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Video Game Industry
1. What approaches have allowed entrants to the home video game industry to successfully capture market share from their predecessors and ensure profitability of their businesses?
It is apparent that the video game industry has witnessed a tremendous growth since its inception. Another trend in the video game industry is that new entrants have always changed the industry structure in terms of core players and competitive intensity. In this regard, entrants in the home video game industry were compelled to devise effective strategies to compete in the flooded industry.
The first strategy that allowed entrants to the home video industry to capture the market share from their predecessors and ensure profitability is through advancing product development. It is apparent that entrants in the industry recognized limitations in the existing products and developed new products, addressing these limitations. For instance, Fairchild developed a video game system that could play multiple games and was the first to introduce the console, controllers and cartridge. Similarly, Trip Hawkins invented the 3DO, which was a change from the cartridge system towards the CD ROM. Sony entered the market by developing consoles with higher graphical capabilities as compared to existing game consoles. In addition, Sony enhanced its subsequent product developments to integrate the Blu ray technology. Subsequent product development has also been instrumental in helping entrants gain market share. An example is the subsequent development of the Sony Play station series.
The second approach that new entrants have used to gain market share is through competitive pricing. Price wars are a common phenomenon in the home video industry. In this case, new entrants often lower the prices of their products, putting them just below the existing prices. A case in point is the price wars between Microsoft’s X-Box and Sony’s Play station.
The third strategy that new entrants deploy is the use of innovative business models. It is apparent that the home video game industry has expanded since its inception; this is because of the changes in the business models of new entrants in the industry. An example is the use of innovative services for gamers, such as X-Box Live by Microsoft and alliances with game developers such as EA Sports.
2. What policies of market leaders caused them to lose market share and profitability?
Despite effective market entry strategies, market leaders responded by a number of strategies such as competitive pricing, developing and expanding their product portfolio and new product releases. With regard to pricing, market leaders tend to lower their prices in the event of an entry. For instance, with the entry of Xbox and Game Cube by Microsoft, Sony responded to the entry by lowering the price of the PS2 game console from $ 299 to $ 199 whereas Nintendo lowered its price from $ 299 to $ 149. This price cuts have a substantial effect on the profitability of new entrants, since they must also lower their prices in order to compete with the market leaders. Market leaders also reduce the market share and profitability of new entrants by enhancing and integrating new technologies in their products. For instance, Sony recently incorporated the Blue Ray technology in its PS3, which may impose a pricing headache for new entrants, hoping to imitate their strategy.
3. What lessons can be learnt from this case about developing and commercializing a technology-based product?
From this case, the main lesson that can be learnt is that developing and commercializing a technology-based product requires a firm to be the technological leader in the industry, which is needed for competitive advantage. It is apparent that the cycle for product releases in technology industry is short; in this regard, succeeding in this industry requires constant innovation in order to stay ahead of competitors. Another lesson is the use of competitive pricing. Price wars are a common occurrence in the technology industry; therefore, players in the industry should be equipped with effective pricing strategies such as cost leadership in order to attain sustainable competitive advantage.
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