Strategy Analysis of the console market – part 2: pressure of the competitive forces

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The last time we spoke about the key success factors of the console market. Today we will deeply analyse the influence of the competitive forces, and how much they affected the market.

First of all, let me say that competition is always a positive factor.
The presence of competitors means innovation, dynamism, differentiation, sometimes also price reductions.

It’s not my intention to describe what happened 10-15 years ago, with the struggle between Sega and Nintendo, the arrival of Sony, the failure of 3DO and Amiga CD32 or the sad end of Saturn and Dreamcast.

We will focus our analysis on the current competitors: Microsoft, Nintendo and Sony.
Let’s start with Sony and its famous brand: Playstation.

The last generation was “dominated” by Sony. They sold more than 100 millions of consoles and they are still selling a lot of them. The same had happened for the first Playstation.

But this time, Sony underestimated their competitors. Microsoft developed a console really powerful, the Xbox 360, and they sacrificed the previous Xbox in order to be the first to release the new hardware into the market. They made mistakes, selling a “not so reliable” hardware, but they gained one year of advantage.

Sony and Nintendo were not ready to show their new products, but the reason seems to be different:

  • Nintendo had released the DS, a portable console which is going to beat the Game boy Success in the world. So they could concentrate themselves in preparing the launch of the Wii
  • Sony was late. Some problems in the production of the Cell processor, plus the will to integrate a Blue Ray drive into the new console obliged the Japanese colossus to postpone the release date. In other words, they missed the Christmas appointment both in Europe and in the USA.

Honestly I think that there was one more reason for the delay: Sony underestimated Microsoft (and Nintendo of course, but who could imagine such a success for the Wii at that time?). They had already beaten Sega in the past generation, although they had launched the Dreamcast with one year of advantage, so it’s likely that they thought that nothing would have changed with Microsoft.

But Microsoft is a big company, with lots of resources. They invested in marketing and promotion, they obtained a lot of good exclusives (Bioshock, Gears of War, Halo 3 of course, Mass Effect) and they stole some of them to Sony (Ace combat 6, Dead rising). Moreover, the Xbox 360 is easier to be programmed. As a result, many multiplatform titles resulted better for the American console and many others were delayed for the Japanese one.

Last but not least: XBOX Live. A clear example of what positive effect a sane competition can have for the customers. The Microsoft need to beat Sony, made them to develop an online service better and better. So good that the fact that it’s a paid service is not considered an obstacle by the customers. Xbox live is the standard de facto for the Online gaming. Nothing more to say.

And Nintendo? I’d like to focus on it in one of the future posts, when we talk about innovation. The success of the Wii in this generation is another clear example of how the market can benefit form the pressure of competitive forces. In order to avoid a direct match against two colossi like Microsoft and Sony, the Big N decided to differentiate them, inventing new ways to interact wit h the videogames. We could say that Nintendo introduced a new philosophy in video gaming. It’s likely that the Wiimote would have not been developed so early, if Nintendo had not been menaced by their two competitors. But they did it and now they are enjoying a well-deserved success.
Nonetheless, brands like Monster Hunter 3 by Capcom have been re-directed to the little white console.

This said, Sony is not dead of course, but they needed to take drastic measures.
First of all, they cut the price of their console.
In order to do so, they had to reduce some costs, putting a smaller hard drive, decreasing the number of USB ports, eliminating the retro compatibility of the Playstation 3 and modifying the Sixaxis joypad so that it will re-include the rumble feature (the absence of this function has been an unexplainable and enormous mistake made by Sony).

Moreover, they still have exclusives (are Little Big Planet, Metal Gear Solid 4 and Gran Turismo 5 and Final Fantasy 13 enough?), they provide an online service for free (it’s not as good as Xbox live, but it’s obvious that Sony will speed up its enhancement), the console is far more reliable than the Microsoft one and we must not forget that the PS3 is a very cheap Blue Ray driver!!!

The console war is not finished yet and we, as customers, are getting great benefit from it: better services, better games, new peripherals, and lowered costs.

Finally, we have concluded our little topic about the pressure of the competitive forces in the console market. In the next part we will publish a very short topic focused on the productive efficiency.

Stay tuned!!!

Romano Panzacchi

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