Strategy Analysis of the console market – part 1: key success factors

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Ok, after the short introduction of the last post, let’s start with the first part of our analysis.

In order to highlight the different strategies of the 3 competitors, it’s necessary to take a look at the market, analysing the key success factors of the whole sector and trying to understand which company got the best from each factor.
Of course:

  1. we are not going to say which strategy is the best one, at least not now;
  2. it’s likely that you will find something missing form my list. If so, please feel free to add your comments to this post.

I’ll proceed with an alphabetical order, simply because none of these factor can be considered better than the others: the secret is within the ability to put in place a COHERENT strategy, without the need to be the best in each sector.

BRAND
It’s a tautology, but the brand is important. 10 years ago, before the advent of the Playstation, we can say that Nintendo and SEGA were synonyms of “console videogames”. If you followed the link in my introductive post, you already know why SEGA is not on the scene anymore.

When Sony decided to “attack” the console market, they pushed on marketing, on brand valorisation, on advertising. They made a lot of investments to become popular in this market too. And they were successful.

The same did Microsoft 5 years ago, with their first XBOX.

Nintendo strategy was different and the result was that both the XBOX and the Playstation brand became really popular. Nintendo lost some of their popularity, but thanks to the portable console segment they were able to “survive”.

Now, in 2007, these 3 competitors can count on greats and strong brands, which makes really unlikely the arrival of new comers.

COST
Costs are critical. Even if we are talking about big companies, this aspect should be taken into consideration not to transform a well-done strategy into a failure.
Nintendo kept the productive costs low, so to make revenues from each console sold and at the same time being aggressive on the price.
Microsoft did a long-time strategy. Their console cost more, but they took advantage from being the first in the market. Unfortunately their hardware is not reliable, obliging the company to spend a lot in free assistance.
Sony did the worst: they produced an expensive console, with expensive components.

EXCLUSIVE GAMES
I’d say, no problem for any of the 3, here.
Nintendo can benefit from their own games (maybe the best in terms of gameplay). Plus a set of exclusives like the RE:Umbrella Chronicles and Monster Hunter 3 by Capcom (this last announcement was really astonishing for the market)
Microsoft worked hard on exclusives. Apart from halo3 or Mass Effect or Bioshock, Microsoft was able to steal a lot of titles to Sony: Devil May Cry 3, Ace Combat 6,

Sony is losing advantage, and this is mainly due to Microsoft efforts. But the game is not over: Little Big planet, Gran Turismo 5, Metal Gear Solid 4 are titles that no real gamer should miss.

INNOVATION
There are a lot of way to innovate: game play, graphic, audio, online… Microsoft and Sony focused on the last 3 aspects, while Nintendo made the gameplay the basis of their strategy (and the result was Wii and its incredible Wii remote)

ONLINE FEATURES
No console can be considered successful without an online platform. Even Nintendo had to admit it.
Microsoft has the lead, with its Xbox live service. Sony is trying to reach Microsoft, with a free service (Playstation Network) but still to be improved. Nintendo is only tasting the market, with a light

PRICE
Value for money or Premium price? Nintendo chose to sell a hardware less powerful, but at low cost. Sony did the opposite. And Microsoft positioned their product in the middle, thanks to the modularity of the Core and Pro versions of their console (…WI-FI only optional…).

RELIABILITY
The hardware must be reliable. Some years ago I would not have considered this aspect in my analysis but, due to the Xbox 360 problems, now I have to. Microsoft is losing a lot of prospect, for this productive issue.

THIRD PARTIES SUPPORT
Nothing more than what I said for the section “Exclusive games”. A good support from 3rd parties allows a console to have a wide portfolio of genres, so to satisfy all customers.

TECHNOLOGY (AUDIO, GRAPHIC and HARDWARE RELATED STUFF)
It’s clear: games must be more and more beautiful to see. However, with the Wii, Nintendo demonstrated that this is “only one key success factor”, not “the only one”. And everything depends on the market segment to be covered. For example, Sony and Microsoft focused on hardcore gamers.

TIMING
Timing is fundamental. Microsoft was the first this time, and they benefited from that. Imagine what could have happened if Sony had been able to be in the market during the same time, with a console more expensive, ok, but RELIABLE.
I’d say that Microsoft were both good and lucky.
There would be a lot to say about “timing”. Maybe I will dedicate a whole post to this aspect in the future.

Today we have finished. In the next part we will analyse a particular topic: the pressure of the competitive forces, and how this aspect has influenced the current “next-generation” console market.

Romano Panzacchi

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