Kazuo Hirai, the chief executive of Sony Computer Entertainment Inc. (SCEI) has encountered two large rivals in the video game industry this year. Nintendo and Microsoft have released advanced video game consoles that have left Sony sales behind. Nintendo especially, has broken the status quo for marketing in the video game industry by dramatically expanding its target market from 18-34 year-olds to 9-65 year-olds both male and female with its new video game console, the Wii. For years, Sony had gone head to head with Microsoft competing for the same market with their PSPs and X-Boxes consoles.
Both Sony and Microsoft focused on using advanced technology to create cutting edge video game consoles whose purpose was more than just video games. Their target market was 18-19 year old males. On the other hand, the Wii is not as advanced as the PSP or X-Box. Its main attraction are its wireless, motion-sensing controllers that allow gamers to use their limbs (punching, swinging, batting) to control the actions of on-screen characters. Also, the Wii was designed with user- friendly capabilities that appeal to all audiences. Nintendo is threatening competition for Sony. There are five main forces that drive Video Game Industry competition: * Intensity of rivalry among Competitors
* Threat of New Entrants * Threat of Substitutes * Bargaining Power of Suppliers * Bargaining Power of Buyers
Intensity of Rivalry among Competitors One of Sony’s largest threat and competitor is Nintendo. Nintendo sold 32.4 million units for the Wii, while Sony sold 15.5 million units. While Sony was occupied retaliating to Microsoft’s X-box video game console, Nintendo rose to take number one position in the video game industry. In 2007, Sony lost 9.7% of its Operating Margin, while Nintendo was up to 58.8% in millions of dollars. This is an important issue because Sony has been at the top of the industry for many years and is now suddenly is losing capital. Currently in the Video Game industry rivalry and competition is really intense. In Sony’s case, it is the way Nintendo’s Wii console is appealing to all audiences that has affected Sony the most. With Sony only reaching out to a closed market, it is difficult to increase sales. Also, Sony has to keep up working on new technology for the PSP to overcome Microsoft’s X-box. If Sony does not step up its game, then soon it will be left behind and sales will hit the floor.
Threat of New Entrants Sony’s second rival in sales is Microsoft and their video game console, the X-box 360. Microsoft threatens to take control of the gaming market of 18-35 year olds. Microsoft brought out the new X-box live that allows players to play online with players from all over the world while video chatting with them at the same time. If Sony does not address the issue with the Wii, and does not improve sells, Microsoft could take over Sony’s target market. This force is moderately strong, and is another threat to Sony.
Threat of Substitutes In Sony’s case, if Sony does not respond to the Wii or X-box and loses its target market new entrant s might join the video game industry to take advantage of the lack of motivation from Sony and their target market. Sony needs to make sure it keeps their current target market by providing improved technology and new games. If not, then there could be a possibility that new competitors come into play and take Sony’s position as lead video game provider for 18-35 gamers. Also, Nintendo could just take over the whole Video Game industry. Although, this force is not very strong it can definitely happen, especially with Sony’s sales loss.
Bargaining Power of Suppliers Currently, Sony is not being affected by the bargaining power of suppliers. However, the companies that it does work with (Toshiba and IBM) could refuse to manufacture new products for Sony if they feel they are taking a risk based on Sony’s drop in sales. For example when Microsoft joined the Video Game Industry it attempted to do things differently, like not charging royalties to third parties, thus third party console makers declined to manufacture x-boxes. This is also a moderate force that must be kept on check because whatever Sony’s decision is to do in respond to the Wii, Sony will have to go to these third parties to manufacture the new ideas.
Bargaining Power of Buyers For Sony, there is not a lot of bargaining power from buyers. The issue is that its market is not as large as Nintendo’s. This force is not an immediate threat to Sony but rather would happen in a case where a company was forced to reduce the price of its video game console to please its market. The main issue in the Video Industry is not the cost of the product but rather the quality and popularity amongst the market.
Recommendations Of all these five forces that drive Video Game industry competition, the strongest forces are the intensity of rivals and threat of new entrants. Sony should not try to compete with Nintendo for the market, but should instead focus on its strongest facets in order to keep pleasing their current target market. Sony has become very popular amongst its target market and if it is not focused it can become weak and lose its market. If this happens then Microsoft would take Sony’s position and market and have no other main competitors. If Sony can improve sales by pleasing its target market, then the other four forces can be avoided. Sony should stay focused on finding new technology to improve its current game console to please its current target market. This market has been following Sony since its birth and should be Sony’s priority. Rushing into a larger market could damage Sony even more. The Video Game industry is definitely an attractive business for Sony, but Sony should be aware of its competitors and keep its product high quality.
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