The value of cloud computing for Sony Corporation MIS 535, DeVry University Thomas Myers Professor Richards December 4, 2014 Table of Contents 1. Abstract 3 2. Brief Company background 3 3. Discussion of business problem(s) 4 4. High level solution 4 5. Benefits of solving the problem 5 6. Business/technical approach 5 7. Business process changes 6 8. Technology or business practices used to augment the solution 7 9. Conclusions and overall recommendations 7 10. High-level implementation plan 8 11. Summary of project 9 12. Bibliography 10 Myers 3 Abstract The digital landscape is changing. The popular pastime known as gaming is facing a watershed moment as new technologies and new media consumption patterns emerge. Given that half of the population of gamers conducts their hobby on mobile devices such as the Apple iPhone, traditional business operations done by companies such as Sony Corporation are insufficient to meet the evolving needs of the market. The company would do well to invest in a relatively new technology which is at the front of the shift: cloud computing. This new business model offers a myriad of capabilities. Brief company background In 1946, a startup company named Totsuko launched in Tokyo, specializing in telecommunications equipment. It later adopted the SONY brand, a portmanteau of the Latin word Sonus, meaning sound, and Sonny. The latter was supposed to be representative of a boy. In 1960, the company started selling its first television, a new direct-view type. The company continued to sell various electronic items, up until 1993, which marked key events in the company’s history. That year, the company’s research department operated a blue semiconductor laser with continuous-wave room-temperature, the first of its kind. Additionally, that year was the first year that Sony Computer Entertainment, Inc., was in existence; it being of course, the company’s video game division. Over the next two decades, the company continued to grow and prosper (Sony.net). In 1994, the PlayStation, the Computer Entertainment division’s flagship gaming console premiered in Japan, to be followed by another in 2000, the third in 2006, and most recently the PlayStation 4, launched this past year. The latter set sales records, with 1 million units bought in a day by customers after its North American launch. (SCE) Myers 4 Discussion of business problem(s) It seems that gamers, or at least the half not on a mobile device, harbor an interest in big set pieces in their media. One needs to only look at the enormous success of rival Microsoft Corporation’s Halo media franchise, which by 2012 alone had passed $3 billion in sales (Sarkar). The drawback is that these graphics take up a lot of infrastructure inside the game’s physical disk space. Sony also faces the expense of establishing an infrastructure for cloud gaming as well as the usual costs of just running a game industry. Sony actually loses about $60 per PlayStation 4 sold (Kain), although there business model allows such a loss. As a first-party game developer, they can make up the costs by selling software as well as their paid subscription service, PlayStation Plus. The service allows players access to a network on which they can compete in multiplayer matches. High level solution Cloud computing technology can take in much of the behind the scenes operations of a game engine, allowing more space to be devoted to the media content such as graphics and storyline. This is similar to how competitor Microsoft’s recent Titanfall game works. Additional functions for cloud computing include game streaming, like how a video would play on Youtube.com. Further functions also include digital storage for purchased products, in lieu of creating a physical game disk. Either way, the cloud computing technology serves as a powerful tool for Sony and its game developers. The leadership team at Sony must realize its enormous support from its consumers. They are a resource in terms of ideas as well as a strong source of revenue. Although launching a Myers 5 cloud data service can be expensive at the start, it is bound to have a strong value after the fact as development costs are cut and more individuals buy into the company. And with the recent divestment of certain divisions, Sony may refocus its team on its gaming market. Benefits of solving the problem The reduced cost of development and administration of its online network would allow Sony to have a more profitable base, and can re-invest it into its online services and allay the loss it suffers when selling its hardware. And if they monetize the cloud service, Sony has an even greater revenue stream. Customers would be able to receive additional support from behind the scenes, as well as access to more refined end products. This has the obvious effect of pouring more sales revenue into Sony’s coffers. Launching such as service would also allow it to compete with Microsoft. Both companies offer proprietary hardware and media franchises, and Sony can leverage its new system to lure over certain demographics, namely the aged 18-34 adults which form a slight majority of gamers. This is especially vital, as Sony does not have a comparative answer to Microsoft’s Windows mobile operating system. Offering streaming services result in owning market strength. Furthermore, streaming games offers greater flexibility than normal physical devices. By launching a streaming service, Sony can capture a very large market. Business/technical approach If Sony invests in a similar way, it can evolve the way it presents its games to the company’s consumers. Sony already has an existing loyalty base, and demonstrating its commitment to growth and market innovation is a way of rewarding that base. A report on cloud Myers 6 commuting demonstrates the inherent advantages in cloud computing. “The results indicate that our resource pricing mechanism outperforms many existing approaches in terms of resource profits and response time” (Qu 177). Sony’s investment would pay off quickly, allowing it to turn around and benefit the consumers. Indeed, with its recent purchase of the company Gaikia, which uses its own version of cloud computing, Sony has existing infrastructure already in place, at least for direct services like streaming (Peckham). This infrastructure, similar to Microsoft’s, represents the changing face of gaming. The business model must change with it or risk becoming obsolete. This includes offering streaming content, tailored to current markets (Dethlof). A further benefit is that the cloud service allows the ability to edit the game as it goes along. This could serve to stop the infamous practice of “Day One Downloads”—add-ons to the game released at the same time to fix bugs. They have recently been topping 1 gigabyte. And when it takes hours for these to process, that is time lost for gamers and for developers, along with any negative publicity. Business process changes Sony already operates as a first-party publisher, developing its own brand with products such as the Uncharted action-adventure series. The cloud computing software has the capability of diversifying their operations, turning them into a game streaming service as well. This would entail acquiring the technologies used for cloud computing and activating the servers. The PlayStation Now service is a paid subscription. Sony could attach the streaming service to the service or produce another subscription service (Bourne). Other uses for the cloud computing, including background tasks, could simply be a proprietary plug-in for current or future consoles. Either option would require Sony to hire additional staff or train Myers 7 existing employees on how to run the servers, handle bugs, and assist customers. In the future, should the company go the all-digital route, it would also entail closing down certain of its manufacturing divisions and changing the relationships with vendors, as it would no longer need disks, or disk drives in the console. Technology or business practices used to augment the solution In order to use the cloud computing system, Sony would need to add or rent servers in order to handle their new business model. Cloud computing can act as a sort of artificial intelligence for the developer’s games. The system can work behind the scenes to improve the functioning of a game, without stressing the game console. The current generation of consoles has 8 gigabytes available for memory. The addition of cloud computing can scale that even further. As for pricing for the service, Sony has several options. It can include the price in its existing Plus service, which is $18 for three months or discounted for subscribing for multiple periods. The company may also have a separate pricing tier for accessing the service, either “pay-per-view” or unlimited access. Another option would be to pass on the cost to the games themselves, although it may not be economically feasible as it is facing a very price-inelastic market. Major games from the main publishers tend to be $60 at this point in time. Conclusions and overall recommendations There has been a growth in cloud computing lately, with the technology becoming more flexible and more affordable. Sony Corporation has the opportunity to take charge of the technology and apply it to their game-making and game services. Sony would benefit greatly Myers 8 from doing so, as the changing face of the gaming industry demands flexibility of the kind cloud services offers. This benefit includes increased profits and increasing customer loyalty. Overall, Sony should concentrate on using the cloud for back-end services, adding the cost to the development instead of passing it onto gamers with yet another monthly payment plan. This allows the cost to be spread onto multiple units and maintain Sony’s competitive edge in the marketplace. And with the purchase of Gaikia streaming services, Sony already has existing capabilities. As games get more complicated, they require more hardware in order to run. Rather than maintain physical disks, even modern ones like a BluRay, Sony could host game software in the cloud. This has the added effect of lowering development costs by not having to purchase a disk and its box; the savings can potentially be passed down to the consumer. High-level implementation plan After divesting itself of certain business lines, Sony is in the middle of a shakeup (Nusca). The company wants to focus on its profitable lines instead of hardware. This allows Sony the opportunity to refocus its effort on its gaming division with the following steps. -Purchase or rent cloud server capacity -Train its developers on how to use the new capabilities -Enhance the PlayStation Now service with game streaming abilities -Allow new games to access the cloud and run behind the scenes operation in the cloud -Evolve the practice as needed. The key point is for Sony to not delay in taking advantage of the cloud technology. Any investment is bound to have a worthwhile return. And after a record-setting console launch, Myers 9 Sony has a built-in market. Additionally, the company needs to have backup for their servers, with a dedicated staff for problem-solving and customer support. Summary of project Sony Corporation, a business which conducts operations in part in the gaming industry, must be able to keep pace with changing consumer desires. A profitable way for them to do that would be to allocate cloud computing resources to their business and extend it to their customers. The company may use the resources to enhance their games by shifting behind the scenes work to the cloud, or to offer more direct services such as streaming. Either method, conducted with the support of the staff and with a favorable pricing plan, can offer Sony a competitive advantage in the gaming market. Myers 10 Bibliography Bourne, James.” Sony’s move to cloud gaming goes up a gear with PlayStation Now”. Cloudtech. January 9, 2014. Electronic. http://www.cloudcomputingnews.net/news/2014/jan/09/sonys-move-cloud-gaming-goes-gear-playstation-now/ Dethlof, Heidi. “Why Cloud Computing Is A Game Changer For The Gaming Industry”. Forbes.com. August 14, 2014. Electronic. http://www.forbes.com/sites/ibm/2014/08/14/why-cloud-computing-is-a-game-changerfor-the-gaming-industry/ Kain, Erik. “Sony To Take A Loss On PlayStation 4 Sales.” Forbes.com. September 20, 2013. Electronic. http://www.forbes.com/sites/erikkain/2013/09/20/sony-to-take-a-loss-onplaystation-4-sales/ McWhertor, Michael. “PS4 to use Gaikai for instant demos, Ustream multicasting, social gameplay.” Polygon.com. February 2, 2014. Electronic. http://www.polygon.com/2013/2/20/4006146/playstation-4-streaming-ps3-gamesplaystation-cloud-gaikai Nusca, Andrew. “The Next Step in the Evolution of Sony.” Fortune, March 17, 2014, Vol. 169, Issue 4. Print. Peckham, Matt. “Sony Unveils 'PlayStation Now' Streaming Game Service at CES 2014.” Time.com, January 7, 2014. Electronic. http://techland.time.com/2014/01/07/sonyunveils-playstation-now-streaming-game-service-at-ces-2014/ Myers 11 Sarkar, Samit. “Halo franchise tallies 46 million copies sold, almost $3 billion total revenue.” Polygon.com. October 31, 2012. Electronic. http://www.polygon.com/2012/10/31/3581904/halo-franchise-lifetime-sales-revenue Sony Computer Entertainment, Inc. (SCE). “PLAYSTATION®4 SALES SURPASS 1 MILLION UNITS IN NORTH AMERICA IN 24 HOURS.” SCE Press Release, November 17, 2013. Print. Sony.net. History. Electronic. http://www.sony.net/SonyInfo/CorporateInfo/History/ Qu, Xilong et al. “A Two-Phase Gaming Model for Resource Pricing in Elastic Cloud Environments.” International Journal of Grid & Distributed Computing. 2014, Vol. 7 Issue 3, p177-187. Print.
