1. How attractive is the video game console industry in 2008?
In 2008 the video game industry is dominated by three major players and their respective gaming consoles. First of all there's Sony with its PlayStation 3 launched by the end of 2006. Then there's Microsoft with its Xbox 360, launched in the end of 2005; and finally Nintendo with the "Wii" in late 2006. These three players are struggling to gain market leadership in the game console industry. The video game industry, off from an uncertain start in 1972 has been marked by quick and frequent changes of fortune amongst the various players in the market. The market was characterized by rapid growth as well as unexpected down turns ...view middle of the document...
As I previously said, the amount of capital required to compete in this industry is prohibitive for most potential entrants, a clear example is Microsoft which has been losing more than $8billion from 2001 to 2008 despite the launch of Xbox 360. The only opportunity I see is to develop further the motion-sensing technology which appealed to such a vast amount of customers with the Nintendo Wii.
2. As sony attempts to regain industry leadership from Nintendo, what lessons should Kuzuo Hirai learn from the history of the video game industry? How has structural attractiveness of the industry changed over time?
As the game industry already demonstrated more than once in the past (both with Atari and Sony), market leadership is hard to keep in long run. Kuzuo Hirai has personally experienced this with Nintedo's Wii console outperforming PS3. The industry has gradually evolved following technological leaps from one generation to the next, starting with 8-bit consoles and reaching 128-bit with the latest. Following these changes in technology, also players in the market have adapted and evolved. Those which didn't manage to keep up with growth of the market have failed or left the industry. Kuzuo Hirai must pay careful attention in deciding Sony's next moves since a wrong one could prove fatal for the company.
As Dreamcast demonstrated before and Microsoft later with the Xbox 360, a first mover advantage isn't enough to ensure leadership. Another important lesson from the past is the importance of a sufficient library of games at the moment of launch of new console.
Nintendo Wii's recent success opens up new opportunities for the gaming industry. Nintendo, through its user-friendly capability and its motion-sensing controllers managed to attract a whole new array of customers which were not the usual "core-gamer" audience. Kuzuo Hirai should realize there are more opportunities for the console video game industry other than the usual layout with a joystick.
Over the years, structural attractiveness of the industry has changed considerably. In my opinion the major changes concerned the assortment of competitors; at the beginning with Atari pioneering the industry and subsequently failing. Nintendo's progressive growth and dominance with 8-bit NES and Sega's subsequent leapfrog followed by Sony's rise and Sega's fall with dreamcast, and ultimately Microsoft's entry. Price of consoles has remained high over the years, with the only exception of Nintend's low priced Wii console. Entry barriers have gradually increased with rising costs of developing a new console being affordable only to large companies and excluding smaller entrepreneurial firms.
The customer base for this kind of industry is gradually expanding year after year as the gaming community now increasingly comprises those in the middle ages.