1. Video Gaming Industry
Lorenzo Pellizzari | Ludovic Beauvois | Soong Kah Weng
Agenda
1. History of Video Gaming
2. Sources of Innovation
3. Types and Patterns of Innovation
4. Timing of Entry Patterns
5. Porter’s 5 Forces Framework
6. Standard War Dynamics
7. Lessons from the Past

2. History of Video Gaming1

3. Willy Higinbotham & Steve Russell
1951
Idea by Ralph Baer
Early 1960s
Willy Higinbotham & Steve Russell
1966
Ralph Baer begins researching interactive TV games and was supported by Defense contractor
1968
Ralph Baer patented the first interactive game
1971
First arcade game was released
1972
Magnavox Odyssey console available to the public
1977
Atari released the video computer system 2600
1978
Nintendo enter the industry
1983
Sega enter the industry with SG-1000
1994
Sony enter the industry
2001
Microsoft enter the industry with Xbox

5. Sources of Innovation 2

6. World First video gaming console
In 1972, this was available to the public
Evolve a lot
Exponentially faster
Wireless controllers or even no controllers
Online capabilities
Multiples players
3D Games
Colour output and surround sound ……

7. Individual as Innovators
Ralph H. Baer
Tasked to develop the best Television in the world
Idea is to include some interactive game
But the management did not pursue
Developed the first console,
Magnavox Odyssey in 1968

8. Innovation Value Chain
Technology push, Initially
Market pull, Now
Creativity
Invention
Innovation
Diffusion

9. Innovation Value Chain
Technology push
The creativity of Ralph H. Baer to have games played on television
When the initial purpose is to develop the best television
Creativity

10. Innovation Value Chain
Technology push
After beginning with the supportresearching interactive television games of defence contractor, Sanders Associates
Lead to the invention of gaming console “Brown Box” in 1968
Creativity
Invention

11. Innovation Value Chain
Technology push
The invention is then licensed to Magnavox
The video gaming console was in production and sold to the public as Magnavox Odyssey
Creativity
Invention
Innovation

12. Innovation Value Chain
Technology push
Technology push because the creativity led to new products which the market has yet to demand for it
New knowledge was transform into new product
Creativity
Invention
Innovation
Diffusion

13. Innovation Value Chain
Market pull
With 3D television gaining popularity, video gaming console need to have 3D capabilities.
Controller-less demands from the market has push Sony and Microsoft Xbox to come out with video gaming console that support gaming without a controller.
Higher video games requirements push for newer gaming consoles with more powerful hardware.
Online technology

14. Porter’s Diamond Magnavox (U.S Co) Atari, Inc. (U.S Co)
Sony Playstation (U.S Co)
Microsoft Xbox (U.S Co)
Sega (Japan Co)
Nitendo (Japan Co)
Why are U.S so innovative in the video gaming industry ???

15. Firm Strategy, Structure and Rivalry Related and Supporting Industries
Porter’s Diamond
Video Gaming
Firm Strategy, Structure and Rivalry
Demand Conditions
Related and Supporting Industries
Factor Conditions

16. Porter’s Diamond Factor Conditions
During 1980s, US has a large amount of computer science graduates
Excellent telecommunication infrastructures

17. Porter’s Diamond Related and Supporting Industries
Triumph of the Arcade
Computer hardware getting cheaper and at the same time improving

18. Porter’s Diamond Related and Supporting Industries
Developers and publishers coming out with greater varieties and newer games
Television technology is advancing with better video and audio outputs
Newly available video-gaming magazines in the early 1980s

19. Porter’s Diamond Firm Strategy, Structure and Rivalry
Game cartridges or disks can only be used by the gaming console of the respective company
The gaming console is also backward compatible with games, meaning that old game cartridges or disks can be used on the newer version of the gaming console

20. Porter’s Diamond Demand Conditions
The home markets demand for gaming console after the triumph of the arcade in early 1980s.
Demand for faster gaming consoles from 8-bit, 16-bit, 32-bit to 128-bit so that greater processing power is available for performance-intensive games.
Demand to play games online with the rapid growth of faster broadband.

21. Types and Patterns of Innovation3

22. Different dimensions of innovations
Product Innovation
New consoles are more powerful, better graphics, closer to reality than their previous versions
Incremental Innovation
PS2 is a PS1 with some adjustments (DVD player)
Rumble not in PS3
Radical Innovation
CD-ROM
Wii’s move remote

23. Different dimensions of innovations
Competence enhancing innovation
Xbox 360 build on technology of Xbox
PS2 still in use, games are compatible!
Wii’s move remote radical but competence enhancing!
Competence destroying innovation
CD-ROM replaced the cartridge: cheaper to manufacture and had a larger capacity than the existing cartridge technology
More Component innovation

24. Technology trajectory
Disruptive tech is Wii (less advanced performance, simpler system)
But cheaper than PS3 and
Xbox 360 thanks to lower development costs
Consumers switch to Wii
Both Sony and Microsoft had to create a new controller, to compete with the Wii

25. Sony’s and Microsoft’s reaction
The PlayStation®Move for Playstation 3
Kinect for Xbox 360
yourself are the controller

26. Timing of Entry Patterns4

27. Video Gaming consoles Entry timing
Generation (Time Period)
Rival Platforms (Manufacturers)
Introduction Date
Operating Performance
CPU
Bit
ROM
1st ( )
Channel FDD (Fairchild)*
1976
2 MHz 8
VCS**DD (Atari)
1977
1,19 MHz 4K
RCA (Studio) 2K
Odyssey2 (Magnavox)
1978
1,78 MHz
Gamevision (Texas Instrument)
Home Arcade (Bally)
3,58 MHz
2nd ( )
Intellivision (Mattel)*
1,980
0,5 MHz 16
16K
Atari 5200 (Atari)
1,982
1,79 MHz
Colecovision** (Coleco)
8-32K
Arcadia 2001 (Emerson) 8K
3rd ( )
NES** (Nintendo)*
1985
24-32K
Master System (Sega)
1986
3,6 MHz
32-131K
Atari 7800 (Atari)
52K
4th ( )
Sega Genesis** (Sega)*
1989
7,6 MHz
64K
Turbo Grafix16 (NEC)
1991
250K
Super NES (Nintendo)
5th ( )
Interactive Multiplayer (3DO)*
1993
12,5 MHz 32
660Mb
Jaguar (Atari)
26,6 MHz
Saturn (Sega)
1995
28 MHz
Playstation**DD (Sony)
33,9 MHz
Nintendo 64 (Nintendo)
1996
93,75 MHz 64
100Mb
6th ( )
Dreamcast (Sega)*
1999
200 MHz
128
1,1Gb
Playstation 2** (Sony)
2000
294 MHz
5,6Gb
GameCube (Nintendo)
2001
485 MHz
1,5Gb
Xbox (Microsoft)
733 MHz
7th (2005-present)
Xbox 360 (Microsoft)*
2005
3,2 GHz
256
20Gb
Wii**DD (Nintendo)
2006
729 MHz
512Mb
Playstation 3 (Sony)
3,2GHz
60Gb
*indicates the first mover
** indicates the most popular platforms
DD indicates early adaptor and dominant design
Source:
° Innovation and Competition in Standard-Based Industries: A Historical Analysis of the U.S. Home Video Game Market, Scott Gallagher and Seung Ho Park, IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 49, NO. 1, FEBRUARY 2002
° Wikipedia.com

28. What can we say from the chart ?
Out of the 7 Generations of Video Gaming Consoles
2 out of 7 first movers managed to become the most popular
Most of the cases, early followers became the most popular video gaming platform
Why is early followers more successful?
Able to determine the market responses to the products sold by the first movers
Waiting for enabling technologies to be more established
Able to learn from the mistakes from first movers before launching the new products

29. In the case for Sony Playstation
Was never a first mover
In the 5th Generation, Sony was the 4th company to launch Playstation
But it became the most popular platform and set the dominant design for that generation
In the 6th Generation, Sony was the 2nd company to launch Playstation 2
It became the most popular platform the for that generation
In the 7th Generation, Sony was so far the last company to launch Playstation 3

30. Porter’s 5 Forces Framework

31. Porter’s 5 forces framework
Competition Rivalry
Power of Suppliers
Substitutes
Power of Buyers
Entrants
To evaluate the attractiveness of the Video Gaming Industry.

32. Competitive rivalry
3 big players with changes in leadership through time
Decrease in sales of consoles (-8% in 2010)
Competition on differentiation and prices
Moderate barrier to exit
=> Overall strong competition

33. High threat of substitutes
New platforms and new business models
High threat of substitutes

34. Threat of substitutes

35. Threat of entry Space for only 3 players (ex: Sega)
Importance of « killer apps » and network of developers
Backwards-compatibility
High developing costs
Entry of Apple?
=> Threat quite low

36. Power of buyers
Software market dominated by large developers (ex: Electronic Arts)
Locked-in customers in a console type with specific games
High price sensitivity
But standardized consoles and price sensitivity
=> Moderate threat

37. Power of suppliers Sony, Microsoft produce other types of electronics
Nintendo mainly develops its own games
Nintendo (>< Sony, Microsoft) outsources the manufacturing of hardware => dependent of certain suppliers
Some limited components in consoles (ex: blue laser diodes in PS3)
=> Moderate threat

38. Porter’s 5 forces framework
Strong Competition Rivalry
Moderate Power of Suppliers
Lot of Substitutes
Moderate Power of Buyers
Low Risk of
Entrants
Porter’s 5 forces framework
Unattractive Industry to Enter
Apple is the most likely candidates to enter

39. Standard War Dynamics 6

40. 3 dominant designs « Move remote »: CDs: Cartridges: - Start: Wii
- Start: Atari
- Supremacy: NES
CDs:
- Start: PS
- Supremacy: PS
- Parallel DD: cartridges
« Move remote »:
- Start: Wii
- Supremacy: Wii
- Parallel DD: Classical remotes

41. Lessons from the Past 7

42. most important lessons of the past for the present strategic position
History of Video gaming seems to be following the evolution of the vehicle where games appear most — Television and ………..
Black/White to Colour
Colour to Flat Screen
Flat Screen to LCD/Plasma
LCD/Plasma to HDTV
Next Step: 3D TV and Virtual Retina Display for greater realism and details

43. most important lessons of the past for the present strategic position
and also Enabling Technologies
From 8-bit, 16-bit, 32-bit to 128-bit
Cartridges to CD to DVD to Blue-Ray Disk
From multiplayer to online gaming
From Wired controller, to wireless controller to action sensor controller …
Next Step: 4G gives 100mb/sec connection anywhere
No hand gaming, brains will do it

44. The End
Q&A