Joseph Chang, Anthony Griffin,

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MGT 235 Strategic Analysis

• Joseph Chang, Anthony Griffin,
• Israel Gonzales, Anna Olivier,
• and Scott Vanderpool

2
Background

• Video game console industry
• 10 Billion per year
• Nintendo
• First console 1985
• First-mover
• Current market
• Sony (Playstation 1st), Microsoft (XBOX 2nd),
  Nintendo (Gamecube 3rd)

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Typical Life Cycle
Introduction
Growth
Maturity
Decline
Current Console Market
X
4
Individual Game Console Cycle
Growth (Early market saturation)
Maturity (Full saturation, RD begins on next
generation)
Decline (Introduction of new, phase out of old)
Introduction (Innovators/Early Adopters)
5-year Period (Average)
5
Game Console Life Cycle Trend
5-year Cycle
20 year Period
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Game Console Environment
Introduction
Growth
Maturity
Decline
Game Cube
N64
SNES
NES
85-89
89-95
95-98
98-05
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1985 1989 The Beginning

• Players Nintendo (NES), Sega (MS)
• First mover Nintendo
• Nintendo market share 90

8
1989 1995 The 16-bit Generation

• Players Nintendo (SNES), Sega (Genesis),
• First mover Sega
• Nintendo market share 60

9
1995 1998 Dawn of the PlayStation

• Players Nintendo (N64), Sony (PS), Sega (Saturn)
• First mover Sega
• Nintendo market share 23

Nintendo
Sony
10
1998 2005 128-bit and Beyond

• Players Sega (DC), Sony (PS2), Nintendo (GC),
  Microsoft (Xbox)
• First mover Sega
• Sega exits hardware market
• Nintendo market share 14

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Strong Industry Profits

• High

Entry Barriers
High start-up marketing cost, brand equity
Weak
Weak
Sony Microsoft Nintendo
Buyers
Suppliers
High switching cost
Low rivalry, 3 players, 10 billion market
Substitutes
Weak
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Competitive Advantage
1985
1988
Industry Infancy
Industry Present
1st Mover Portable Advantage
1st Mover Console Advantage

• Console Market 10 billion per year industry
• Portable market 10 of home console market ( 1
  billion per year)

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Strategic Issue

• How can Nintendo regain lost market share in the
  home console market?

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Exit the Home Console Market

• Pros
• Eliminate expensive hardware and focus on
  producing software
• (e.g. Sega)
• Allocate resources to concentrate on portable
  market
• Cons
• Lose out on licensing revenue
• Portable market is significantly smaller than
  home console market

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Expand Third Party Software Support

• Create incentives to entice game developers
• Lower licensing fees, advertising benefits, easy
  platforms
• Pros
• A variety of games attract larger market share
• Additional exclusive titles attract more
  consumers
• Cons
• Hard to motivate third party developers
• Incentives can be costly
• Exclusivity of Nintendo products
• Decrease in market share appears unprofitable

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Upgrade the Home Console

• Add new features DVD, online, HD, etc.
• Pros
• Caters to new generations needs
• Online gaming components can add extra revenue
  streams
• Cons
• High costs in developing new console
• Two large players dominate this part of the market

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Focus on Untargeted Market

• Low price and user friendly approach
• Pros
• Tap into the untargeted market including women
  and baby boomers
• Gain market share without stealing it from
  competitor
• Cons
• Low price limits the graphical capabilities of
  Nintendos home console hardware
• Too broad opinion leaders (hardcore gamers) may
  be turned off by this approach

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Rationale Industry Trends

• The increasing age of the average gamer
• 2000 Average age is 28
• 2005 Average age is 33
• Broadening demographics
• 43 of all gamers are women
• Women over the age of 18 represent a greater
  portion of the game playing population (28) than
  boys from ages 6 to 17 (21)
• 25 of all gamers are 50 and up
• In 2004, 19 of Americans over the age of 50
  played video games, an increase from 9 percent in
  1999

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Final Recommendation
Sony 1995
Nintendo 1985

• Focus on an Untargeted Market
• Gamers over the age of 50 are a growing market
• Female gamers are increasing in number
• Potential in untargeted gamers
• Low price and user friendly approach

Nintendo 2006
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• The optimist sees opportunity in every danger
  the pessimist sees danger in every opportunity.
• -Winston Churchill
• The worst thing that you can do is to compete
  with your rival on the same things.
• -Michael Porter