UNIVERSITY OF ONTARIO INSTITUTE OF TECHNOLOGY

Nintendos Strategy in 2009

The Ongoing Battle with Microsoft and Sony

Group 7 Jeremy Abbaterusso 100217118

Strategic Management 1 BUSI 4701

April 1st, 2011

Word Count: 1246

The Attractiveness of the Console Video Game Industry (Porter 5 Forces)

Suppliers (Medium to Low)

Suppliers include Foxconn Precision Components, IBM etc. for chip manufacturing, product assembly, video game creators, and content providers. Each supplier would provide a small piece of the complete product and as such bargaining power would be low (pg. 282). Buyers (Low)

Buyers consisted of various retailers that carry the product and would vary in bargaining strength depending on their size. From the sheer number of retailers that carry the product along with the global presence of the major competitors in the industry there is no single retailer in a position to exert any significant level of power. Substitute Products (Medium)

Direct substitutes for the console video game industry are personal computers, arcade machines, and handheld game devices which vie for consumer spending (pg. 279). These substitutes are near in cost and provide no switching costs aside from their price. Combined with the presence of a large number of near substitutes vying for entertainment expenditures there is a threat from substitute products. Threat of New Entrants (Low)

Large capital investments, distribution channels, technological complexities and other critical factors within the game console industry would be barriers for new entrants. Also the creation of an assortment of games and accessories would bring down the threat of new entrants even further as this would be a huge obstacle to overcome. Rivalry among Competing Sellers (High)

Rivalry within the video game console industry would be high. Microsoft, Sony, and Nintendo would battle for market supremacy (pg. 275). This battle would weaken differentiation by competitors developing products that were technologically superior and more powerful than the offering of rivals (pg. 283). This benchmarking lead to price wars by competitors squeezing profit margins and limiting market share gains (pg. 281).

Conclusion With the recession making 2009 sales decline to $382.6 million from $617.3 million in 2008 (pg. 283) and with the overall assessment of the five forces the video game console industry would not be attractive. This accompanied by the high risk technological complexities and the increased intensity of competition the industry would be considerably unappealing.

Success in the Game Console Manufacturing Industry

The 3 4 critical success factors are:
1. 2. 3. 4. Advancement in Technology Price and Strategy Research and Development Quality and Innovation of Gaming Accessories (ex. Games, remotes, etc.)

a) Distinctive Resources/Capabilities Leverage by Nintendo: 1. Differentiating the User Interface and Remote
Value There is a high value in Nintendos ability to differentiate its product offering in comparison to Microsoft and Sony as it allows Nintendo to appeal to a new market segment which included people who did not generally play video games (pg. 281). This value is best shown with Nintendos dominance in unit sales for 2009 (exhibit 4, 5, and 6). Rarity The user interface and remote was rare as Nintendo was the first to bring together a Bluetoothactivated wireless controller which provided gamers with a wide range of motion capabilities (pg. 280). This new ability harnessed by Nintendo allowed users, to physically interact with the virtual world, significantly changing the experience of video gaming (pg. Pg.280). Imitability Patent protection would protect this technology from being duplicated, but the remote capability and interface could be substituted by competitors. In fact, Microsoft and Sony had announced intentions to create a variety of ways for their consumers to interact with games on their systems (pg. 287).
(Temporary Competitive Advantage)

2. Marketing Strategy Innovation

Value

(Temporary Competitive Advantage)

This is of high value as it would allow Nintendo to appeal to a larger market and create an infinite possibility for profitable growth (pg. 281). Also, since this new segment did not require technological complexities and hyper realistic graphics (pg. 281) Nintendo was able to cut down drastically on costs and have a profit margin of an estimated $50US per unit where Sony took a loss of around $250US per unit sold (pg. 284). Rarity This was rare as Nintendo was attempting to target new customers rather than fighting with competitors for old ones (pg. 283). Its overall rarity would be explained by Brian ORourke as he states, Microsoft and Sony spend a lot of time developing cutting edge technology. Nintendo is not a technology company - it is a toy company. It is not interested in bleeding edge electronics and graphics (pg. 284). Imitability This marketing strategy could be duplicated by Sony or Microsoft. This is possible by the competing firms leveraging into new ways for its consumers to interact with its consoles as both companies have shown intentions to pursue the casual gamer market (pg. 287).

Organization for both Resources Nintendo was able to leverage these capabilities by bringing together the companys research, innovation, technology and functionality (pg. 280). The organization was also able to leverage its success within the DS, and interactive games like Duck Hunt and Track and Field (pg. 281) while focusing on differentiating.

b) Resources and Capabilities Leveraged by the Competition:

Sony
Technology and Innovation
Value There is great value in developing faster and more advanced consoles. As this allows Sony to secure consumer interest and market share by being able to provide a more realistic gaming experience (pg. 275). Rarity A focus in technological development is fairly unique although it is a capability pursued by two of the three main competitors in the industry: Sony and Microsoft, and so is not very rare. (pg. 275) Imitability The development of technology would be made easier by the experience that Sony had in the research and development of earlier models. This would create time compression diseconomies as competitors attempt to develop similar advancements.
(Temporary Competitive Advantage)

Microsoft
Building a Successful Community with Xbox Live
(Temporary Competitive Advantage)

Value This was valuable as Xbox utilized various PC features. These features included a broadband connection and memory storage which connected Xbox players all over the world (pg. 283). The value to the consumer was the online voice chat, opportunity to download new video game content, and the ability to play multiplayer games over broadband (pg. 286). Rarity Neither Sony nor Nintendo had an established online gaming community. In fact, this was one of Microsofts biggest differentiating factors to its competitors (pg. 285). Although it had been tried before this would still be considered rare as currently within the marketplace no other competitor had the capability.

Imitability The idea was imitable as it could be substituted. Xbox themselves substituted Dream casts online initiatives with Xbox Live. The advantage Xbox had was the ability to leverage advances in both technology and social trends (pg. 283). However it would not be able to be duplicated do to patent and copy right laws.

Is This a Blue Ocean Strategy

Yes this is a blue ocean strategy as Nintendo was able to give players the ability to physically interact with a virtual world, thus changing Nintendos direction to an undetected marketplace. This change was more compelling to consumers who had never considered buying video game consoles before (pg. 280). In fact, Nintendo was able to simplify its consoles design and focus less on hyper realistic graphics saving money and also attracting individuals who didnt ordinarily play video games (pg. 281). Even the name Wii was created to emphasize that this console was for everyone, which went into a completely different direction then current industry rivals (pg. 281). This strategy moved Nintendo into a larger and more diverse market while giving them a large increase in sales and in profit margins.

Marking Scheme 5 FORCES: 28/30 Overall this section is extremely well done. The analysis is clear, succinct and supported.

VRIO: 30/35 For the most part the analysis is well done, organized, clear and supported. For Nintendos inimitability consider issues like time compression, path dependence and first mover advantages. Im not sure if it is a clarity issue or requires further explanation as the features you have mentioned for the Xbox are for the most part offered by the Playstation 3. There is a possible rarity argument though. Well Done.

BLUE OCEAN: 10/10 This section was extremely well explained.

MECHANICS: 23/25 There is minimal writing issues present. For example, The user interface and remote was rare as Nintendo was the first to bring together a Bluetooth-activated wireless controller which provided gamers with a wide range of motion capabilities (pg. 280). Change to were as the plural version should be used after the compound subject.

Overall an outstanding job!

TOTAL: 91/100