Sony Playstatioin 3 Game over?

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Executive summary

Sony is a well respected brand in the electronic industry. With its success entering the gaming market with its PlayStation, Sony has earned a position as a market leader. Problems began to occur when Sony launched its seventh generation gaming console. New competitors entered the market, such as Microsoft and old rivals such as Nintendo. The release of the Sony PlayStation 3 failed to achieve growth in sales due to the lack of direct and indirect network effects. One of the reason majority of the users were not adopting because of the high price premium and the technological uncertainty. Technological uncertainty included the new innovation Blu-ray and the number of main stream users willing to buy the console. The SCENT analysis displayed a strong network effect for the Sony PS2 because it was: a more advanced product, had agreements with third party game developers, and had a strong advertising campaign. Unfortunately, this was not the case for PS3. There was a strong network effect for the PS3 when its Blu-ray became the de facto standard in 2008. PS3 also showed signs of increase sale when it dropped the price of its console yet they were still losing money on each console being sold. The recommended course of action that Sony should take is composed of 3 main components: alteration to the promotional program, a shift in the marketing strategy, and the addition of demos in select locations. Key Issues

With the launch of the Sony PS3, sales were not what Sony had hoped. Sony had owned 60% of the market share in the gaming industry, but this figure has dropped significantly. Sony sold only 1.28 million PS3’s resulted in just 13.5% of the market share. One of the factors for a slow growth in sales was the high price of the PS3; this caused a weak direct network effect due to technological uncertainty. The question is; how PS3 will kick start its network effect and gain large install base, when the majority has yet to adopt (chasm)? Game developers were also concerned with the number of games purchased with the PS3, therefore the number of games was limited and slow to develop to PS3 buyers. Lastly, the sale of the PS2 exceeded 4 million units in the U.S. alone, and PS2’s market share was 21.7% in the U.S. and more than 22% worldwide. This figures showed that users were still buying PS2 rather than PS3. Network analysis

Share value
The PS3 hardware and most of its parts was built by Sony, but it has partnered with IBM and Toshiba in developing the PS3 central processing unit. Sony spent $1.67 billion to develop this chip that is capable of teraflop speeds; this chip makes the PS3 a supercomputer and by far the highest technological console. Create value

Sony’s business model focuses on manufacturing entertainment electronics, and their competitive advantage focuses on making high quality, continuous breakthrough innovations. The success of the previous Sony PS2 was because of a superior technological hardware. In doing so, Sony PS3 has once again created a superior next generation entertainment system for gamers who are on average of twenty-four years of age with a disposable income. The PS3 offers a differentiation of high-definition graphics, Blu-ray, WiFi, enjoyable gaming experience, friendly user interface, from the Wii and Xbox 360. These differentiations are important for hardcore gamers to perceive value. The other key component of its hardware is its proprietary Blu-ray Disc player. Blu-ray became the standard choice and won the format war when Warner Brothers decided to use Blu-ray for high-definition movie releases. Blu-ray had created a new segment of users in the movie industry, as Wal-mart, Netflix, Best Buy all backed by Blu-ray. With the component of the Cell Chip and the Blu-ray it has enabled game developers to make highly realistic and intricate games that have never been done before. The Blu-ray feature has enabled Sony to gain a sustainable competitive advantage...
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