Video Game Industry

Topics: Video game console, PlayStation 3, Xbox 360 Pages: 6 (672 words) Published: January 28, 2013
Entry, Innovation and Long Term Evolution of the Video Game Industry

Major Players

Disruptive Innovation Model
• An Incremental Innovation enchances the competences  Advantage for the Incumbent • A Radical Innovation destroys the previous competences  Advantage for the Entrant

“Technologically Speaking”
• The Video Game industry showed a quick evolution from a Shumpeter Mark I regime, to a Shumpeter Mark II regime. 1972 Shumpeter Mark I 1995 Shumpeter Mark II 2010

RADICAL INNOVATION ATARI introduces Interchangeable Cartridges


INCREMENTAL INNOVATION NINTENDO introduces movement sensors

Shumpeter Mark I: 1970s-1980s
• Ease of innovative entry
• no legal or economic barriers to entry • weak pre-existing industrial structure • unexplored technological and scientific opportunities

• Low concentration of innovators
• the era of mass entry

• Turbulence in the market
• High entry and exit of new innovators

• Low stability : radical innovation

arcade video games vs. home video games

Shumpeter Mark I Industry Standards

ATARI & 4 Bit Era
• American Company • Pioneer in arcade and home video games

Technological Level Market Level

• Radical Innovation -- Channel F: First with interchangeable cartridges • Atari 2600: First to reach critical mass • Lack of pateting protection • Increase in competition • Exit with 1983 Market Crash

Nintendo & 8 Bit Era
• Japanese Company (1889) • First enterd in Japanese market through licensing (1975), then moved to US

Technological Level

• Incremental Innovation to 8 bit processor

Market Level

• Control supply and retailers • Massive marketing • Nintendomania

Sega & the 16 Bit Era
• Japanese Company, founded by Americans

Technological Level

• Incremental innovation to 16 bit processor (Genesis Mega Drive) • Advanced graphics

Market Level

• Competition with Nintendo • 50% in US • Market leader in several European Countries • Follower in Japan • “Genesis does what Nintendon’t”

Shumpeter Mark II: 1990s-present
• Barriers to innovative entry
• Presence of large firms – incumbents (Nintendo, Sega) • Specific price competition • Economies of scale effect

• Low turbulence of the market
• Limited entry and exit of new innovators (new entrants: Sony, Microsoft)

• High stability
• Creative accumulation (period of incremental changes)

• High concentration
• Three major players (Nintendo, Sony, Microsoft)

Shumpeter Mark II Industry Standards

SONY and the 32/64 Bit Era 1995 - 1998
• Sony Corporation • Comes from Joint-Venture with Nintendo

Technological Level Market Level

• Radical Innovation: Cd-ROM software • Playstation (1994 in Japan)

• Ability to gain support of developers and retailers • Large library of game titles • New market leader in Japan, Europe and US

The Battle for The Market
• Nintendo’s Super Mario 64
• Cheaper hardware BUT cartridges instead of CD-ROMs

• The Sega Dreamcast
• 128-bit console, internet-based interactivity BUT no significant advantage of 128-bit over 64-bit

• PlayStation2
• Access to internet, e-commerce BUT no modem

• Sega’s Respond
• Dreamcast console at no charge,, SegaNet BUT no dominant position over PlayStation

• Nintendo’s GameCube
• 128-bit machine with unprecedented graphics capabilities, broad library of games • $ 75 million marketing campaign, low retail prices BUT new competitor at the market: Microsoft Xbox

Microsoft and the 128 Bit Era
• American Company • Software Giant

Technological Level Market Level

• Incremental Innovations: 733MHz processor, DVD player, internet ready, broadband enabled • Unsufficient gaming experience (Entrant Disadvantage)

• Unpopularity of Microsoft • No customer base • Poor game choice  failure in Japanese market

How about now?
• Microsoft Xbox 360 (25th November,...
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