MGT 235: Strategic Analysis
Joseph Chang, Anthony Griffin,
Israel Gonzales, Anna Olivier,
and Scott Vanderpool
Background

Video game console industry


$10 Billion per year
Nintendo

First console: 1985


First-mover
Current market

Sony (Playstation: 1st), Microsoft (XBOX: 2nd),
Nintendo (Gamecube: 3rd)
Typical Life Cycle
Introduction
Growth
Maturity
Current Console
Market
X
Decline
Individual Game Console Cycle
Introduction
Growth
Maturity
Decline
(Innovators/
Early
Adopters)
(Early market
saturation)
(Full saturation,
R&D begins on
next generation)
(Introduction of
new, phase out of
old)
5-year Period
(Average)
Game Console Life Cycle Trend
5-year Cycle
20+ year Period
Game Console Environment
Introduction
Growth
Maturity
Game
Cube
N64
SNES
NES
’85-’89
’89-’95
’95-’98
’98-’05
Decline
1985 – 1989: The Beginning



Players: Nintendo (NES), Sega (MS)
First mover: Nintendo
Nintendo market share: 90%
1989 – 1995: The 16-bit Generation



Players: Nintendo (SNES), Sega
(Genesis),
First mover: Sega
Nintendo market share: 60%
1995 – 1998: Dawn of the PlayStation



Players: Nintendo (N64), Sony (PS),
Sega (Saturn)
First mover: Sega
Nintendo market share: 23%
Nintendo
Sony
1998 – 2005: 128-bit and Beyond




Players: Sega (DC), Sony (PS2),
Nintendo (GC), Microsoft (Xbox)
First mover: Sega
Sega exits hardware market
Nintendo market share: 14%
Nintendo's Market Share 1989-2006
90%
60%
23%
14%
1989
1995
1998
2006
Console Market Share (2006)
Nintendo
14%
Microsoft
17%
Sony
69%
Strong Industry Profits
High
Entry Barriers
High start-up & marketing cost,
brand equity
Weak
Suppliers
Sony
Microsoft
Nintendo
Low rivalry, 3 players,
$10 billion market
Substitutes
Weak
Weak
Buyers
High switching cost
Competitive Advantage
1985
Industry
Infancy
1st Mover
Console
Advantage

1988
Industry
Present
1st Mover
Portable
Advantage*
*Console Market: $10 billion per year industry

Portable market: 10% of home console market ($ 1
billion per year)
Strategic Issue

How can Nintendo regain lost market share in
the home console market?
Exit the Home Console Market
Pros



Eliminate expensive hardware and focus on producing
software
 (e.g. Sega)
Allocate resources to concentrate on portable market
Cons
 Lose out on licensing revenue
 Portable market is significantly smaller than home
console market
Expand Third Party Software Support

Create incentives to entice game developers

Lower licensing fees, advertising benefits, easy platforms

Pros
 A variety of games attract larger market share
 Additional exclusive titles attract more consumers

Cons
 Hard to motivate third party developers



Incentives can be costly
Exclusivity of Nintendo products
Decrease in market share appears unprofitable
Upgrade the Home Console

Add new features: DVD, online, HD, etc.


Pros
 Caters to new generation’s needs
 Online gaming components can add extra revenue
streams
Cons
 High costs in developing new console
 Two large players dominate this part of the market
Focus on Untargeted Market

Low price and user friendly approach

Pros



Tap into the untargeted market including women and baby
boomers
Gain market share without stealing it from competitor
Cons


Low price limits the graphical capabilities of Nintendo’s home
console hardware
Too broad: opinion leaders (hardcore gamers) may be turned off
by this approach
Rationale: Industry Trends

The increasing age of the average gamer



2000: Average age is 28
2005: Average age is 33
Broadening demographics




43% of all gamers are women
Women over the age of 18 represent a greater portion of
the game playing population (28%) than boys from ages 6
to 17 (21%)
25% of all gamers are 50 and up
In 2004, 19% of Americans over the age of 50 played
video games, an increase from 9 percent in 1999
Source: The Entertainment Software
Association
Final Recommendation
Nintendo 1985

Focus on an
Untargeted Market




Gamers over the age of
50 are a growing market
Female gamers are
increasing in number
Potential in untargeted
gamers
Low price and user
friendly approach
Sony 1995
Nintendo 2006
“The optimist sees opportunity in every danger;
the pessimist sees danger in every opportunity.”
-Winston Churchill
“The worst thing that you can do is to compete
with your rival on the same things.”
-Michael Porter