Responding to the Wii Group Case Writeup
In the Harvard Business Review case Responding to the Wii, Kazuo Hirai was faced with an interesting dilemma. Hirai, the chief executive of Sony Computer Entertainment Inc. faced pressure due to Sony’s Playstation 3 video game console losing market share to the Nintendo Wii. Hirai faced a major business decision in deciding how Sony should respond to the cheaper, more interactive, family oriented Nintendo Wii. The Video Game Industry at a Glance
From an industry analysis standpoint, the videogame console industry in 2008 was not very attractive. The industry was, and still is, structured as an oligopoly in which there are few large firms with differentiated product and high entry barriers. The three main competitors- Sony, Microsoft, and Nintendo- completely saturated the industry and held the majority of the market share (Figure B). Capital and fixed costs were very high for console developers and entry required third party software developers to build quality games to be sold with their platforms. The big players like Sony (Playstation 3) and Microsoft (Xbox 360) were having difficulties selling their console even if their consoles were priced higher at $499 compared to $250 for Nintendo Wii, creating an environment of intense rivalry. Compared to the other two rivals, the Nintendo Wii was less advanced but it was priced significantly cheaper which was met with enthusiastic customer reception. Nintendo also targeted all ages with simplicity, usability, and interactivity. The Nintendo Wii console compared to the Playstation 3 and Xbox 360 was the only competitor to actually make money on its console alone (Figure A). Sony sold its console at a loss to make the product more affordable while generating profit through games and accessories. (Near) Impossible Entry
For a new entry, it would be very difficult to enter the industry and grab market share from Sony, Microsoft, and Nintendo. It is not impossible, as history has shown that little companies can make a big splash with bold innovation. If the product is not differentiated from already existing products, consumers would not be drawn to it - innovation is key in the gaming industry. Consumers tend to buy into the newest and best products on the market. We could see an example of this during the fall of Sega and their Dreamcast. Despite having the first 128-bit system, Dreamcast failed to incorporate new capabilities like Playstation 2 did with their DVD-playing capability and Internet connectivity. In addition, Dreamcast had manufacturing setbacks with only four games ready at launch, this eventually lead to their downfall when Sony released the Playstation 2. Based on both cyclical (innovation driven) industry changes and the current industry environment, there are numerous options that Sony could take to regain industry leadership. At a basic level, Sony can choose to respond to the Wii, or they can choose to continue their current business strategy.
There are many important lessons that Sony should keep in mind as they try to regain leadership from Nintendo. Some of the key points are: continuing to be innovative, be bold with new discoveries and products, know your current and potential market and know that imitation does not always guarantee relative success. Learning these lessons will help Sony regain the strength in the video game industry. History has shown that it is crucial to continuously create innovative technology. Each competitor in the industry has displayed efforts in increasing technological innovation as well as improving existing gaming consoles. After the release of a new product, the company is expected to track and manage the success of that product, taking into account any customer evaluations. If a company fails to improve their existing products, other companies can swoop in to...
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