Nature of Competition in the Videogame Industry

Дата канвертавання20.04.2016
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Nature of Competition in the Videogame Industry

Technology has become one of the most important elements in our lives today. It does not only accelerate the development of economy and society, but it also improves our entertainment enjoyment. Since 1980s, the radical change of technology allowed many videogame companies to invent various types of video systems and formed an emergence of videogame industry. The largest and most well-known companies in this industry are Nintendo Co., Ltd. Company, Sony Computer Entertainment Incorporation and Microsoft Corporation. They entered the market in 1980s, 1990s and 2000 respectively. The videogame industry is a good example of oligopoly. There are few firms in the market, each of them owns part of the market share and they compete with each other by differentiating their products with distinctive features and functions. At this point, with an open and share standard, these firms are considered to be adopting controlled migration strategy. Unless there is a revolution or a significant innovation of technology, with their existing critical mass, these firms are not likely to produce proprietary system in order to dominate the market. the latest figure of 2004 shows us that Sony is leading the gaming industry with about 67% of market share, and the remaining are captured by Nintendo and Microsoft equally (approximately 15% each). With advanced technology development each year, the videogame industry has brought us over $10 billion each year worldwide. In the next two to three years, we expect the total number of gamers in the world would increase to more than 230million and the revenue brought from the industry would be doubled. Therefore, the videogame industry is still very young and it is expected to continue to grow every year in the future.

Competition between Sony and Nintendo

Sony and Nintendo have both obtained first-mover advantages in different markets of the videogame industry. Nintendo is the first to recognize the potential of the handheld market and has focused on the development of this distinctive game console system. In 1989, Nintendo has become a first mover and has introduced the latest development of handheld game console known as GameBoy. With the combination of low costs, portability and simplicity of use, GameBoy has become a huge success and has soon outsold all other competing game console system. GameBoy is then considered to be the most popular handheld game console of all times. With first-mover advantages, Nintendo has captured a significant share of market and has become the leader in the game console market at that time. On the other hand, Sony has perceived the opportunity of being the first mover with the invention of Super Disc. Therefore, Sony has focused on the development of game console that is able to support the use of CD-Rom based games. In December of 1994, Sony has introduced the game console that has marked the transition of another era known as Playstation. Sony has become the one and only corporation in the newly emerged game console market, as Playstation is no longer able to support any game cartridges available in the market. With first-mover advantages, Sony is able to capture a significantly large share of market including the market share from Nintendo and other existing companies in the industry.

Reactions of one firm to the competitive initiative of another firm

Sony has continued to become more successful while Nintendo has continued to lose its market share. Nintendo still has not perceived the benefit of using the CD format for video games and has introduced Nintendo64 as a response to Playstation from Sony. As a result, Nintendo64 has become a failure due to the poor digital animation and audio quality of its game cartridges. Therefore, Nintendo has decided to concentrate on the handheld market. In 2000, Sony has announced the success of Playstation and has introduced its second game console in the market known as Playstation 2. In the same year, Microsoft has entered the game console market and has introduced Xbox. Nintendo has finally realized the threat of its market position and has returned back to the game console market. In 2001, Nintendo has introduced GameCube as their first game console that support the use of CD-Rom based games. However, the CD format that Nintendo has used is its own proprietary format where illegal duplication of game software is not allowed. Apart from the introduction of GameCube, Nintendo has introduced an accessory item known as GameBoy player. It allows consumers to connect their GameBoy system to television and has backward compatibility with all of the previous game cartridges. Recently, Nintendo has introduced another portable game console for its GameBoy series known as Nintendo Dual Screen. Sony has realized the aggressiveness of Nintendo in the game console market and has decided to introduce its first portable game console known as Playstation Portable in March 24th of 2005. It can be seen as a portable Playstation 2 along with various entertainment features. It is expected that the competition in the videogame industry will become more intensified and the first-mover advantages of both Sony and Nintendo will continue to place them in a superior position in the industry.
Why one strategy works and why one does not

In comparison with Sony, Nintendo has faced more challenges and experienced more difficulties with its video console systems. As we mentioned above, with Nintendo’s bad forecast and some contractual problems, the release of Sony’s PlayStation with the compatibility of high quality Super Disc format has proven a failure of Nintendo’s cartridges-format N64 in 1996. Although Nintendo offered GameCube in 2001 in attempt to cover the earlier lost, the five years late release of smaller disc format GameCube has already caused a large portion of market share lost for the company. In this case, we can say that Sony obtained a first move advantage in using compact disc format in games software storage system. It also helps the firm to climb up to the top position in the gaming industry within a short period of time. In addition, since the day Sony entered the video game industry, it only produced three main gaming systems: PS1, PS2, and the latest PSP. With some level of backward compatibility, Sony allows its gamers to play PS1 games in PS2 system. It does not only expand the market to a larger group, it also ensures the existing customers to enjoy its advanced technology. On the other hand, Nintendo has produced a lot of systems in both console and handheld market. For only the handheld market, it has already produced three different systems in the GameBoy series. Although producing various systems may help the firm to target larger group of market, it ignored the importance of quality; not quantity. Even there are certain levels of improvement in each system, producing too many game systems within a limited time period without fully understanding the real situation in the market and the competitors’ development is very dangerous. It caused Nintendo suffered a great lost in its console systems, especially GameCube.

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