Home Video Game
1: Why the rapid growth of Atari? Why the 1982-85 collapse? How did Nintendo rebuild the industry? What was its strategy? After Bushnell settled on Atari, his first built was the simplest game, which people knew the rules immediately, and this game could be played with only one hand. Then, Bushnell talked his way into a $ 50000 line of credit from a local bank to start his business. By 1974, 100,000 Pong-like games were sold worldwide, and although Atari manufactured only 10 percent of the game, the company still made $3. 2 million that year.
Atari had a rapid growth because it is a new industry, and Atari does not have any competitor at that time. So, Atari is the only company in this home video game industry, and it has a huge power of supplier with no competitors and substitutes. After 1976, about twenty different companies were crowding into the home videogame market, Atari still has more than 50% market share in the industry.
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Until 1978, Atari estimated that total demand would reach 2 million units. In 1982, Atari lost $500 in the first nine months of the year.
Part of the blame for the collapse was laid at the feet of an enormous inventory overhang of unsold games. With more and more new games hit the market, the average price would goes down and the profits goes down as well. Nintendo established a commanding worldwide position by the end of the decade. The first step of Nintendo was to license video game technology from Magnavox. Then, Nintendo tried to develop its own video game machine (Famicom) that combined superior graphics processing capabilities and low cost.
In the US, Nintendo established a subsidiary named as Nintendo of America (NOA) by 1980, and Nintendo repositioned the market in U. S. NOA spent about 2% of sales budget for advertising and also sought out promotion partner, and it practiced careful inventory management in releasing its new games. In conclusion, Nintendo made an innovative new game system which had some competitive advantages such as cheaper, superior image quality, faster hardware processing and a connector that can be used for future addition of a modem and keyboard. : How was Nintendo able to capture value from the home video game business? First of all, with the video game industry’s collapse, none of the company seems to have anything to do with the with the home video business except Nintendo. So, it was a big chance for Nintendo to monopolize the video game business, and it was a good chance to negotiate and license other companies to develop games for its system. Secondly, Nintendo has good market position and distribution in United Stated.
Thirdly, Nintendo has good game designing and technology, and it uses the regulation, contract and patent license to limit the market share of other game companies. 3: How was Sega able to gain market share from Nintendo? With Sega’s first game Periscope, Sega built up a respectable export business. Then, Sega realized that great games drove sales and more powerful technology gave game developers the tools to develop more appealing games. Sega also licensed other companies to develop games for the Genesis platform, but asked for lower royalty rates than Nintendo.
Despite aggressive marketing in the 80s, it wasn’t until the introduction of Sonic the Hedgehog in 1991 as a direct competitor to Nintendo’s Mario character that Sega was able to capture a meaningful amount of the market with its Genesis console. The key point was Genesis does what Nintendo don’t, and Sega version out sold Nintendo’s two to one. 4: Evaluate the competitive strategy of 3DO. What flaws can you see in 3DO’s approach? The vision for 3DO was to shift the home video game business away from the existing cartridge-based format and toward a CD-ROM-based platform.
The belief at 3DO is that the superior storage and graphics processing capabilities of the 3DO system would prove very attractive to game developers, allowing them to be far more creative. In turn, better games would attract customers away from Nintendo and Sega. The 3DO’s strategy was to license its hardware technology for free. However, only a few 3DO titles were available by the Christmas period where reports suggested 150 titles, and sales of the hardware were slow. As can be seen, 3DO did good at its software, but bad at its hardware.
As a result, 3DO announced that it would either sell its hardware system or move into joint venture. 5: How come the Sony Play Station has succeeded where 3DO failed? Sony set up a retail channel separate from its consumer electronics sales force, and Sony has a good communication with retailers before the launch to find out how it could help them sell the play station. Sony targets its advertising for PlayStation at specific generation and age range. So, Sony focused on it retailers and customers, and it has a good market position.
On the other side, 3DO only focused on its products but lack of the communication with its retailers and customers. 6: What drove Microsoft’s decision to enter the industry with its X-box offering? Because before Microsoft entered the home video game industry, it was no stranger to games. Microsoft had long participated in the PC gaming industry and was one of the largest publishers of PC games. X-box was based on Microsoft’s PC technology, and it would be much easier for software developers to write game for.
Microsoft enter the industry because with annual revenues in excess of $20 billion worldwide, the home video game industry is huge and an important source of potential growth for Microsoft. 7: What lessons can be learned from the history of the home video game industry that has been used to help launch the Sony PlayStation II and Microsoft’s X-Box? Do Microsoft and Sony appear to have learned and applied these lessons? The lesson can be learned from the history of the home video industry was to focus on R&D, market positioning, cost leadership, innovation, technology and communications.
Sony PlayStation II has consumed about 1. 3 billion in R&D, and Sony actually loses money on Sony PlayStation machine but gain from game CDs. On the other side, Microsoft’s X-Box cut X-box price over time but guaranteed a profit margin. There are three technical factors determined the quality of a video game: data width (in bits), clock speed (in MHz), and the amount of RAM (in bytes). Both Sony PlayStation II and Microsoft’s X-Box have their own competitive advantage in these technologies, and they also both are good game designers.