Nature of Competition in the Videogame Industry
Technology has become one of the most important elements in our lives today. It
does not only accelerate the development of economy and society, but it also improves
our entertainment enjoyment. Since 1980s, the radical change of technology allowed
many videogame companies to invent various types of video systems and formed an
emergence of videogame industry. The largest and most well-known companies in this
industry are Nintendo Co., Ltd. Company, Sony Computer Entertainment Incorporation
and Microsoft Corporation. They entered the market in 1980s, 1990s and 2000
respectively. The videogame industry is a good example of oligopoly. There are few
firms in the market, each of them owns part of the market share and they compete with
each other by differentiating their products with distinctive features and functions. At this
point, with an open and share standard, these firms are considered to be adopting
controlled migration strategy. Unless there is a revolution or a significant innovation of
technology, with their existing critical mass, these firms are not likely to produce
proprietary system in order to dominate the market. the latest figure of 2004 shows us
that Sony is leading the gaming industry with about 67% of market share, and the
remaining are captured by Nintendo and Microsoft equally (approximately 15% each).
With advanced technology development each year, the videogame industry has brought
us over $10 billion each year worldwide. In the next two to three years, we expect the
total number of gamers in the world would increase to more than 230million and the
revenue brought from the industry would be doubled. Therefore, the videogame industry
is still very young and it is expected to continue to grow every year in the future.
Competition between Sony and Nintendo
Sony and Nintendo have both obtained first-mover advantages in different
markets of the videogame industry. Nintendo is the first to recognize the potential of the
handheld market and has focused on the development of this distinctive game console
system. In 1989, Nintendo has become a first mover and has introduced the latest
development of handheld game console known as GameBoy. With the combination of
low costs, portability and simplicity of use, GameBoy has become a huge success and has
soon outsold all other competing game console system. GameBoy is then considered to
be the most popular handheld game console of all times. With first-mover advantages,
Nintendo has captured a significant share of market and has become the leader in the
game console market at that time. On the other hand, Sony has perceived the opportunity
of being the first mover with the invention of Super Disc. Therefore, Sony has focused
on the development of game console that is able to support the use of CD-Rom based
games. In December of 1994, Sony has introduced the game console that has marked the
transition of another era known as Playstation. Sony has become the one and only
corporation in the newly emerged game console market, as Playstation is no longer able
to support any game cartridges available in the market. With first-mover advantages,
Sony is able to capture a significantly large share of market including the market share
from Nintendo and other existing companies in the industry.
Reactions of one firm to the competitive initiative of another firm
Sony has continued to become more successful while Nintendo has continued to
lose its market share. Nintendo still has not perceived the benefit of using the CD format
for video games and has introduced Nintendo64 as a response to Playstation from Sony.
As a result, Nintendo64 has become a failure due to the poor digital animation and audio
quality of its game cartridges. Therefore, Nintendo has decided to concentrate on the
handheld market. In 2000, Sony has announced the success of Playstation and has
introduced its second game console in the market known as Playstation 2. In the same
year, Microsoft has entered the game console market and has introduced Xbox. Nintendo
has finally realized the threat of its market position and has returned back to the game
console market. In 2001, Nintendo has introduced GameCube as their first game console
that support the use of CD-Rom based games. However, the CD format that Nintendo
has used is its own proprietary format where illegal duplication of game software is not
allowed. Apart from the introduction of GameCube, Nintendo has introduced an
accessory item known as GameBoy player. It allows consumers to connect their
GameBoy system to television and has backward compatibility with all of the previous
game cartridges. Recently, Nintendo has introduced another portable game console for
its GameBoy series known as Nintendo Dual Screen. Sony has realized the
aggressiveness of Nintendo in the game console market and has decided to introduce its
first portable game console known as Playstation Portable in March 24th of 2005. It can
be seen as a portable Playstation 2 along with various entertainment features. It is
expected that the competition in the videogame industry will become more intensified
and the first-mover advantages of both Sony and Nintendo will continue to place them in
a superior position in the industry.
Why one strategy works and why one does not
In comparison with Sony, Nintendo has faced more challenges and experienced
more difficulties with its video console systems. As we mentioned above, with
Nintendo’s bad forecast and some contractual problems, the release of Sony’s PlayStation
with the compatibility of high quality Super Disc format has proven a failure of
Nintendo’s cartridges-format N64 in 1996. Although Nintendo offered GameCube in
2001 in attempt to cover the earlier lost, the five years late release of smaller disc format
GameCube has already caused a large portion of market share lost for the company. In
this case, we can say that Sony obtained a first move advantage in using compact disc
format in games software storage system. It also helps the firm to climb up to the top
position in the gaming industry within a short period of time. In addition, since the day
Sony entered the video game industry, it only produced three main gaming systems: PS1,
PS2, and the latest PSP. With some level of backward compatibility, Sony allows its
gamers to play PS1 games in PS2 system. It does not only expand the market to a larger
group, it also ensures the existing customers to enjoy its advanced technology. On the
other hand, Nintendo has produced a lot of systems in both console and handheld market.
For only the handheld market, it has already produced three different systems in the
GameBoy series. Although producing various systems may help the firm to target larger
group of market, it ignored the importance of quality; not quantity. Even there are certain
levels of improvement in each system, producing too many game systems within a
limited time period without fully understanding the real situation in the market and the
competitors’ development is very dangerous. It caused Nintendo suffered a great lost in
its console systems, especially GameCube.