Given the current market scenario, Sony will have to fight on both fronts. The Wii has unlocked a new segment of the market. Sony should adapt its strategy to address this new market. But Sony must not lose sight of the big picture, to win the long term race for the “center of the living room”. Sony should leverage its relation with game developers to introduce simpler games for the casual gamer. It has to keep targeting the hardcore gamer and it must continue to provide additional value as a single device for gaming, streaming movies and television, internet surfing, video conferencing etc. How attractive does the video game industry look in late 2008? By 2008, the industry situation has become intense, with four of Porter’s five forces showing high threat (See Exhibit 1 in Appendix).
However, the industry does hold the promise that the winner will occupy the “center of the living room” position, could potentially create a stranglehold on the entire entertainment industry and could reap profits. Therefore, the stakes in this battle are high. Why did Nintendo delay introducing its 16 bit video game system? Nintendo delayed introducing its 16 bit video game system in order to avoid cannibalizing sales of the 8-bit NES. But competitors came up with new value propositions to take away market share.
For example Sega employed the Judo strategy to garner market by introducing its 16-bit version, Genesis, while Nintendo was concentrating on the 8-bit market. Sony, with its PlayStation and PlayStation 2 product lines took this game further. They expanded the target customer base to include grown-ups by creating games fit for all ages and combining forces with game developers.
Did Sega use any elements of Judo Strategy?
Sega effectively implemented Judo strategy by preventing its strong competitor Nintendo to come at it with full strength. Sega attacked the pieces of the play with various small steps. It started with leveraging the 16-bit opportunity, and setting lower prices for its Genesis to that of Super NES. Then it introduced its popular version of Sonic, the Hedgehog. It also hurt Nintendo by luring in third party developers with its low royalty strategy and built up twice the number of titles Nintendo had. In 3 years Sega Genesis took over the market.
How did PlayStation and PlayStation 2 win in their respective generations? With the industry becoming attractive, Sony entered the market with its 32-bit icon product ‘Play Station’ targeting a larger and mature audience. Sony, contrary to its competitors built up on the outsourcing strategy, by allowing developers more freedom, tools and income. Despite lagging on software titles, it was unstoppable in the hardware segment overpowering Sega. As leader of the industry, Sony launched its Play station 2 at 128-bit gearing up for the next revolution.
Why did Microsoft get into the game?
With the console games becoming attractive and multi capable compared to PC games, the PC giant Microsoft was concerned if the console platform takes over the PC platform. So it entered the video game console business with Xbox as a bet against Sony’s Play station. It was hoping to become successful in the video game business as it has been in the PC software business. Surprisingly the same recipes didn’t cook well with the developers in this segment and Sony took over the throne by 2005.
How was Nintendo able to regain the lead in videogames?
With Microsoft and Xbox as strong contenders in the field, Nintendo was gearing up for the launch of its next generation console. While Microsoft was trying to leverage the early release of Xbox 360, Sony was dealing with its internal technicalities. Both the competitors had incorporated superior technological features in to their products. While Xbox had Digital Amplification, Play station had the most powerful console. The technology prowess was so much that the products were HD-DVD and Blu-ray compatible and had online gaming features. On the other hand, Nintendo’s machine was less advanced across all features of processing, compatibility, sound and memory.
However, Nintendo could made Wii special with its user friendliness and targeted a larger audience of not avid gamers. Its innovative motion sensitivity and customizable features helped Wii overtake its rivals by 2008. Despite its low performing hardware or performance, it was its reachability to the large customer segment that generated its value proposition.
What should Sony do now?
Sony should work with game developers to create simple games that target the Wii’s audience. However, Sony’s gaming console should still be high tech to maintain its hold on the hard core gamer. Sony should market the new PlayStation line as a value add product that is the one stop source for the entire family’s entertainment needs. This way, Sony can counter Wii’s threat while also staying in the long term race for the “center of the living room” position. This position is essential for thwarting Microsoft’s plan of creating a stranglehold on the entire entertainment industry by being the electronic platform of choice in the home.