MMM001 – International Strategic Management
Strategic Analysis of Nintendo Consulting Team: 23868055 23864947 23873134 23865955 23876487 To the Nintendo CEO
Word count: 3,197 17.1.2016
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Table of Contents Executive Summary ................................................................................................................... 1 List of Figures ............................................................................................................................ 2 List of Abbreviations .................................................................................................................. 3 Introduction ................................................................................................................................ 4 The key elements underlying the past success of Nintendo ....................................................... 4 Environmental Analysis – Changes taking place in Nintendo’s macro and industry environments .............................................................................................................................. 5 VRIO – Nintendo’s core competences relative to its competitors ...................................... ....... 8 Five possible strategic options – Critical evaluation, prioritisation and recommendation ...... 11 Plan of action ............................................................................................................................ 13 Bibliography ............................................................................................................................. 14 Appendices ..................................................................................................................................I Appendix I: PESTEL Analysis ........................................................................................... I Appendix II: Porter’s Five Forces ......................................... ............................................ II
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Executive Summary In order to improve Nintendo’s economic situation and re-establish them as the top player in the gaming industry, this report will propose a strategic realignment for Nintendo, based on thorough analysis and research. A conducted analysis of the macro- and industry environment of Nintendo shows several significant influences on Nintendo. An increased demand for family friendly games caused by demographic transition of the game playing group can be observed. Further, technological convergence is establishing smartphones and tablets as gaming devices, thus causing a decline in sales of handheld consoles. Technological convergence can also be observed in the form of industry giants entering the living room entertainment market with devices that have increasingly strong technological capabilities. Innovation in Virtual Reality and the development of increasingly sophisticated and cheaply obtainable mobile games are further changing the industry. A VRIO analysis has shown that substantial potential lies in utilisin g Nintendo’s uniquely valuable gaming brands, the established and differentiated family-friendly set-up, and the ability to implement a blue ocean strategy. In accordance with this analysis and through playing on Nintendo’s strengths, the report will
propose a strategic focus on the utilisation of existing products, the integration of smart devices into their product portfolio, and an expansion on the strengths of existing IP.
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List of Figures Figure 1: Nintendo Wii Unit Sales, Games and Consoles, 2003-2008 (O'Gorman, 2008) ........ 5 Figure 2: Age Distribution of Game Players (Entertainment Software Association, 2015) ...... 6 Figure 3: Yearly Handheld Sales Comparisons - Global (VGChartz, 2016) ............................. 6 Figure 4: Total global console sales as of January 9th, 2016, Last generation (left), Current generation (right), (VGChartz, 2016) ......................................................................................... 7 Figure 5: Current strategies followed by the three main providers of home video game consoles, using the Generic strategies by Porter M. (1980). ...................................................... 7 Figure 6: VRIO Framework ..................................................................................................... 10 Figure 7: SWOT Analysis for Nintendo .................................................................................. 11
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List of Abbreviations CEO – Chief Executive Officer
CSR – Corporate Social Responsibility
DS – Nintendo Dual Screen FSA – Firm Specific Advantage
IP – Intellectual Property
PC – Personal Computer
PS -
PlayStation
R&D – Research and Development
SWOT – Strengths, Weaknesses, Opportinuties, Threats
VR - Virtual Reality
VRIO – Value, Rarity, Inimitability, Organisation
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Introduction Nintendo is one of three big players in the highly dynamic gaming industry. However, in recent years Sony and Microsoft have gained a competitive advantage over Nintendo and new trends in the industry have caused setbacks for Nintendo, thus creating the need for strategic realignment.
The consultants have conducted a thorough analysis of Nintendo’s position in the macro- and
industry- environment, as well as a detailed analysis of Nintendo’s core competences. Based on the desire to build on Nintendo’s previous success, five proposed strategic options
have been critically evaluated and recommendations will be made on the implementation of three of those strategies. Finally, further strategic recommendations will be made that focus on leveraging Nintendo’s FSAs in accordance with the identified trends and opportunities.
The key elements underlying the past success of Nintendo Nintendo was founded by Fusaijiro Yamauchi in 1889 of which eventually grew to become a national well-known brand. Nintendo’s past success have been supported by various key underlying elements. One key element supporting Nintendo’s success is through the ability to
incorporate knowledge and expertise from alliances. Nintendo have demonstrated this through partnerships with Magnavox and Sharp, improving their quality of consoles as well as licensing popular characters such as “Mickey Mouse” and “Popeye” both contributing greatly to the success of Nintendo’s Game and Watch device (Kittilaksanawong & Gillet, 2015, p. 2).
Nintendo also adopted very strict licensing policies to ensure the quality of the game, highlighting the industry’s intense competition.
Another key element underlying the success is the company’s use of technology and competitive advantage of a cost leadership strategy. Nintendo developed “entertaining games that were easy to use” (Kittilaksanawong & Gillet, 2015, p. 2), and a more powerful system known as the “Famicom” that was priced lower than competitors.
A final key element in support of their success is seen through their design and innovation focus. Nintendo’s innovative culture and orientation has allowed the company to implement a blue ocean strategy entering new markets. “Instead of competing within the confines of the 4
existing industry... Nintendo developed uncontested market space that made competition irrelevant” (Kittilaksanawong & Gillet, 2015, p. 4). Nintendo were able to differentiate
themselves through the development of the “WiiMote” and games such as “Donkey Kong Arcade” and “Super Mario Brothers”. The “ WiiMote”, eliminated “difficulties non-gamers experienced with the many buttons and sticks in the classic controller” (Kittilaksanawong &
Gillet, 2015, p. 4). From this, Nintendo have benefitted from attracting a large demographic including women, people over the age of 60 and non- gamers, in particular due to its “budget” price strategy and mobility. Similarly as the Wii, the DS offered gamers with a new way of playing handheld consoles through the development of touch screen technology. Thus, Nintendo were able to tap into a new market with games such as the Wii Fit, as it enabled Nintendo to attract a larger demographic beyond the “traditional” gamer. The Nintendo DS
achieved global sales of 154.88 and Nintendo Wii with 101.17 millions of units respectively (Kittilaksanawong & Gillet, 2015, p. 12) as well as a significant sales of Wii games following its launch (Figure 1). Both consoles held high sales in North America with a substantial revenue of £2132m. As of 2014, Nintendo are drawing in the most revenues by product through handheld hardware with revenues of $1959m and secondly home console software of $1623m (Exhibit 4) as supported by their success from the Nintendo Wii and DS.
Figure 1: Nintendo Wii Unit Sales, Games and Consoles, 2003-2008 (O'Gorman, 2008)
Environmental Analysis – Changes taking place in Nintendo’s macro and industry environments The gaming industry is very dynamic with competition happening on the console as well as gaming front. Further, the gaming industry has increasing macroeconomic value. Therefore, macro and industry influences are highly significant and need to shape the strategy formulation of companies. 5
The macroeconomic changes in the environment have been assessed with the help of a PESTEL analysis. The full details of this analysis can be found in Appendix I, the most significant changes influencing Nintendo’s macro environment will be discussed here.
From a social point of view, a shift in gamers can be observed. While gamers used to be young males, the age distribution of gamers is now diverse. As indicated in Figure 2, a major part of gamers are under 18 or in the age group of 18-35. However, with 27%, the age group of gamers 50+ is the biggest group. Additionally, the number of female gamers is increasing (Entertainment Software Association, 2015a). A social controversy that is influencing policy making on games and that is affecting the design of games is the effect of violent games on gamers. Studies show that there is indeed a link between violent games and violent behaviour (Bushman & Anderson, 2001). Recently, a shift to more educational games can be observed (Entertainment Software Association,
Figure 2: Age Distribution of Game Players (Entertainment Software Association, 2015)
2015b). The age distribution of gamers shows that there is potential for family games and the negative effects of violent games in combination with an increase in educational games further confirm this need. Nintendo should therefore keep following a family friendly game strategy. A significant change has also been
Yearly Handheld Sales Comparisons - Global
happening in the technological macroenvironment. As shown in Figure 3, the
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handheld console market has experienced a steep decline in sales in most recent years. Even newly developed consoles such as the Nintendo 3DS or the PS Vita have not been 5 0 0 2
6 0 0 2
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8 0 0 2
9 0 0 2
0 1 0 2
1 1 0 2
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Date Nintendo DS
Playstation Portable
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Playstation Vita
Figure 3: Yearly Handheld Sales Comparisons - Global (VGChartz, 2016)
able to perform as well as their previous models at their peak and have remained under their expected sales figures (Kittilaksanawong & Gillet, 2015). This decline in sales can be attributed to the fact that in increased number of gamers uses 6
their smartphones to play games (Entertainment Software Association, 2015a). Smartphones develop increasingly strong processing power and mobile games are improving in quality and availability (Kittilaksanawong & Gillet, 2015). As the handheld console market was especially important for Nintendo, this presents a significant threat to their business. However, it may also be seen as a strategic opportunity.
Figure 4: Total global console sales as of January 9th, 2016, Last generation (left), Current generation (right), (VGChartz, 2016)
To further underpin the current pressures influences o n the gaming industry, a Porter’s Five Forces framework has been utilized, for in depth analysis see Appendix II. In addition to the big three developers (Sony, Microsoft, Nintendo), new entry has been undertaken by PC game developer and distributor Valve Corp. with the introduction of its Steam machines in late 2015 (Edwards, 2013; Valve Corporation, 2016). The entry of Software Giants into living room entertainment market with the introduction of Google chrome cast and Apple TV could provide further direct competition, should these introduce gaming features in the future, as Amazon Fire TV just introduced (Evangelho, 2013; Freeman, 2015) There is a considerable rivalry and pressure to innovate among the industry incumbents, currently virtual reality (VR) seems to be a
Figure 5: Current strategies followed by the three main roviders of home video game c onsoles, using the Generic strategies by Porter M. (1980).
forefront of development, and is expected to be a major contributor in where the industry is heading in the future (Euromonitor, 2015). Furthermore the introduction of mobile games may provide even higher pressures on 7
Nintendo’s handheld gaming platforms, as the benefits of portability are virtually similar as
with the Nintendo handhelds, however providing gaming experiences at far lower costs for the customer (Kittilaksanawong & Gillet, 2015), while also providing a communication commodity. As new platforms are being introduced, the bargaining power of third-party game developers’ increase , and mitigating the adaptation needed for release of titles on Nintendo’s
platforms becomes even more important than in previous years. This is relevant for those families which consist of different types of consumers both dedicated and casual (focused audiences), when considering purchasing platforms from several providers, as the strategies followed by Sony and Microsoft cater mostly to dedicated gamers, valuing graphics as a major contributor to their gaming experience (Figure 5).
VRIO – Nintendo’s core competences relative to its competitors Since the gaming industry has been an ever-developing industry that consists of numerous competitors, it is vital for a company to be aware of its competences and values in order to be successful. In this regard, Nintendo possesses various core competences that allow them to differentiate themselves from their rivals. To further elaborate these competences, a VRIO Framework (Barney, 2002) has been used with the help of a table which can be found at the end of this section. Gaming brands: Nintendo holds a number of very valuable strong brands which have been
pillars of the gaming industry since its inception such as Mario, Peach, Donkey Kong and Pokémon. These gaming brands have strong, dedicated followings and are extremely marketable past simply gaming titles and into other products, such as TV shows and cards for Pokémon along with stuffed toys for both. Looking at Nintendo’s competitors such as Sony and Microsoft, none of them holds such strong and valuable brands. These properties can be considered valuable as they differentiate Nintendo from its competitors by enabling the firm to pursue a different business model compared to its competitors and by considerably increasing its market share. Unlike its competitors that develop their profit policies upon the sales of their systems, these brands constitute the basis of Nintendo’s business model. For instance, “in 1980s, Nintendo, after developing Famicom, used these games to change its business model by selling the system without margins but making profits from games bundled to it” (Kittilaksanawong & Gillet, 2015, p. 2). Moreover, with intellectual property rights to these brands and very strict licensing policies pursued by Nintendo (Nintendo, 2016), they can only be controlled and used by Nintendo, which makes them both rare and inimitable. For 8
example, “during the first two years after the release of Famicom, licensees were not allowed to develop similar games on other competitors’ platforms” (Kittilaksanawong & Gillet, 2015,
p. 2). The company also has had a long history of successful implementation and marketing of these brands, meaning it is very organised to continue leveraging this strong core competency. For example, Nintendo kept updating and releasing new versions of these games throughout the years such as Donkey Kong Country and Super Mario World (Kittilaksanawong & Gillet, 2015, p. 2).
Family Friendly Set-up: One of Nintendo’s largest strengths is its family friendly set-up as it
allows parents to purchase the company’s hardware knowing none of the games are
particularly unfriendly to children. This also means that their consoles can become family activities and appeal to generations outside the main gaming market (Kittilaksanawong & Gillet, 2015, p. 4). This is a valuable asset due to the different demographics it appeals to along with creating a strong option for parents more concerned about violence in video games or other inappropriate content and was identified as such by Nintendo in their 2015 CSR report. (Nintendo, 2015). While other console manufacturers such as Sony and Microsoft do offer many child friendly games, Nintendo is the only platform that offers parents an exclusively child-friendly option they can be confident in, making Nintendo’s family friendly set-up rare. The company is well organized to continue leveraging this strength though it should re-enforce its family friendly values in the minds of customers through marketing to make certain that potential customers are aware of this.
Blue Ocean Strategy: The other important competence of Nintendo relative to its
competitors is its ability to implement the blue ocean strategy. This extremely valuable asset allows Nintendo to tap into the industries that have not been touched and contested before. For instance, unlike its competitors Sony and Microsoft, Nintendo aims to expand video games to children, women and people over 60 years old rather than try to take away customers from its rivals (Rusetski, 2012). Nintendo, as a part of its blue ocean strategy, launched Nintendo DS and then Nintendo Wii, which is a unique system that allows people to play games by moving their arms naturally and also allows Nintendo to tap into the casual gamers rather than hard-core gamers that have alr eady been targeted by its rivals’ systems, PS and Xbox (O'Gorman, 2008). These assets have a low chance of imitation as it would require very large barriers of entry for competitors to not only enter the console market but to then do so against Nintendo’s brand dominance. This is the main reason why PlayStation Move and
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Kinect have not been able to compete with Nintendo’s W ii. However, as Hollensen (2013)
discusses, it is important that Nintendo continue this innovative structure as new ideas in the gaming market may not be replicated to the same quality quickly but will soon become expected features across all platforms. The company is well organized to continue to leverage these strengths though it should focus on making sure consumers are aware of them.
(V)alue
(R)arity
(I)n-
(O)rganizational
imitability Gaming Brands (Mario,
Yes
Yes
Yes
Yes
Family Friendly Set-up
Yes
Yes
Yes
Yes
Blue Ocean Strategy
Yes
Yes
Yes
Yes
Donkey Kong etc.)
Figure 6: VRIO Framework
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Five possible strategic options – Critical evaluation, prioritisation and recommendation Strengths -
-
Strong brands (e.g. Pokémon, Mario) with dedicated followers Valuable brand heritage
-
-
Weaker graphic capabilities in comparison to competitors Lost relevance for hard-core gamers
Licensing these brands and makings use of them in the form of merchandise Family friendly set-up Market position that is not directly obtained by competitors
Opportunities -
Weaknesses
Increase in demand for family friendly games Tapping into the new market for games on smartphones and tablets Tap into the market for home use of
Threats -
VR devices -
Restrictions on certain games due to the effect of violence on gamers Smartphones and Tablets are taking over the handheld console market Entry of new players (e.g. Valve) into the console market Entry of Apple, Google and Amazon to the living room entertainment market
Figure 7: SWOT Analysis for Nintendo
Based on the identified opportunities and threats through the external and internal analysis of Nintendo (summarized in the SWOT), the consulting team has made the following evaluation of the proposed strategic development areas by Nintendo’s management.
Revitalize existing products
As the release of blockbuster games increased sales of the Wii U, prioritization on releasing such titles should be emphasized while the next generation gaming console is underway. Another short term strategy the consultant team propose to revitalize these products is the creation of a subscription service giving players access to classic Nintendo-games from previous generation of Nintendo machines on both the Wii U and Wii, this to ensure a high subscription number initially. The subscription service would also allow independent 11
developers to publish small games in exchange for royalties from subscription and eventual buyouts of titles from customers. This would ensure an increased revenue for the company while still revitalizing the old machines with minimum effort by Nintendo, which could focus on their releasing their big titles and future game console, the Nintendo NX (Corbin, 2015).
Take advantage of smart devices
By introducing smart devices, Nintendo may both expand its business into other business areas and revitalize the existing products. One such product identified by the consultants is the Wii Fit. Development of an app that would allow players to collect data from their smart devices and enhance the experience of these games will not only revitalize the highly successful Wii Fit concept, but also take advantage of the emerging existing trend of using technology in accordance with exercise (Thompson, 2015). Given their first mover advantage with the Wii Fit, The consultants recommend pursuing this opportunity with both existing and future gaming consoles (Nintendo NX), and should be prioritized by their mobile development partner DeNA, which could assist in development of this functionality (Corbin, 2015). Nintendo can also launch games on mobile platforms under a subsidiary brand. By doing so, Nintendo are able to compete on the mobile platform against competitors without sacrificing their strategy of focusing on quality of “games such as Mario and Zelda designed for its machines” (Kittilaksanawong & Gillet, 2015, p. 9)
Actively utilize the intellectual property right on existing characters (Character IP).
It can be argued that Nintendo’s characters such as Mario, Donkey Kong, and Pokémon have
enabled their success in creating a worldwide brand that the young generation can relate to, as well as being nostalgic for older generations. Nintendo can exploit this through utilising their character IPs perhaps by extending product lines of merchandise of which, to some extent, would be regarded as a “collector’s item” for those who associate themselves with the brand. Nintendo have already launched a product called the “Amiibo”, providing the ability to
incorporate characters and provide in game extras allowing the ability for consumers to customize their experience. Nintendo should extend and explore this concept further, incorporating merchandise with software of which could add value to the “consumer experience” that Nintendo wish to develop and focus on.
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Expand into other new markets / Expand into other new business areas
In comparison, it seems that the last two proposed strategies to “expand into other new markets and business areas” are less feasible for Nintendo, as their appeal strongly rest with
their Character IP, which may not be leveraged as strongly in new geographical locations. However, the strategy of “expanding into other new business areas” such as the “fitness game” market would provide a viable opportunity as seen with the success of the previous
experience with the Wii Fit. Should the already proposed revitalization of the franchise prove successful, the company should consider an alliance with a fitness technology provider, such as Polar, or Fitbit to ensure technological synergy with their upcoming projects and extension of this service on their pending gaming console.
Plan of action We advise the Nintendo CEO to utilize the financial potential of the character IP rights in the short term, through increases in merchandizing and the continuation of the Amiibo concept, which may fund R&D into new gaming technologies (including VR) which could be utilized in the next upcoming console known as Nintendo NX. By revitalizing the existing products through the development of complimentary smart technology, important lessons and optimizations may be learned towards this upcoming launch. We recommend further development and expansion of the Wii Fit concept, as wearable technology is projected to be the number one fitness trend worldwide in 2016 (Thompson, 2015). Nintendo is in an excellent position to seize this opportunity as they already have experience in providing an exercise gaming experience and increase its attractiveness to parents who may also identify with their exclusive gaming franchises introduced in the 80’s and 90’s. To do this successfully
Nintendo will need to develop the technology itself, or partner with existing providers of technology (possibly Polar Systems, Finland) integrating this technology with the Wii U, and in the future the NX. Another possibility for the management is to be more aggressive in their pursuit of these strategies would be to increase their allowance of utilization of their IP rights, possibilities could be kids TV shows with their characters as well as other forms of licensing.
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Bibliography Barney, J. B., 2002. Gaining and sustaining competitive advantage. 2nd ed. Upper Saddle River: Prentice Hall. Brigden, K., Santillo, D. & Johnston, P., 2008. Playing Dirty: Analysis of hazardous chemicals and materials in games console components, Amsterdam: Greenpeace. Bushman, B. J. & Anderson, C. A., 2001. Effects of violent video games on aggressive cognition, aggressive affect, physiological arousal, and prosocial behavior: a meta-analytic review of the scientific literature. Psychological Science, 12(5), pp. 353-359. Corbin, D., 2015. Say hello to iMario: Nintendo goes mobile as it buys 10% stake in DeNA. [Online] Available at: https://www.techinasia.com/nintendo-dena-alliance [Accessed 17 January 2016]. Edwards, C., 2013. Valve Lines Up Console Partners in Challenge to Microsoft, Sony. [Online] Available at: http://www.bloomberg.com/news/articles/2013-11-04/valve-lines-up-consolepartners-in-challenge-to-microsoft-sony [Accessed 15 January 2016]. Entertainment Software Association, 2012. Annual Report 2011, Washington DC: Entertainment Software Association. Entertainment Software Association, 2015a. 2015: Sales, Demographic and Usage Data Essential Facts About the Computer and Video Game Industry, Washington DC: Entertainment Software Association. Entertainment Software Association, 2015b. Annual Report 2014, Washington DC: Entertainment Software Association. Euromonitor, 2015. Virtual Reality: The Next Generation of Video Gaming, London: Euromonitor. Evangelho, J., 2013. Google's Chromecast A Brilliant Play For The Living Room -Especially With $35 Price Tag. [Online] Available at: http://www.forbes.com/sites/jasonevangelho/2013/07/24/googles-chromecast-abrilliant-play-for-the-living-room-especially-with-35-price-tag/#63cc38095207ed7b7b752079 [Accessed 14 January 2016]. Freeman, J., 2015. Introducing the New Amazon Fire TV and Fire TV Gaming Edition Powered by Fire OS. [Online] Available at: https://developer.amazon.com/public/community/post/TxBKAU1SVQ97CE/Introducing-theNew-Amazon-Fire-TV-and-Fire-TV-Gaming-Edition-Powered-By-Fire-OS [Accessed 14 January 2016]. Greenspan, D., Boyd, G. S. & Purewal, J., 2014. Video Games and IP: A Global Perspective. [Online] 14
Available at: http://www.wipo.int/wipo_magazine/en/2014/02/article_0002.html [Accessed 16 January 2016]. Hollensen, S., 2013. The Blue Ocean that disappeared - the case of Nintendo Wii. Journal of Business Strategy, 34(5), pp. 25-35. Kittilaksanawong, W. & Gillet, G., 2015. Nintendo Wii U: Lessons Learned for New Strategic Directions, London, Canada: Ivey Publishing. Leather, A., 2013. Why The PC Is Better Than The Xbox One And PS4.[Online] Available at: http://www.forbes.com/sites/antonyleather/2013/11/29/why-the-pc-is-betterthan-the-xbox-one-and-ps4/#37356181787323dfd567873b [Accessed 16 January 2016]. Moore, B., 2014. Give us a modular console we can upgrade like Google's new phone. [Online] Available at: http://www.wired.com/2014/04/project-ara-gaming/ [Accessed 16 January 2016]. Nintendo, 2015. CSR Report 2015. [Online] Available at: https://www.nintendo.jp/csr/en/report2015/value/index.html [Accessed 15 January 2016]. Nintendo, 2016. Nintendo - Documents and Policies. [Online] Available at: https://www.nintendo.com/consumer/latam/info/en/docs.jsp [Accessed 25 December 2016]. O'Gorman, P., 2008. Wii: Creating a Blue Ocean Strategy The Nintendo Way. Palermo Business Review, Volume 2, pp. 97-108. Porter, M. E., 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. 1 ed. New York: Free Press. Rusetski, A., 2012. The Whole New World: Nintendo's Targeting Choice. Journal of Business Case Studies, 8(2), pp. 197-212. Shaw-Williams, H., 2014. What Will the Current Console Generation’s Life Cycle Be?. [Online] Available at: http://gamerant.com/ps4-xbox-one-life-cycle/ [Accessed 16 January 2016]. The Economist, 2010. Still Playing. [Online] Available at: http://www.economist.com/node/15773828 [Accessed 16 January 2016]. Thompson, W. R., 2015. WORLDWIDE SURVEY OF FITNESS TRENDS FOR 2016: 10th Anniversary Edition. ACSM'S Health & Fitness Journal, 19(6), pp. 9-18. Valve Corporation, 2016. Steam Machines. [Online] Available at: http://store.steampowered.com/universe/machines/ [Accessed 15 January 2016]. 15
VGChartz, 2016. Total Global Console Sales. [Online] Available at: http://www.vgchartz.com/gamedb/?name=&publisher=&platform=XOne&genre=&minSales =0&results=200 [Accessed 15 January 2016]. VGChartz, 2016. Yearly Hardware Comparisons - Global. [Online] Available at: http://www.vgchartz.com/tools/hw_date.php?reg=Global&ending=Yearly [Accessed 2016 January 2016]. Yarow, J., 2014. Here's Why Microsoft Is Paying $2.5 Billion For Minecraft. [Online] Available at: http://www.businessinsider.com/heres-why-microsoft-is-paying-25-billion-forminecraft-2014-9?IR=T [Accessed 15 January 2016].
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Appendices Appendix I: PESTEL Analysis
Political
-
Due to positive economic effects, incentives have been provided to game developers by 22 states as of 2011 (Entertainment Software Association, 2012)
Economic
-
Theories exist which state that the sale of video games and consoles is recession-proof, as games give people a fairly cheap escape from reality. While sales numbers of recession times show slight declines, one may argue that these are come from a lack of game development (The Economist, 2010)
Social
-
The average age of gamers is 35. 26% of gamers are younger than 18 and 30% are between 18 and 35 (Entertainment Software Association, 2015a).
-
56% of gamers are male, 44% of gamers are female (Entertainment Software Association, 2015a)
-
PCs have higher technological capabilities than consoles and are therefore preferred by frequent gamers (Leather, 2013)
-
An increasing amount of games is developed in the educational field (Entertainment Software Association, 2015b)
-
There has been worldwide controversy on the effects of violence on gamers and studies confirm the theory that exposure to violent video games leads to increased aggression levels, especially with young adults and children of both genders. Long-term effects remain to be observed, but are believed to be existent (Bushman & Anderson, 2001)
Technological
-
One of the biggest downsides of consoles is, that they cannot be upgraded in terms of hardware and therefore need to be repurchased once out of date (Moore, 2014)
-
An increasing amount of game sales is happening online, via subscriptions, in social networks or on mobile (Entertainment Software Association, 2015a)
I
-
Competition in the console market mainly comes from Microsoft and Sony (Kittilaksanawong & Gillet, 2015)
-
Consoles have a fairly long life-cycle compared to that of computers, with life-cycles between 6 and 8 years in the case of the Nintendo Wii, the Xbox 360 and the PlayStation 3 (ShawWilliams, 2014)
-
Technological development needs to be up to the competitor’s standards (Kittilaksanawong & Gillet, 2015)Smartphones and Tablets have shifted the handheld console market (Kittilaksanawong & Gillet, 2015)
Ecological
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The console industry heavily uses hazardous chemicals and materials. Microsoft, Sony and Nintendo have made commitments to improve the environmental impact of their products (Brigden, et al., 2008)
Legal
-
Intellectual property is a significant competitive advantage and therefore needs to be defended accordingly (Greenspan, et al., 2014)
-
There are different ways and institutions analysing games and their impact on children, rating them accordingly (Entertainment Software Association, 2015b)
Appendix II: Porter’s Five Forces
Forces
Considerations
Rivalry
-
among competitors
Dominated by Sony, Microsoft and Nintendo (Kittilaksanawong & Gillet, 2015)
-
Sony and Microsoft offerings more similar than Nintendo, top sellers for last generation platforms are third party releases (vgchartz.com, 2016)
-
Nintendo has a differentiated focus strategy (Kittilaksanawong & Gillet, 2015)
II
-
Considerable pressure for innovation, VR at the forefront at present (Euromonitor, 2015)
Threat of
Hardware (Video consoles)
new entry
-
Present, demonstrated by Valve’s Steam machine entry (Edwards, 2013; Valve Corporation, 2016)
Software (Games) -
High, independent developers have shown ability and success previously i.e. the substantial success of Minecraft by Mojang AB (Yarow, 2014)
Threat of
-
Threat from PC and Mobile technologies (Kittilaksanawong & Gillet, 2015)
substitutes
-
Mobiles threaten 3DS and other mobile gaming consoles, and provide gaming at lower prices
Bargaining
-
Other forms of entertainment (Streaming services)
-
Some game developers have considerable bargaining power (EA,
power of suppliers
Activision) as they provide blockbuster titles i.e. Call of Duty, FIFA -
Little chance of platform exclusivity for these games, however their availability provides considerable attractiveness for consoles.
Bargaining
-
power of
Considerable bargaining power rests with the buyers, only a few exclusive titles and features separate the offerings of the big three (i.e. Gran Turismo,
Buyers
Halo). -
Buyers can easily change platforms with each generation released
-
A strong base of console owners enables companies attractiveness for thirdparty developers for release of their titles (Kittilaksanawong & Gillet, 2015)
III
