquire and shed resources, integrate with each other and recombine them-to generate new value-creating strategies (Grant, 1966). While dynamic capabilities are certainly unique in its details, the equally striking observation is that the specific dynamic capabilities also have common characteristics associated with effective processes between companies (Eisenhardt and Martin, 2000). Market Structure In economics, the market means that all persons and organizations are involved in any way in the buying and selling of goods and services, or the use thereof. To define the market in the more specific sense, we must tie him to other variables, such as product or a particular area. In the market there are diverse actors influencing each other, which results in a dynamic process of relationships between them. At the same time, the market is surrounded by several environmental factors that have a greater or lesser extent a certain influence on the relations and structures thereof. Markets can be classified mainly based on the characteristics of shoppers and based on the nature of the products. Below two years 2012 and 2013 are analyzed. The Figure 1 shows that PS3 has a greater market share (46.06% in 2012 and 51.53% in 2013 respectively), followed by Xbox360 and Wii helding between 20% and 12.59% of market. It is observed that the Wii console share was gradually reducing during those years, while shares of Xbox360 and PS3 were increasing respectively, showing that these two companies began to absorb the third. The Figure 2 and Table 2 present how in the last two years the market share has been represented in a higher percentage of PS3. As before, it is followed by Xbox360, when these are the two companies with increased market concentration and those that have been most successful in the industry. In the latest generation of Video game consoles the trend remains the same, being dominated by for Sony PlayStation.
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Table 1. Herfindahl Concentration Index
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Source: Own elaboration from VideoGamesChartz data
Figure 1. Market 2012/2013 share Source: Based on data from VideoGamesChartz
Table 2. Consoles’ Market Share
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Figure 2. Comparison of Market Shares for 2012-2013 Source: Own elaboration from VideoGamesChartz data
Clearly in Figure 3, the same trend of PlayStation 4 is shown to follow as a leader in the market but what's the reason? In this case only Sony and Microsoft share titles, but not the Nintendo do. Thus, Nintendo adopted an emergent strategy, focusing on the market that Sony and Microsoft put aside and, although very small, Nintendo's argument is that if they follow the same path as the two main competitors, the market is oversaturated clockwise to extinction.
Figure 3. Advantage of PlayStation 4 in the Market Against Its Competitors Source: Based on data from VideoGamesChartz
Strategy Video Game Consoles The concept of licensee refers to the type of video game company that is dedicated only to produce and publish software for various platforms, which may or may not have an exclusivity with any owner company and paying a share of their profits in the video game sales to the company owning the console for which it develops. In this sense, there are plenty of companies publishing software worldwide,
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although most are located in the United States and Japan. Examples of such companies are Electronic Arts, Capcom, Konami, Ubisoft, Namco Bandai, Squaresoft-Enix and Rockstar. Video game companies’ owners create links with licensees to ensure, in most cases, exclusives titles, which are the source of profits for companies that sell consoles at a price below their cost in the market, to recover in the sale of video games. Then we would expect that the success of an exclusive game for a console is the difference in the success to others, but data shows the opposite. Analysis of Results Moreover, to the game developers suit them that consoles are compatible with their titles, as well as to have the ability of having a larger market and thus to sell more titles, although in the case of Nintendo, it has the disadvantage of having a poorest console in terms of video capability. That is why in many cases it does not support compatibility with games for PS3 and X360. It seems that these two companies go together hand by hand in their technology, so they can play similar titles of larger capacity video, which cannot do Nintendo because steps out and it is lagging behind and stayed behind in the implementation of HD video capability as the blueray. When a developer of video games such as Activision develops a game-high capacity video, the only consoles that can operate is 2, Sony and Microsoft leaving Nintendo in the abandonment at its own exclusive games. In addition to a company like Nintendo, it is very dangerous to give the management of development of video consoles and video games at the same time, because as it can be seen from the beginning with the cartridges, it cannot respond promptly to the real market demand. It can be concluded that Sony and Microfoft have collusion, because as far as it goes, both they handled the same technology unlike Nintendo. This causes Nintendo to go increasingly taking over a smaller part of the market. It is noted that there are two leaders and one follower. The follower is Nintendo because it is at the expectation of what the other two companies do; although it is clear who dominates the market- primarily is Sony. It was observed that there is a magic recipe for success, because after all the firms handle similar technologies and similar games. The only difference that can be compared is the age of the market. Sony has at least a generation older that Microsoft, which is about 5-8 years, which is the age average of a console before a new one comes out to the market. This time of eight years is crucial to be marked in the minds of consumers and followed the same trend for the next years, as long as the course and direction of preferences and market trends are not lost. That is not the case of Nintendo, who has the longest history in the business, but wants to keep its old development process and assume that is what the market wants or does not timely respond to the demands of it. It reaches a decay point and cannot proceed, at least in the front. Eventually Sony and Microsoft are in a horizontal differentiation and Nintendo- a vertical differentiation, regarding differences in prices and technologies.
Conclusions The computer and video games have come a long way since the days of Pac-Man and Frogger, and so have done those who play them. Video games today are enjoyed by players of all ages. And there is more at stake than dominate the video game market. Whoever is placed at the top will have the privilege of occupying the living room of consumers in a prosperous moment for thriving services in online gaming time. However it seems that video games more than video consoles took the leadership in industry, as some exclusive titles can influence consumer decisions. The exclusive titles do not represent a significant variable of the success of each console, and although each takes the market a unique title, the competition will do the same with a similar game but with a different title, as it was seen in the case of PS3 yX360 in the racing genre, each one has a unique title but in essence is the same, a racing game. However, if Sony keeps pace and not makes mistakes that could affect consumer tastes, it is likely to remain the market leader, even after failed attempts by other companies that want to eliminate either exclusive games or accessories in their consoles. It is possible that the main factor influencing the consumer decision after price is the identification with the product, because although there is a very good and unique game for a console, if the agent does not feel identified with the product, there will be little incentive to use it. This behavior is not unique to this industry, as it is repeated in different sectors. What ultimately the consumer ends up buying is a brand. Certainly the strategy that worked best Sony PlayStation is to have achieved to manage available resources, to take advantage of real options, to track and improve their skills constantly adjusted to the current market. References Burnham, V. (2001), A Visual History of the Videogame Age, Institute of Technology, Cambridge. Castels, M. (2003), La Galaxia Internet, Ediciones de Bolsillo, Barcelona. Chandler, A. D. (1990), Scale and Scope: The Dynamics of Capitalism, Harvard University Press, Cambridge, MA. Crawford, C. (1984), The Art of Game Computer Design, McGraw Hill, New York. Eisenhardt, M. K. and Martin, J. F. (2000), “Dynamic Capabilities: what are the?”, Strategic Management Journal, Vol. 21, pp. 1105-1121. Entertainment Software Association (2013), Salesandgenre, Estados Unidos. Frías, J. Á. (2010), La industria del videojuego a través de las consolas, UNAM, México. Grant, R. (1996), “Toward a Knowledge Based Theory of the Firm”, Strategic Management Journal, Vol. 17, pp. 109-122. Penrose, E. (1959), The Theory of the Growth of the Firm, John Wiley & Sons, New York. Pisano, G. P. (1994), “Knowledge, integration and the locus of learning: an empirical analysis of process development”, Strategic Management Journal, Winter Special Issue, pp. 85-100. Rusel, D. M. and Wilson, J. L. (2003), High Score!: la historia ilustrada de los videojuegos, McGraw Hill, Madrid. Vargas, G. (2002), Entretenimiento electrónico: historia de la industria de los
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videojuegos, VID, México. Varian, H. (2010), Microeconomía intermedia: un enfoque actual, Antonio Bosch, Barcelona. William, J. F. (2002), William's Almanac. Everything You Ever Wanted to Know about Videogames, IQ guides, Montreal.
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Annexes Parameters read: A. El índice HHI bajo 1.500 indica un mercado no concentrado. B. Un índice HHI entre 1.500 y 2.500 indica un mercado moderadamente concentrado. C. Un índice HHI encima 2.500 indica un mercado altamente concentrado.
SONY PLAYSTATION STRATEGIES IN THE VIDEO MARKET José G. Vargas-Hernández Martin O. Velasco-Guzmán University of Guadalajara, Mexico Abstract Given the increasing demand for video games on the market, the struggle between hardware or video game consoles is inevitable. Nowadays Sony PlayStation has two main competitors on the world market: Microsoft's Xbox and Nintendo's Wii console. This article addresses the strategies implemented in Sony console videos and show how from a broken according to Nintendo, PlayStation, Sony took to develop their own skills and strategies within the firm. From this show like applies the resource-based theory and dynamic capabilities, and a contribution to the understanding of the process that led PlayStation to the first place position for several generations of consoles. Keywords: dynamic capabilities, strategy, video-console
