Analysis of the Rivalry between Video Games(Playstation, Wii and Xbox) - Essay Example

? Topic Analysis of the Rivalry between Video Games (3-4 firms) Table of Contents Executive Summary………………………………………………3 Introduction……………………………………………………….4 Results/Findings………………………………………………….5 Conclusion………………………………………………………...9 Recommendation………………………………………………….10 References…………………………………………………………11 Executive Summary The video game industry has experienced constant growth since its inception in the 1970’s. The rate of growth, however, has been ever-increasing with new entrants and enhancements in technologies. Thousands of people are employed worldwide because of the industry’s business and it includes video game consoles, game software, handheld devices, mobile games and online games. Previously, Sega was a prominent player in the industry, however, in current times, the three leaders in the industry; namely, Sony, Nintendo and Microsoft, have always been neck-to-neck against each other. Throughout the course of time, Atari began the industry with its 4-bit games and then, Nintendo’s rivalry with Sega spanned throughout the 1980’s and until the middle of 1990’s. Then, Sony launched its Playstation and it took the industry by surprise. Since then Sega stopped its game race while Microsoft entered the market with its Xbox 360. The inclination of the video game companies in the last century circled around the basic factors of competition such as the edge over technology, better diversity of gaming experience and a connection with consumers’ imagination. However, since the last decade, companies have switched their focus to a changing scenario and diverse consumer preferences. Focus has been on wireless and network-enabling features, along with better graphics. The companies claim their products’ value-proposition to be a complete entertainment package and not just a gaming console. Introduction The video game industry is one of the fastest growing industries in the world. With early analogue game inventions in the mid 1900s, the video gaming industry has picked up on pace by the end of 1990s. Since then, the industry has never looked back. Various multinational companies and massive customer bases have developed this business into a multi-billion dollar industry. Buyers are literate and in all ages - predominantly preteens, teens and young adults. The game player’s age has increased to 33 and 25% of buyers are over age 50 (Izushi and Aoyama, 2006). Game console is the largest segment in the industry, but online, mobile, PC software and broadband are some of the fastest growing segments. In the past decade, the video gaming industry has been growing sharply and is expected continue to grow in the future. The growth rate of global video games has been very healthy especially since 2000; the market size increased from 24,352 million in 2000 to 51,292 million in 2010 (Competition in the Video Game Console Industry: Nintendo, Sony, And Microsoft Battle For Supremacy, 2009).  The industry comprises of numerous game developers, however, the top companies are only a handful, while others are niche players. According to a research mentioned in the article ‘Competition in the Video Game Console Industry: Nintendo, Sony, And Microsoft Battle For Supremacy’, there are only 3 major players; Sony, Xbox and Nintendo. Broadly speaking, research found 6 leading video game consoles appeal to generate large-volume sales of new units in 2007: namely, Microsoft’s Xbox 360; Sony PlayStation 3 and hand-held PSP; and Nintendo’s Wii, Game Boy Advance, and DS/DS Lite. The major markets for these companies for business is the US and Asia market. The report discusses the business rivalry persistent in the video game industry worldwide. Through the course of this report, the reader can find brief cases of each major game developer and the nature of rivalries amongst them. The information was collected through recent scholarly sources available on the internet. Information from articles and case studies has been incorporated into the report and careful conclusion and recommendation have been drafted out of the information. Results/Findings The video game industry is the economic sector involved with the development, marketing and sale of video games. There have been various ‘cycles of growth’ since the 1970s owing to breakthrough in technological advancements. Let us look at the development of this industry in a chronological order. The industry’s first steps were taken by Atari in 1975 with its 4-bit game machines. This simple coin-operated table-tennis game spread across bars and arcades, but since Atari failed to set up patent and trademark protection, various imitator companies started creating the game. By 1973, Atari held 10% of the new video game industry, while the rest was shared by small competitors (GRANT, 2005). The intensity of competition between the players is strongly influenced by the case history of the industry. In previous generation of video game consoles, the nature of the market allowed one company to lead the industry by acquiring the greatest market share, however, as time passed and the industry grew because of increased demand, rivalry started to develop; in the third-generation, Sega and Nintendo competed for market share with the production of 16-bit products. Grant (2005) stated that there was cut-throat competition between the two and the industry experienced rising research and development costs of software and hardware. Nintendo and Sega battled for supremacy throughout the 1980’s and 1990’s. In 1983, Japanese consumers were introduced with the first Nintendo first home video game console. On the other hand, in 1989, Sega released its console; the Genesis in North America.  Genesis did relatively good in circumstances of good Nintendo customer loyalty in the American culture, and soon Sega rose to become a major competitor. In late 1990, Sega released its famous game Sonic The Hedgehog. This game was a worldwide success and it helped Sega gain huge popularity and contributed to Sega’s positive image in the market.  When the SNES released, competition notched up to an all-time high and the two rivals resorted to fast-paced advertising. Seeing Sega’s rise in the market, Nintendo launched the modified version of its console in 1991, and called it Super NES. This was because Nintendo was competing well against Genesis and there was little need for a new sequel.  However, Sega slowly caught up with Sonic The Hedgehog and competition grew. These reasons, along with increased customer demand for a 16-bit console, proved to be reason enough for Nintendo to introduce SNES in the market. Subsequently, SNES became a consistent better performer as opposed to its rival, Sega’s Genesis. The biggest clash between the two companies came with the release of the original Mortal Combat (Rivalry on Video Games – The Sega Situation, 2002).  Nintendo decided to censor the gore and release a relatively tame version of the game while Sega released the gore brutal version of the game. This resulted in a huge sales hike of Genesis and surpassed Nintendo’s sales. Soon, however, Sega Japan stopped producing the Genesis since sales in the country dropped low. The resources were then channelled to developing the next generation console, The Sega Saturn. This left the North American market with a shortage of Genesis, and thus, Genesis was discontinued.  When the Sega Saturn was eventually released, it enjoyed introductory sales until it was outclassed by Nintendo’s N64 launch, a year later. N64 was the third release in the home video game console category for Nintendo. “The Saturn went on to sell a measly 9.5 million units compared to the N64?s 32.93 million, and was eventually discontinued in 1998, only 3 years after its release” (Cox, 2006). Sega’s revival to higher grounds of market share was achieved through the launch its sixth generation of video game consoles, the Sega Dreamcast. The Dreamcast introduced the consumers with new and innovative technologies like online gaming for home consoles, inclusion of web browser, and a full SD resolution display. Due to previous mediocre performances by Sega’s products, the initial response was slow; however, sales picked up since people started hearing good reviews about the Dreamcast. According to the article ‘Gaming Wars: 4 of the Greatest Rivalries in Video Game History’ (n.d.), Dreamcast’s only flaw was that it was ahead of its time. Sega released the Dreamcast 2 years a little too early, with the hope of getting ahead of its competitors in the generation race. Dreamcast2 3 years before Nintendo’s GameCube, and 4 years before Microsoft released the Xbox 360. The Dreamcast had developed an image of incompetence and ‘behind the times’; so much so that it was discontinued in March of 2001, a couple of months before Nintendo’s GameCube was launched. Since then, Sega has not manufactured anymore consoles. More importantly, here, the rivalry between Sega and Nintendo ended after more than 20 years of neck-to-neck competition. Sony entered the game console market in 1994 with the launch of Playstation. From the beginning, Sony’s target market approach was something Nintendo and Sega had not done – Sony marketed its games to adults.  While Sega’s Saturn and Nintendo’s N64 were busy acclimatizing cartoon characters into their games as a means for capturing consumers’ attention and triggering sales, Sony resorted to ubiquitous huge-budgeted advertising campaigns, targeting most demographics, regardless of age. Indeed, this move paid off and established the PlayStation as a necessary gadget along with the TV in houses. Channeling the advertising resources to the adult demographic of the population has been declared the reason for Sony’s worldwide success with Playstation and its sequels. This trend towards mass targeting was later employed by the likes of Nintendo, by releasing GameCube. Wii also was launched and the target segments involved were mothers, grandparents and girlfriends who, eventually, became the source of the major chunk of video game sales (Gaming Wars: 4 of the Greatest Rivalries in Video Game History, 2011). The most rigorous competition faced by the industry, however, was in the 7th cycle, which began in 2002 with the launch of 128-bit video games consoles (GRANT, 2005). According to Grant, Sony led the market in the 128-bit consoles, and its PlayStation2, released in late 2000, was ready to carry forward the leadership achieved by PlayStation in the previous generation of 32- and 64-bit machines. “PlayStation2 was a 128-bit machine offering cinematic-style graphics, a DVD player capable of showing films, and the potential for internet connectivity. Nobuyuki Idei, Sony’s president, aimed to make the PlayStation2 the main mechanism for consumers to access the internet, offering online games, e-commerce, e-mail, and the ability to download music, software and video” (GRANT, 2005). For two years straight, Sony enjoyed boom in sales and left its counterparts far behind in the race for market share. However, the rivals struck back. By the summer of 2002, Playstation2’s continued growth in market share began to drop. With Nintendo’s strong loyalty in the youth segment and its proven success of creating super-hit games, namely, Super Mario Brothers, Zelda, Gran Turismo, and Pokemon, Nintendo was giving a hard time to Sony and challenging Sony’s market share now (RIVALRY IN VIDEO GAME INDUSTRY, n.d.) . This situation had developed into a worrisome state where Sony could no longer enjoy its monopoly in the market. During the course of this heat-up, newcomer Microsoft introduced its Xbox in the market. Since the company was of strong software development abilities, Xbox was built to be the world’s most powerful games console with immense processing speed and graphics competence. Xbox also received huge positive customer response since it was customized with broadband internet connections to enable interactive gameplay. Microsoft designed Xbox with a central emphasis on enhancing online gaming experience in the rapidly-globalizing world which directly competed with a relatively diminishing market of PC network gaming. Both, Nintendo and Xbox ferociously competed with Sony to snatch market share and the industry’s competition became tighter than ever. Sony felt these jolts throughout post-2002. According to Izushi and Aoyama (2006), when Nintendo launched its Wii in 2006, 6.29 million units of the Wii were sold in the US market by 2007, as compared with 4.62 million units of the Xbox 360 and 2.56 million units of the PS3. Similarly, in the same year, the Nintendo Wii reigned over PS3 and the Xbox 360 sales in Japan, as well, with their shipments reaching up to 3.20 million, 1.10 million, and 0.24 million units respectively. The consumer market had matured to a level whereby intense competition between firms and race for better technology and quality had ‘spoiled’ the consumers to expect a better product sooner than ever. Consumer, now demand more realistic graphics and faster response (Izushi and Aoyama, 2006). Handheld consoles also contribute to the video gaming industry. Nintendo has always been the winner in this regard since earlier times, however, with Sony’s PSP; Sony captured a good chunk of Nintendo’s handheld gaming consoles market. Today, PsVita is the latest release by Sony a sequel to the PSP brand. The competitor for PsVita is Nintendo’s 3DS. Both are selling good with PsVita having a margin over its rival, thanks to brand equity carried by Playstation. Currently, PsVita sales dominate the charts for the eighth hand-held generation consoles while second comes 3DS.In the normal console category, in the past decade, Nintendo tried to gain competitive edge over Playstation and Xbox by launching its wireless motion-sensor controller called Wiimote. Subsequently, Sony experienced loss in sales later introduced its Plasystation Move as a response. Even Microsoft is planning on releasing its version of Wiimote and Playstation Move (Fackler, 2007). Presently, Sony enjoys sale of both of its sequels of consoles, Ps2 and Ps3. Brand loyal customers of Ps2 have not yet given up on Ps2 and that is the cause of Ps2 continuing sales. The problem, however, is that the sales of Ps2 is eating up that of Ps3. Consumers are not upgrading towards Ps 3 at a healthy rate. This, of course, does not affect Sony’s competitors directly and Sony still enjoys a large market share, be it through sales of Ps2 or Ps3. Conclusion In recent years, the three rivals, Playstation, Wii and Xbox have competed against each other on the most delicate strings. In this era, with internet accessibility spread across the world, and gaming consumer base as big as ever, there is a more ferocious war for supremacy. The case history mentioned above clearly signifies how, not just technological advancement is a must in this industry, but also timely launch determines the success of the product; the product must not be too advanced nor too mediocre. Since the past decade, the three big payers have been on center-stage, competing against each other aggressively. The customer segmentation has evolved from limiting to young teenagers and kids to across-the-board, all age targeting, from the youth to old adults. This part of the fierce competition that the industry possesses, along with the wholesome globalized effect of internet facility and communications technology defines the nature of the 21st century market for video games worldwide. Also, the first-mover advantage is one of the most important factor of rivalry in this industry. We have seen how the first-mover, initiator of a certain technology can sweep the whole video games’ market and change the trend of market share and consumer spending. Hence, research and development comes top of the list. User-friendly hardware and software intuitiveness come next. These are important because the new-age target market includes people from all segments of the population, hence the games and console must be universally understandable. These factors, certainly, dictate which rival will come on top and also proclaim the extent of success in this competitive industry. Recommendations The video game industry is a fairly new industry. History of the history only holds a handful of companies; however, the growth rate suggests future prospects and potential for the industry. Companies like Sega lived and perished, whilst new companies might come up with breakthrough technological products like the Nintendo Wiimote. Nevertheless, the industry has developed in to a fast-paced, consumer-oriented technological-centered financial entity worldwide. Sega could have still been the industry had it properly understood the nature of the potential of the video game industry. Instead, of launching Dreamcast2 just two years after the launch of its first sequel, Sega should have waited to let it sink into the market. This is what Sony has done, whereby; the estimated lifespan of Ps3 is declared as 10 years by Sony. The trend of the industry has becomes of the sort where extensive research and development is done to design breakthrough products, and then the consumer world is allowed time to reap full utility out of it. In other words, the console manufacturer reaps all revenues and profits out of the product before releasing the next sequel. However, this creates a problem through Sony is suffering itself; the fact that ps2 sales are eating up Ps3’s sales. In the short-run, the revenue graph might look positive but, in the long-run, however, Sony must devise a strategic plan to help consumers move towards ps3 and keep progressing with the pace of Sony, otherwise Sony might suffer from what Sega suffered, i.e. Developing a highly-advanced, ahead-of-the-time consoles, like Dreamcast, which might not appeal enough consumers. References GRANT, R. M. (2005). Cases to accompany Contemporary strategy analysis, fifth ed. Malden (MA), Blackwell IZUSHI, H., & AOYAMA, Y. (2006). Industry evolution and cross-sectoral skill transfers: a comparative analysis of the video game industry in Japan, the United States, and the United Kingdom. Environment & Planning A. 38, 1843-1862. COX, J. (2006). Is there a first mover advantage in the market for Japanese video games systems? Asia Pacific Journal of Economics and Business, 10 (1). pp. 18-33 FACKLER, M. (2007). Playstation 3's costs cut into Sony profit, in The International Herald Tribune. GAMING WARS: 4 OF THE GREATEST RIVALRIES IN VIDEO GAME HISTORY. August 18, 2011, accessed on January 22, 2012. COMPETITION IN THE VIDEO GAME CONSOLE INDUSTRY: NINTENDO, SONY, AND MICROSOFT BATTLE FOR SUPREMACY, accessed 21 January 2012, < http://www.oppapers.com/essays/Competition-In-The-Video-Game-Console/209271> CASE STUDY: “RIVARLY ON VIDEO GAMES” – THE SEGA SITUATION, accessed on January 22, 2012 < http://www.slideshare.net/buzzsaw43/case-study-rivalry-on-video-games> RIVALRY IN VIDEO GAME INDUSTRY, accessed on 21 Jan 2012  Read More