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Responding to the Wii Case Solution
Sony had always managed to be the leader in gaming console industry. But with the success of Nintendo’s Wii, the chief executive of Sony Kazuo Hirai was faced with the question of how Sony plans to respond to the decreasing sales of play station 3. While yes Sony has ruled the industry for many years, but by introducing Wii as user friendly and technologically less advanced, Nintendo managed to capture a large market share from its competitor Xbox and Play Station 3. By launching user friendly games, Nintendo created a new order in video game industry. Now the CEO Hirai must find out some way to regain Sony’s market share by tapping into this new order. For this, he might find guidance in the history of video game industry.
Following questions are answered in this case study solution:
How attractive is the video game console industry in 2008?
As Sony attempts to regain industry leadership from Nintendo, what lessons should Kazuo Hirai learn from the history of the video game industry? How has the structural attractiveness of the industry changed over time?
What are Sony’s strategic options for regaining industry leadership? As Kazuo Hirai, which option would you pursue?
Responding to the Wii Case Analysis
1. How attractive is the videogame console industry in 2008?
The videogame console industry has been a competitive industry ever since the television maker Magnavox started its gaming system Odyssey in 1972. Atari quickly followed Magnavox and developed their gaming system. Atari managed to rule the market from 1976 to 1983, but saw a decline when Nintendo NES and Sega entered the market with latest innovative games and strategies. From 1983 to 1994, the war between Sega and Nintendo continued. But with the launch of play station, Sony was able to capture the major share of the market. The intense competition given by Sony caused many competitors like Sega to leave the market, and many new competitors like Microsoft to enter the market. Like Play station 1, play station 2 was another major success that was added to the portfolio of Sony. However, in 2005 Nintendo pursued an alternative strategy and launched it Nintendo Wii. Unlike the game consoles already existing in the market, the target audience of Wii mainly comprised of people who want user friendly products. By launching such a product, Wii managed to outnumber the sales of Sony. A look at exhibit 2a of the case study shows three major gaming consoles dominating the market. These are Microsoft Xbox, Sony Play Station 3 and Nintendo’s Wii. Competition among these three players had been really tough through all these years because of the high profits this industry has always offered to the gaming console producers. If we look at the industry evolving pattern, it can be seen that this industry has seen sharp peaks and declines. If someone looks at the life cycle of the product, it can be said that every gaming technology had an average life span of five years. After these five years, either the company launches some new technology that taps into the new order established or it departs the industry. A close analysis of life cycle of console game producers and of the gaming industry shows that technological advancements and increasing competition are the major reasons of the sharp peaks and declines exhibited in this industry. Since most of the companies have failed to introduce innovative technologies, over time they have declined and many have departed the industry.
2. As Sony attempts to regain industry leadership from Nintendo, what lessons should Kazuo Hirai learn from the history of the video game industry? How has the structural attractiveness of the industry changed over time?
The gaming industry is highly competitive and ever since it was founded, it has seen a lot of game producers enter and exit the industry. Every decade has been ruled by a different company and with different technology. Other than technological advancements and high number of competitors, there are numerous other factors responsible for high turnover rate of this industry. Therefore, by looking at the downfall of every company and every technology, Kazuo Hirai can learn a lot and can use this knowledge to regain the market share lost by Sony. The downfall of Atari was because of the independent developer system that started during 1970’s. Since the technology was not initially copyrighted, numerous people copied the idea and effused to pay the royalty fees. Furthermore, because of much cheap software launched during that era Atari crashed. After the fall of Atari, Nintendo took control of the industry. It made contracts with third parties to develop games but since many developers had already suffered they refused. Eventually, Nintendo didn’t respond to technological innovations demands of the customer and hence it was ruled out by Sega. Nintendo tried to get its position back by cutting on its royalty’s fees, but it still failed and Sega continued to enjoy its success. Sega was totally ruled out of the market by the launch of Sony’s Play station. After Sony, Microsoft entered the market with its X box technology. The major lessons that Hirai can lean form it is to respond the market and needs of the customer on time. Currently, the industry is offering high profit rates therefore it is very attractive segment. If Sony wants to survive, it should be on time in launching new technologies and in remaining ahead of its competitors. X box lost a large portion of its sales because of being the late arriver in the industry. Hirai should try to gain the first mover advantage by responding efficiently to the market needs. Also, Sony should ask for royalties from its developers in order to not give them an impression that Sony is lacking the developers.
3. What are Sony’s strategic options for regaining industry leadership? As Kazuo Hirai, which option would you pursue?
Sony had always been the market leader in the gaming industry before Nintendo launched Wii and managed to capture a huge share from the market. While Sony products had always been more targeted towards professional gamers or the people of age 30’s, Nintendo’s Wii being a user friendly product targeted people who are not familiar with technology and belong to the age group of 13-65. Wii managed to create a total new target market among the gaming industry. Because of its innovative features and user friendly nature, Wii managed to capture a high ratio of sales in the gaming industry.
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