Industry background The video game industry (formally referred to as interactive entertainment) is the economic sector involved with the development, marketing and sale of video and computer games. It includes video game consoles, game software, handheld devices, mobile games and online games. The video gaming industry has been growing exponentially in recent years. The growth is expected to leap-frog in the future. Following chart shows the projected market share by 2010 of different segment in the industry- Following chart shows growth of different segments in the industry- From the above charts, it is clear that the console is the largest segment in the industry, but online, mobile, pc software and broadband are some of …show more content…
The online console gaming market is set to take off, as the new generation of consoles arrive with advanced networking and online gaming capabilities. The ability to download game demos, buy casual, as well as full-fledged console games, and access advanced content, including high-definition (HD) video, will play a major role in shaping the subsequent console generations. Key success features - Rich playing experience - Appeal and variety of supported games - Product innovation and differentiation - Keep up future changes Porter’s 5 forces competitive analysis Threat of new entrants: Low. It takes lot of resources and capital to enter into this market Bargaining power of Buyers: Moderate. Buyers hold moderate bargaining power because of low number of competitors and high switching cost Threat of substitute: Moderate. Interactive entertainment substitutes are not that many. Bargaining power of suppliers: Moderate. There are not many companies that the suppliers can supply to. But on the other hand the game development companies can have more power by developing specific games. Competition among industry rivals: Strong. There is intense competition among Sony, Microsoft and Nintendo for market share. Strategic Group Map Following chart shows the position of each product in the video gaming
industry covers services and platforms with a vast variety of focal markets. The portion of the
Bargaining Power of Suppliers: The bargaining power of suppliers in the industry is low. There are numerous suppliers in this industry, and the large department stores have the ability to negotiate for the lowest prices. In addition, the switching costs are low, as the products are not highly differentiated. There are a large volume of purchases in the industry, allowing the department stores to exert even more power over the suppliers.
Bargaining power of buyers is medium-high because of the low switching costs and wider spectrum of similar products selling at competitive prices due to the influence of developing countries
All these developments have created a new type of market. The video games industry has changed dramatically, from a teenage boy playing in front of the TV to a business man or woman playing on a smart phone, blackberry or tablet. Video games are socially accepted as an entertainment tool and has being viewed positively.
The bargaining power of buyers stands in a direct relationship with the bargaining power of suppliers. If the bargaining power of buyers is substantial it increases the opportunity cost of suppliers. The greater the buyers concentration the greater their bargaining power. This bargaining power is also increased in markets where the suppliers’ concentration is high. The bargaining power is also increased when the cost of switching from one supplier to another is low. In instances where backward vertical integration is possible i.e. buyers setting up their own chains of suppliers the bargaining power of the buyer increases in that their prices may become more competitive. In a market where the buyers are more concerned over quality than price their bargaining power decreases as they are less inclined to shop
The bargaining power of suppliers for this industry is Low to Medium. Nintendo, Sony, and Microsoft respectively, are the world’s largest players in the video game industry (Euromonitor, 2014). With their sizes, these companies create bidding wars between suppliers for their business lowering the power that suppliers hold. The ability for suppliers to bargain simply on technology is weak, however the price is another matter. For example, the Xbox One costs $471 with a retail price of $499, giving it little room for profit
The consumer video game systems offer an exciting opportunity to discuss and analyze the design of technology based on the strategy of each of the players within the industry. We will focus our analysis on the next generation of video consoles: Nintendo’s Wii, Microsoft’s Xbox 360 and Sony PlayStation 3 (PS3).
The Bargaining Power of Suppliers (Moderate): Most of the industry’s products are sourced and manufactured by a network of third parties. The supplier group is diluted compared to the industry; KMD alone has over 45 suppliers. There is credible threat of suppliers adopting forward integration resulting in loss of major suppliers and emergence of new competitors for the industry. Highly effective and specialised products will pose high supplier switching costs for industry firms.
The network effects in the video game industry are derived from the console system that is sold to consumers. If a company is able to increase penetration in this arena, though at-cost/ below-cost pricing or pull created through the development of desirable content, it can potentially lock in the added value of the video games sold for the system. Which is to say, the console locks-in the network effects in the industry and the games serve to reap the profits. The video games, however, may present something of a challenge in that they can be somewhat easily replicated by competitors. Nintendo used an encrypted chip system to reduce this possibility.
The industry benefits from broad categories of businesses and individual suppliers. Since products could be obtained from numerous domestic and international suppliers, the bargaining power of suppliers is relatively low to medium. This is particularly apparent with industry giants who attract tens of millions of sellers to list products in their marketplaces, leaving each supplier with limited negotiation power. However, due to the intense
Video games in total sales with 700% value growth in 2016 could give good opportunity but this opportunity is equally distributed among 20 big market players as well. Also, to create effective and low-cost distribution line and affordable supplier chain will be complicated for any new game platform producers as well, for this Microsoft BV could be best example, despite of its big possibilities and huge amount of investment in video game industry, their market share remain at 7.8% and even possessed decreased character comparing with 2015 when their market share was 8.6%. 153
To achieve a distinction, I will be exploring the future of the gaming industry on each of the various platforms.
Bargaining power of suppliers. Suppliers have the ability to leverage, control, and negotiate the cost of their products (Hill et al., 2015, p. 56). In the case of the suppliers of the office supplies industry, more so for Staples, the bargaining power is weak and is considered to be low. The reason for its power being weak is a result of large companies having several suppliers that will easily compete against each other to provide the lowest cost of products.
3. What are the key success factors in the video gaming industry today? Are these the same as in the past?
The bargaining power of suppliers would be fairly low because competition among suppliers means suppliers increasing prices and decreasing quantity of supply is very low.