Responding to Wii

Executive Summary
The 128-bit console generation is in the battle for supremacy with three major players at the helm- Sony
PlayStation 3, Microsoft Xbox 360 and Nintendo Wii. Surprisingly, Nintendo Wii is leaping ahead, with
its unit sales almost as much as the combined sales of PlayStation 3 and Xbox 360. This puts tremendous
pressure on Sony to respond quickly and regain its position as the industry leader. I recommend that Sony
continues with its current strategy of targeting traditional gamers with technologically advanced system
while tweaking its positioning to capture Wiis market share in the future.
How attractive does the video game industry look in late 2008?
Based on Porters Five Forces analysis (Refer Exhibit A), the video game industry appeared quite
lucrative in 2008. High capital investments in manufacturing a new console and established fan following
of existing ones implied low threat of entry from a new player. There were no viable substitutes at the
time. While suppliers had some leverage, it was not impactful enough to effect the console companies
significantly. There were however two major issues
1. Intense rivalry between the 3 major players. On the positive side, this rivalry was not on price but
on product differentiation (technology, features and games), which implied that there was no
downward spiral into market failure
2. Low/Negative profit margins (Refer Exhibit 2b: Responding to Wii case). This was specific to
higher priced console producers (Sony & Microsoft) implying that either consumers were willing
to pay less or that sales of one console heavily cannibalized sales of other consoles
Why did Nintendo delay introducing its 16 bit video game system?
Since its release, Nintendos 8-bit NES was enjoying robust sales. Hence, to avoid cannibalizing sales of
8 bit- NES, Nintendo delayed introducing 16-bit video game system even though it had already developed
the system.
Did Sega use any elements of Judo Strategy?
Sega used the below two elements of Judo Strategy. (Refer Appendix B)
1. Leverage your opponents asset: Nintendo delayed the launch of 16-bit game system to avoid
cannibalizing on sales of 8-bit system. Sega leveraged this by launching a faster 16 bit system and
captured significant market share. It also leveraged Nintendos brand equity and allowed games
containing adult content (violence, sex, gore) on Sega Genesis system. This helped Sega to target
older, hipper audience and further increase its market share.
2. Follow-through fast- Sega used this window of opportunity (delay in launch of Nintendos 16 bit
system) and strengthened its position in the console market via continuous attacks. Sega set the
price of its game system slightly below Nintendo (Genesis retailed at $190 vs. $200 for Super
NES; games at $40-70 vs. Nintendos $50-80). Additionally, Sega promoted its console with a
cool image among teenagers. This fast attack on multiple fronts ensured that Segas Genesis
outsold Nintendo (22.8 Million vs. 21.3 Million Nintendos Super NES)
How did PlayStation and PlayStation 2 win in their respective generations?
Several factors contributed to success of PlayStation and PlayStation 2. Some of the major ones are:
1. Premium product with better technology than ever seen before
2. Targeted at mature audience (18-34 year old male) implying more spending power both in the
present and in the future

Responding to Wii
3. No restriction on video game content. This gels well with the mature audience
4. Significant number of third party game developers ensured there was no dearth of new games for
PlayStation and PlayStation 2
5. Use of CD-ROMs as distribution media allowed for more storage and easy scalability. However,
more importantly, it allowed for easy sharing and sometimes copying of games (although illegalthis practice helped continued popularity of the game system)
All the above factors worked really well together as a product differentiation strategy. This set Sony
PlayStation apart from the existing players in the market and led to success of PlayStation and
PlayStation 2.
Why did Microsoft get into the game?
Microsoft was concerned by the rise in popularity of console games vs. PC games. Additionally,
PlayStation 2 multimedia capabilities posed the threat of replacing PC as the platform of choice for
homes. Microsoft did not have any product to compete or substitute the consoles and hence, to remain
relevant in the battle for the living room, Microsoft decided to launch its own console.
How was Nintendo able to regain the lead in videogames?
Nintendo used some of the Judo strategy techniques to regain its lead in console war. (Refer Appendix B)
Essentially, Nintendo decided not to compete head on with PlayStation or Xbox in their domain (Superior
graphics, mature games, multimedia capabilities). Instead, it targeted a completely new market of casual
gamers or even first time gamers. Wii was designed to appeal to all demographics, 9- 65 year old, with lot
of family fun time thrown in for good measures. Also Wiis ease of use focused on the fun aspect of video
games rather than intense story telling style of more mature games. Combined with the low price point
($250 vs. $299 for basic Xbox vs. $499 for PlayStation 3), Wii became the first choice of people looking
to foray into the world of video games. Wii was able to achieve product differentiation by focusing on
aspects not satisfied by its competitors products and ushered the console industry in the era of casual
gamers.
Recommendations
I recommend that Sony should stay with the current strategy of creating a technologically superior
console with multimedia capabilities focused on mature and intense games. Sony has been using the
product differentiation strategy and PlayStation has a completely different brand equity than Wii. Trying
to emulate Wii will dilute this brand equity. Also, this will alienate PlayStations most loyal fan base. To
respond to Wii, Sony can leverage Wiis popularity and position PlayStation as an evolutionary step from
being a casual gamer to an actual gamer. There are several other reasons for Sony to continue with current
strategy. (Refer Appendix C) However, Sony should embrace the technological innovation of motion
sensing controllers and incorporate the same in its console. Additionally, Sony can add more multimedia
capabilities. This will ensure that PlayStation capitalizes on being the most technologically advanced
gaming machine and the choice of multimedia device for the home.
Appendix
Appending A: Porters Five Forces Analysis

Responding to Wii

Threat of New Entrants- Low

High capital investments (Hardware, software & technical know-how)
Game Developers relationships
Customer fan following for specific products/games

Supplier Power- Medium

Buyer Power- Low
Rivalry- High
turers (IBM, Toshiba, etc.) Both Microsoft and Sony used IBM to develop their processors
End consumer
does
not have much say in spe
3 major players => intense competition
but not on
price.
me publishing studios can use some leverage based on popularity of games
Loads
of competition
in retail
space ensures
power and
concentration
for any retailer. Also
All
players
have significant
resources
at theirno
disposal
good fan following
CDs, cartridges, DVDs, Blue-Rays) were not always under direct control of console companies

Threat of Substitute Products or Services- Low

While PC was initially seen as a substitute, by 2008, consoles had established their own separate market and fan
A whole generation had grown up with consoles and not likely to give them up
Internet not evolved enough to offer play on demand for high end games

Responding to Wii
Appendix B: Judo Strategies use by Console Companies (Pass and Fail)
Judo Strategy
The puppy dog play

Sega

Nintendo

Sony

Microsoft

Define the competitive space

Follow-through fast
Grip your Opponent
Avoid Tit for Tat
Push when pulled
Practice Ukemi
Leverage your opponents asset
Leverage your opponents partners
Leverage your opponents competitors
Appendix C: Why should Sony follow the current strategy?
S.N
o
1
2
3
4

Reasons
Loyal fan base
PlayStation brand equity
Spending power of traditional gamers. (Sony is already operating at negative profit margin. It
cannot afford to lower prices and hence, needs consumers with significant disposable income)
Growing popularity of video games- video games are fast becoming part of everyday life and
Sony can capitalize on this opportunity by integrating additional features in PlayStation
console. This will however imply high cost and technological superiority
Demographics- As the Wii generation gets older, Sony can convert them to hard core gamers if
positioned correctly

Responding to Wii