Video games

Case 7
“Rivalry in video games”

1. Consider that video-games industry has positive externalities (two-sided market). Demand for video consoles increases with the increase of the number of compatible games for the specific console and the incentive of game builders is greater as the demand of the console increases. What strategy should a new entrant in video-games industry follow?Videogames have passed through a number of processes and eras which have lead to the evolution of video games, ending up being the first electronic entertainment offered in the market. Summarising this evolution, we can say that Nintendo was the first to offer an arcade video game, which was the boom of this market, obtaining with it an 80% market share. After this, Sega entered in the market with MasterSystem (an 8-bit home video game console). After this launch, Sega and Nintendo split the market in the US, but in Japan and Europe Nintendo still maintained its leadership after responding to Sega’s launch with the Super Nintendo (16-bit machine).
Sony suddenly emerged as a successful and innovative consumer company, by employing the new generation of 32-bit processors and compact disks for videogames. But 32-bit machines were launch first by Sega, with the difference that Sony had a big number of games tittles prior to their launch and Sega’s 32-bit machine was very expensive, which permitted Sony establishing as market leader.
After this failure, Sega wanted to spend its last opportunity to establish and early lead launching Dreamcast (128-bit machine). Sony to maintain its marketleadership provided advance publicity of its new version of Playstation (Playstation 2), causing the fail of Sega. This new version of Sony’s machine offered a performance bigger than any PC and graphics processing power ten times of the original Playstation. Meanwhile, Nintendo launch N-64, which couldn’t compete against Playstation but they continued to be profitable. And they launch the GameCubeas well, with the bad luck that Microsoft enters the market with its Xbox. Microsoft strategy was to position as the best game machine in terms of technological capabilities. But they presented three problems: 1) software availability; 2) games tittles were more than Nintendo but far away from Sony; 3) they didn’t had a recognizable character like Mario Brothers (Nintendo) or Lara Croft (Sony). SoXbox reception in Japan was a disappointment. Finally Sega had to leave the video game market; Sony maintained its position as market leader; Microsoft took advantage of its ability to launch blockbuster games and its online gaming service to maintain close to Sony and leaving Nintendo as the third video game potential.
Once this generation of video games finished, a new one arrived. It wasMicrosoft to make the first move, with its Xbox 360, looking for versatility, design and coolness; and taking advantage of its strong online presence and emphasizing on hardware’s multifunctional for home entertainment. On the other, Sony had several problems due to their technological ambitious of the hardware. Their revolutionary multicore Cell processor and the Blu-Ray DVD (central strategy of Sony)increased the cost too much. Last but not least to launch their idea was Nintendo, which offered a revolutionary way of understanding the video game, which was a remote wand-like controller that was sensitive to a range of hand movements. They offered an easy way of entertaining, so that everyone could be able to play, including old people; supported by the biggest advertising campaign ever madeby Nintendo.

In my opinion, what you first need is to have a good and different idea, because as technology progressed, the contribution of advanced technology to user experience is becoming less and less perceptible. So what the market needs is a new idea rather than another competitor offering the same thing. For instance, with the entrance of the 3D television, someone can take advantage...