Video Gaming Industry
Lorenzo Pellizzari | Ludovic Beauvois | Soong Kah Weng
Agenda

1. History of Video Gaming

2. Sources of Innovation

3. Types and Patterns of Innovation

4. Timing of Entry Patterns

5. Porter’s 5 Forces Framework

6. Standard War Dynamics

7. Lessons from the Past
History of Video Gaming
1
1951
Idea by
Ralph Baer
2001
Microsoft
enter the
industry
with Xbox
1994
Sony enter the
industry
Early 1960s
Willy Higinbotham
& Steve Russell
1983
Sega enter the
industry with SG1000
1966
Ralph Baer begins
researching
interactive TV games
and was supported
by Defense
contractor
1978
Nintendo enter the
industry
1968
Ralph Baer
patented the first
interactive game
1971
First arcade game
was released
1972
Magnavox
Odyssey console
available to the
public
1977
Atari released
the video
computer
system 2600
Sources of Innovation
2
WORLD FIRST VIDEO GAMING CONSOLE








In 1972, this was available to the public
Evolve a lot
Exponentially faster
Wireless controllers or even no controllers
Online capabilities
Multiples players
3D Games
Colour output and surround sound ……
INDIVIDUAL AS INNOVATORS

Ralph H. Baer
Tasked to develop the best Television in the world
 Idea is to include some interactive game
 But the management did not pursue
 Developed the first console,
Magnavox Odyssey in 1968

INNOVATION VALUE CHAIN

Technology push, Initially
Creativity

Invention
Market pull, Now
Innovation
Diffusion
INNOVATION VALUE CHAIN

Technology push
Creativity
The creativity of Ralph H. Baer to have games
played on television
 When the initial purpose is to develop the best
television

INNOVATION VALUE CHAIN

Technology push
Creativity
Invention
After beginning with the supportresearching
interactive television games of defence
contractor, Sanders Associates
 Lead to the invention of gaming console “Brown
Box” in 1968

INNOVATION VALUE CHAIN

Technology push
Creativity
Invention
Innovation
The invention is then licensed to Magnavox
 The video gaming console was in production
and sold to the public as Magnavox Odyssey

INNOVATION VALUE CHAIN

Technology push
Creativity
Invention
Innovation
Diffusion
Technology push because the creativity led to new
products which the market has yet to demand for it
 New knowledge was transform into new product

INNOVATION VALUE CHAIN

Market pull

With 3D television gaining popularity, video gaming
console need to have 3D capabilities.

Controller-less demands from the market has push Sony
and Microsoft Xbox to come out with video gaming console
that support gaming without a controller.

Higher video games requirements push for newer
gaming consoles with more powerful hardware.

Online technology
PORTER’S DIAMOND
Magnavox (U.S Co)
 Atari, Inc. (U.S Co)
 Sony Playstation (U.S Co)
 Microsoft Xbox (U.S Co)
 Sega (Japan Co)
 Nitendo (Japan Co)


Why are U.S so innovative in the video gaming
industry ???
PORTER’S DIAMOND
Firm
Strategy,
Structure
and Rivalry
Factor
Conditions
Video
Gaming
Related and
Supporting
Industries
Demand
Conditions
PORTER’S DIAMOND

Factor Conditions
During 1980s, US has a large amount of computer
science graduates
 Excellent telecommunication infrastructures

PORTER’S DIAMOND

Related and Supporting Industries

Triumph of the Arcade

Computer hardware getting cheaper and at the same
time improving
PORTER’S DIAMOND

Related and Supporting Industries

Developers and publishers coming out with
greater varieties and newer games

Television technology is advancing with better
video and audio outputs

Newly available video-gaming magazines in the
early 1980s
PORTER’S DIAMOND

Firm Strategy, Structure and Rivalry

Game cartridges or disks can only be used by the
gaming console of the respective company

The gaming console is also backward compatible
with games, meaning that old game cartridges or
disks can be used on the newer version of the gaming
console
PORTER’S DIAMOND

Demand Conditions

The home markets demand for gaming console after
the triumph of the arcade in early 1980s.

Demand for faster gaming consoles from 8-bit,
16-bit, 32-bit to 128-bit so that greater processing
power is available for performance-intensive games.

Demand to play games online with the rapid
growth of faster broadband.
Types and Patterns of
Innovation
3
DIFFERENT DIMENSIONS OF INNOVATIONS

Product Innovation


Incremental Innovation



New consoles are more powerful, better graphics,
closer to reality than their previous versions
PS2 is a PS1 with some adjustments (DVD player)
Rumble not in PS3
Radical Innovation
CD-ROM
 Wii’s move remote

DIFFERENT DIMENSIONS OF INNOVATIONS

Competence enhancing innovation
Xbox 360 build on technology of Xbox
 PS2 still in use, games are compatible!
 Wii’s move remote radical but competence enhancing!


Competence destroying innovation


CD-ROM replaced the cartridge: cheaper to
manufacture and had a larger capacity than the
existing cartridge technology
More Component innovation
TECHNOLOGY TRAJECTORY





Disruptive tech is Wii (less advanced performance,
simpler system)
But cheaper than PS3 and
Xbox 360 thanks to lower development costs
Consumers switch to Wii
Both Sony and Microsoft had to create a new controller, to
compete with the Wii
SONY’S AND MICROSOFT’S REACTION
The PlayStation®Move
for Playstation 3
Kinect for Xbox 360
yourself are the controller
Timing of Entry Patterns
4
VIDEO GAMING CONSOLES ENTRY TIMING
Generation
(Time Period)
Rival Platforms
(Manufacturers)
st
1 (1976-1982) Channel F
DD
VCS**
DD
(Fairchild)*
(Atari)
RCA (Studio)
2
3 (1986-1990)
th
4 (1989-1996)
th
5 (1999-2000)
6 (1999-2007)
th
7 (2005present)
Bit
2 MHz
8
1977
1,19 MHz
8
4K
2K
1,19 MHz
8
1978
1,78 MHz
8
Gamevision (Texas Instrument)
1978
1,78 MHz
Home Arcade (Bally)
1978
3,58 MHz
8
ROM
1,980
0,5 MHz
16
Atari 5200 (Atari)
1,982
1,79 MHz
8
Colecovision** (Coleco)
1,982
3,58 MHz
8
8-32K
Arcadia 2001 (Emerson)
1,982
3,58 MHz
8
8K
NES** (Nintendo)*
1985
1,79 MHz
8
24-32K
Master System (Sega)
1986
3,6 MHz
8
32-131K
Atari 7800 (Atari)
1986
1,79 MHz
8
52K
Sega Genesis** (Sega)*
1989
7,6 MHz
16
64K
Turbo Grafix16 (NEC)
1991
3,6 MHz
8
250K
Super NES (Nintendo)
1991
3,58 MHz
16
Interactive Multiplayer (3DO)*
1993
12,5 MHz
32
660Mb
Jaguar (Atari)
1993
26,6 MHz
32
660Mb
Saturn (Sega)
1995
28 MHz
32
660Mb
1995
33,9 MHz
32
660Mb
Nintendo 64 (Nintendo)
1996
93,75 MHz
64
100Mb
Dreamcast (Sega)*
1999
200 MHz
128
1,1Gb
Playstation 2** (Sony)
2000
294 MHz
128
5,6Gb
GameCube (Nintendo)
2001
485 MHz
128
1,5Gb
Xbox (Microsoft)
2001
733 MHz
128
5,6Gb
Xbox 360 (Microsoft)*
2005
3,2 GHz
256
20Gb
2006
729 MHz
64
512Mb
2006
3,2GHz
256
60Gb
Playstation**
th
CPU
1976
1977
(1980-1984) Intellivision (Mattel)*
rd
Operating Performance
Odyssey (Magnavox)
2
nd
Introduction
Date
DD
Wii**
DD
(Sony)
(Nintendo)
Playstation 3 (Sony)
16K
Source:
° Innovation and Competition in Standard-Based Industries: A Historical Analysis of the U.S. Home Video Game Market, Scott Gallagher and Seung Ho Park, IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 49, NO. 1,
FEBRUARY 2002
° Wikipedia.com
*indicates the first mover
** indicates the most popular platforms
DD indicates early adaptor and
dominant design
WHAT CAN WE SAY FROM THE CHART ?

Out of the 7 Generations of Video Gaming
Consoles
2 out of 7 first movers managed to become the most
popular
 Most of the cases, early followers became the
most popular video gaming platform


Why is early followers more successful?
Able to determine the market responses to the
products sold by the first movers
 Waiting for enabling technologies to be more
established
 Able to learn from the mistakes from first movers
before launching the new products

IN THE CASE FOR SONY PLAYSTATION


Was never a first mover
In the 5th Generation, Sony was the 4th company to
launch Playstation


In the 6th Generation, Sony was the 2nd company
to launch Playstation 2


But it became the most popular platform and set the
dominant design for that generation
It became the most popular platform the for that
generation
In the 7th Generation, Sony was so far the last
company to launch Playstation 3
Porter’s 5 Forces
Framework
5
PORTER’S 5 FORCES FRAMEWORK

To evaluate the attractiveness of the Video
Gaming Industry.
COMPETITIVE RIVALRY
3 big players with changes in leadership
through time
 Decrease in sales of consoles (-8% in 2010)
 Competition on differentiation and prices
 Moderate barrier to exit

=> Overall strong competition
THREAT OF SUBSTITUTES
New platforms
and new
business
models
High threat of substitutes
THREAT OF SUBSTITUTES
THREAT OF ENTRY
Space for only 3 players (ex: Sega)
 Importance of « killer apps » and network of
developers
 Backwards-compatibility
 High developing costs
 Entry of Apple?

=> Threat quite low
POWER OF BUYERS
Software market dominated by large
developers (ex: Electronic Arts)
 Locked-in customers in a console type with
specific games
 High price sensitivity
 But standardized consoles and price
sensitivity

=> Moderate threat
POWER OF SUPPLIERS
Sony, Microsoft produce other types of electronics
 Nintendo mainly develops its own games
 Nintendo (>< Sony, Microsoft) outsources the
manufacturing of hardware => dependent of
certain suppliers
 Some limited components in consoles (ex: blue
laser diodes in PS3)

=> Moderate threat
PORTER’S 5 FORCES FRAMEWORK
Unattractive Industry to Enter
 Apple is the most likely candidates to enter

Standard War Dynamics
6
3 DOMINANT DESIGNS
Cartridges:
CDs:
« Move remote »:
- Start: PS
- Start: Wii
- Start: Atari
- Supremacy: PS
- Supremacy: Wii
- Supremacy: NES
- Parallel DD:
cartridges
- Parallel DD: Classical
remotes
Lessons from the Past
7
MOST IMPORTANT LESSONS OF THE PAST FOR
THE PRESENT STRATEGIC POSITION

History of Video gaming seems to be following
the evolution of the vehicle where games appear
most — Television and ………..
Black/White to Colour
 Colour to Flat Screen
 Flat Screen to LCD/Plasma
 LCD/Plasma to HDTV


Next Step: 3D TV and Virtual Retina Display for
greater realism and details
MOST IMPORTANT LESSONS OF THE PAST
FOR THE PRESENT STRATEGIC POSITION
and also Enabling Technologies
 From 8-bit, 16-bit, 32-bit to 128-bit
 Cartridges to CD to DVD to Blue-Ray Disk
 From multiplayer to online gaming
 From Wired controller, to wireless controller to
action sensor controller …
Next Step: 4G gives 100mb/sec connection
anywhere
 No hand gaming, brains will do it

Q&A
The
End