DG511

Introduction
To be able to give Sony recommendations about a new product launch a thorough analysis is necessary
and should be done in multiple steps. When first coming on the market, there are many products that
fail. The reason behind them failing can be numerous. The goal if the company’s product did not fail
previously is to find its strong points. Often the reasons of a product failure can be linked back to the
company who produced it. It can vary from how a company handles its suppliers, to how they address
innovation success factors and more.
Secondly, when trying to understand what went wrong, it is important to understand what was done
during the development of the product. It is also important to look at the Micro Business Environment
to look at the multiple factors that influence the product being researched. Thirdly a macro business
analysis allows for a better understanding of the circumstances surrounding the product on the market.
Finally, through these multiples analysis, a conclusion and recommendations list can be given.
These are the steps we will take when looking at Sony’s PSP who came out in 2004, writing as if they
were to produce a new product in the same genre, in this case, hand held games.
DG511 – Analyzing and Modeling NPD | page 1

Table of Contents
Introduction .................................................................................................................................................. 1
Table of Contents .......................................................................................................................................... 2
Step 1: Company level analysis ..................................................................................................................... 5
1.1 Company Background ......................................................................................................................... 5
Mission .................................................................................................................................................. 5
Size ........................................................................................................................................................ 5
Locations: .............................................................................................................................................. 5
Organization .......................................................................................................................................... 6
Core capabilities .................................................................................................................................... 8
Design for X ........................................................................................................................................... 9
Market Segments and products .......................................................................................................... 11
Value Chain Coverage ......................................................................................................................... 12
1.2 The Current Product ......................................................................................................................... 16
Target group........................................................................................................................................ 16
Target Geography ............................................................................................................................... 16
Product Characteristics ....................................................................................................................... 16
1.3 Means-end analysis........................................................................................................................... 17
How does the Sony PSP address these values? .................................................................................. 17
Conclusion ........................................................................................................................................... 18
1.4 Innovation success factors ................................................................................................................ 19
1. Relative Advantage: ........................................................................................................................ 19
2. Trial Ability: ..................................................................................................................................... 19
3. Observability: .................................................................................................................................. 19
4. Communication Channels: .............................................................................................................. 20
5. Homogeneous Groups: ................................................................................................................... 20
6. Pace of Innovation/Reinventions .................................................................................................... 20
7. Norms, Roles and Social Networks: ................................................................................................ 20
8. Opinion Leaders: ............................................................................................................................. 20
9. Compatibility: .................................................................................................................................. 21
10: Infrastructure: ............................................................................................................................... 21
Step 2: Micro Business Environment Analysis ............................................................................................ 22

Suppliers of Sony:.................................................................................................................................... 22
Substitutes: ............................................................................................................................................. 25
New Entrances: ....................................................................................................................................... 26
Industry Rivals of the PSP: ...................................................................................................................... 26
Buyers: .................................................................................................................................................... 27
Conclusion: .............................................................................................................................................. 29
Step 3: Macro Business Environment analysis............................................................................................ 30
Economical .............................................................................................................................................. 30
Economic growth: ............................................................................................................................... 30
Inflation: .............................................................................................................................................. 31
Economic Projections:......................................................................................................................... 31
Consumer Confidence: ........................................................................................................................ 32
Unemployment Rate: .......................................................................................................................... 33
Socio-cultural .......................................................................................................................................... 34
Lifestyle (the American dream)........................................................................................................... 34
Capitalism............................................................................................................................................ 36
Individualism ....................................................................................................................................... 36
Vision on/of gamers ............................................................................................................................ 36
Content of games ................................................................................................................................ 37
Trends in gaming ................................................................................................................................. 38
Technological .......................................................................................................................................... 39
3g (internet focus)............................................................................................................................... 39
Speed of development ........................................................................................................................ 39
Industry development (smartphone trends) ...................................................................................... 40
Game Development ............................................................................................................................ 42
Trends in gaming (technological) ........................................................................................................ 43
Step 4: Recommendations .......................................................................................................................... 44
Strengths: ................................................................................................................................................ 44
Weaknesses ............................................................................................................................................ 45
Product Segmentation ........................................................................................................................ 45
Opportunities .......................................................................................................................................... 45
Wireless gaming platform ................................................................................................................... 45

Integration of technology/ compatibility ............................................................................................ 45
Update ability ...................................................................................................................................... 45
Cheaper wireless (3G) ......................................................................................................................... 46
App stores ........................................................................................................................................... 46
Threats .................................................................................................................................................... 46
New entrances .................................................................................................................................... 46
Dependency on suppliers.................................................................................................................... 46
Mobile phone competition ................................................................................................................. 46
Consumer confidence ......................................................................................................................... 47
Recommendations: ................................................................................................................................. 48
Bibliography ................................................................................................................................................ 53
Table of Figures ........................................................................................................................................... 59
Appendixes.................................................................................................................................................. 60

Step 1: Company level analysis
To be able to give recommendations you first have to understand the company for whom you are trying
to give recommendations. The characteristics of the product you are analyzing are equally important. To
see if the product in question fulfills what values people are looking for in that type of product, a means-
end analysis must be done. Finally innovation is very important nowadays, so by taking innovation
success factors, allows a company to almost certainly obtain a success on the market. Looking if the
company in fact did uses these factors can allow for more precise recommendations.
1.1 Company Background

Mission
"The Sony Group is primarily focused on the Electronics (such as AV/IT products & components), Game
(such as PlayStation), Entertainment (such as motion pictures and music), and Financial Services (such as
insurance and banking) sectors." (Sony Corporation, 2010-b)
Sony wants to be in every sector of consumer electronics and media as well as the consumer
experience, and improve people's lives. Sony is present in a wide range of businesses, from a record
label to mp3 players. . (Sony Corporation, 2010-i)
Size
Sony has multiple departments, which operate in a large number of consumer product groups. They
employ a total of 167,900 people, who generate revenue of 7.214.000.000.000 yen (64.026.520.100
euro).
Locations:

Organization
The organizational overview of Sony displays the different groups Sony consists of. Each group works
together with other groups to bring products to the user, with as common platform the sales and
marketing team. The split in different groups makes it easier for Sony to keep track of what they are
doing, and divide resources and finances over these groups. The PSP was created by the Sony Computer
Entertainment group. (Sony Corporation, 2010-e)
Figure 1: Sony Group Organizational Chart. (Sony Corporation, 2010-e)

Sony carries a flat and transparent structure. All of the boards, committees and departments have to
answer to each other instead of directly to the corporate executives. (Sony Corporation, 2010-d)
Figure 2: Governance Structure. (Sony Corporation, 2010-e)

Core capabilities
“A competence which is central to the business's operations but which is not exceptional in some way
should not be considered as a core competence, as it will not differentiate the business from any other
similar businesses.” We have used the three factors of Prahalad and Hamel, to identify the core
capabilities. (Tutor2U, 2010)
1) Provides potential access to a wide variety of markets (The key core competencies here are those
that enable the creation of new products and services.)
Sony is one of the largest electronic companies that exists and has extended its power to a whole variety
of this t market. Not only do they sell televisions, they provide artists with a record label, video
producers with cameras, video editors with editing software, game developers with a game-studio
(SCEI), amongst many other things Their company strategy is to enable people to experience and create
the best possible media experience, and they have all the material, equipment and software they need
to achieve this. Their brand name is everywhere in the industry, and anyone who has ever worked with
rich media knows Sony from one of their products.
2) Makes a significant contribution to the perceived customer benefits of the end product (Core
competencies are the skills that enable a business to deliver a fundamental customer benefit - in
other words: what is it that causes customers to choose one product over another?)
When consumers buy a PlayStation Portable, they buy a small portable device with the power and status
of a popular gaming console. Popular game creators are likely to make games for this console, and Sony
develops games themselves as well.
3) Difficult for competitors to imitate (A core competence should be "competitively unique": In

many industries, most skills can be considered a prerequisite for participation and do not provide
any significant competitor differentiation.)
The PlayStation Portable was the only device that was a complete console replacement when it came
out. It was a handheld device with the power and the games of an actual console. Competitors like
Nintendo (DS) offer a mobile gaming device, with mobile games. It is the only small version of a gaming
console available.
Even now, with mobile gaming devices like the iPad and iPod touch, the PlayStation Portable is still
considered by serious gamers as the mobile gaming device for them. This is a smaller target group, but
within this target group they are king.

Design for X
We want to look at a selection of factors that made difference with the PSP, what made it unique for its
time.
Design for Assembly

Like all other electronic products, the parts are manufactured in different factories and finally
assembled. Some parts are created in Sony’s own factory, others are ordered from different
manufacturers (like the LCD screen). From a ‘teardown’ of iFixit the structure and the components are
revealed (Talic, 2010), which we have used to analyze the assembly process. The shell of the PSP can be
accessible from all sides, for the placement of a front panel, the LCD and then the motherboard and
other components. The teardown shows that all parts are easily removed, they are attached with a few
screws or click into place.
Figure 3: Disassembled Sony PSP. (Talic, 2010)

Design for Disassembly
As seen at the teardown (Talic, 2010), the PSP is very easy to disassemble and/or repairable. There are a
minimum of Torx screws, and all parts are accessible within two or three steps. The parts that are likely
to break (battery, LCD), are most easily to replaceable or accessible. The parts that are not meant to be
user replaceable (the chips) are a bit harder to get to.
Small components like the joysticks are offered on the internet (iFixit.com) and come with detailed
instructions. You can replace the joystick within a few steps.
Design for ergonomics

The PSP is a device with a small form factor, and is usually used for gaming that can take long periods of
time. It is designed to be held in both hands, and provides a good grip.
Figure 4: PSP in hand (Marianna, 2005)
The PSP has the same button layout as the PlayStation controller, a controller that is proven for its
ergonomics and pleasurable grip. The PSP continues with this strong product characteristics, with a
screen added to the middle. (Marianna, 2005)

Market Segments and products
Sony’s market segments are based on the products they offer; they want to have ‘Product
Segmentation’. In each market they want to have a product that stands out by having the Sony style and
quality.
One of their product groups are mobile phones. With Sony Ericsson they managed to create a large user
base, with mobile phones that are easy to use and competitively priced. Sony Ericsson phones range
from high-end smartphones to low-functionality cheap phones.
In the entertainment industry they focus on High Definition content, with their range of Sony Bravia TV’s
and Sony HD camera’s. With their Sony Vegas software they focus on the editing of digital HD content,
in audio, video and photos. The creation of High Definition entertainment can also be found in their
high-end mobile phones, Sony Ericsson phones are known for their good quality cameras.
Sony created the Blue Ray disks, and a collection of Blu-Ray players that can be used to fully benefit
from HD quality. The Sony PlayStation 3 is also a well-known and often used HD Blu-Ray player.
In the computer industry they have a range of Sony VAIO notebooks, netbooks and accessories like USB
sticks. The brand VAIO is considered by consumers to be top-class, the windows equivalent of Apple
notebooks in style and quality. The prices are relatively high. This is the top-segment of consumer
notebooks.
Since the Walkman years ago Sony still has a line of mp3 players and Discmans, with the brand-name
Sony-Walkman. The MP3 players try to differentiate from other through style and sound-quality.
Ironically they still offer tape-players and recorders. In the professional industry they offer a range of
recording devices as well.
Sony Headphones have a wide range of products, from professional DJ headphones to Bluetooth
wireless headphones.
Sony Music and Sony Pictures are big labels, with artists and movies like The Social Network and Susan
Boyle. Smaller artists, like Jacqueline Govaert from Krezip, have a record-contract as well. It is not a
small independent record label; it is only for successful artists.
Sony Computer Entertainment, the creator of the PSP, is one of the largest gaming companies of the
world. With the PlayStation, PlayStation 2 and PlayStation 3 they conquered a lot of living rooms over
the past 10 years. Their consoles are for serious gamers, and unlike the Wii, focus more on graphics.
(Sony Europe, 2010) (Articlesbase, 2010).

Value Chain Coverage
Support activities
The support activities are not of real value for our analysis; Sony Corporation has such a wide range of
support activities that it is not specific for the PSP.
For the primary activities it is impossible to find specific information about the PSP, thus we give a
general overview of the production and marketing of consumer electronics.
Figure 5: Value Chain. (Porter, 1985)
Inbound Logistics
The components that make up the device are made by different companies of Sony, while some parts
are ordered from other companies. This is the case with almost all electronic products. The materials are
not manufactured by Sony, but by chemical companies. These components range from sand for the
chips to oil for the plastics, the raw materials.
These materials are used to make all the different parts, from chips to plastic housing to LCD screens, all
at different locations. The materials have to be transferred to these locations in big batches in a form
that is easy to use (small plastic bulbs that easily melt). These ground-materials are manufactured and
molded into shape, either by Sony or a chip manufacturer like Broadcom (the Wi-Fi chip). The LCD’s
screens are mostly made by large manufacturers like LG, and Sony is not the only client of these
companies (Apple uses displays as well). (Sony Global, 2010)
As you can see in the image, the PSP consists of a plastic casing, an LCD, various chips on logic boards,
metal shields and advanced optical electronics to read the UMD discs, various small parts and screws
and wires.

Figure 6: Disassembled PSP. (Talic, 2010)
Because of the great variety of components the inbound logistics are not just raw materials, but also
finished parts from other companies. Sony does not make everything themselves and pays an end-price
for a product, like the Broadcom WiFi chip.

Operations
The operations are where the final product is assembled and finished. The components are assembled in
one or more production facilities, depending on the production numbers.
In most cases the different parts are assembled by different facilities, and assembled in various
locations. There can be one factory that makes the plastic housings for PSP’s, but it could also be used
for other products from Sony. It is a complex structure of parts and components that come together at
the final product line.
Outbound Logistics
Outbound logistics are the “Movement of material associated with storing, transporting, and
distribution a firm's goods to its customers.”(businessdictonary.com).
Before the PSP gets in the hands of the buyers, a few other parties have had the PSP in their warehouses
or vehicles. Sony uses intensive distribution, a large number of resellers (stores, web shops) receive a
stock of PSP’s. They can compete in price and extra’s so they can sell as many PSPs as possible.
The shops receive their products from a distributor, a company that is specialized in getting products
from factories and getting them to the stores in smaller amounts. Otherwise, each shop would have to
order from the factory, which is not very cost-effective. The distributor orders a large number of PSPs,
and divides these over all the retail stores in smaller amounts.

Marketing & Sales
The marketing campaigns of Sony always focus on a specific target groups, and recently they focused on
younger kids that game with smartphones. In this campaign, a child makes fun of stupid mobile apps
that are not ‘real games’, according to Marcus Rivers, the child in question and the face of the
campaign. In hip short clips Marcus tells the viewer that the PSP is a different game, and that they have
to ‘step up your game’.
PSP is now the number 2 handheld device, after the Nintendo DS. Both consoles have gotten a lot of
competition from the Apple iPhone and iPod Touch, who gained a market share of 19% in 2 years.
This shows that marketing and sales never rests, and has to apply to new developments in the market it
is active in. For Sony this was a change of market, in the early days it was one of the few mobile gaming
devices, now mobile phones are getting better and better in replacing dedicated devices. Normally, a
company would adapt to changes in the market at a slow pace, because changes happen slow. But now
with the mobile phones, there is a big change. People all need a mobile phone and are willing to pay for
all of possibilities they have, but a dedicated gaming device is still a luxury. Because of the number of
devices and lack of a physical data carrier (all mobile phones download over the internet), the games are
cheaper than regular PSP games. Sony has selected 25 games that are now selling for € 9, 99,-, the
lowest price. For a mobile phone, € 9, 99 is an expensive and ‘premium’ game. (Bulik, 2010)
Sony is trying to reposition itself again as an industry leading innovator, by showing their capabilities
with HD content (HDTV, Blu-ray, VAIO PC’s, Handycams, etc.), and focusing again on mobile gaming. The
rapidly developing mobile phone segment is taking away the uniqueness of the PSP, which Sony needs
to react to.

1.2 The Current Product
Target group
The Target group for the PSP when it initially came out was to be gamers between the ages of eighteen
to thirty-four. This target group is older than the usual target group that most gaming companies tend to
target. Nintendo for example targets the younger audience between the ages of thirteen and seventeen.
Sony thought to be stronger in the older age category and would have more success. (Johnson, 2005)
In the year 2007 Sony decided to change the target group from the older eighteen to thirty-four, to the
younger group of thirteen and seventeen. This decision followed databases that showed that the
majority of registered owners of the PSP where part of this younger age group. Sony also wanted to
expand its consumer group and thus based this decision on the fact that the “The intend-to-purchase
crowd is living mostly in that group as well.” (Kohler, 2007)
Target Geography
“PSP was introduced in Japan and U.S. in December 2004 and March 2005, respectively and will be
introduced in Europe in September 2005.” (Sony Corporation, 2005) From this you can say that they first
introduced the PSP in Japan later in North America, and then in the rest of the world. But as they had
decided from the beginning that the PSP would be introduced in those three locations, it is hard to say
that the PSP was designed for one specific country. But as the three places target initially where Japan,
the USA and Europe we can say that the general geographical target was within the Triad. The Triad is
the union of three major markets: USA, Japan and the market of the western EU.
The data found about the number of PSPs shipped show that the biggest target group is North America,
after that Europe and after that Japan. It can be said that in relation to the PSPs sent Japan is the biggest
costumer. (Yoon, 2007).
Product Characteristics
One thing that was unique to PSP-1000 when it came out in 2004 was its capability of console-quality
graphics, the movies that could be viewed on it, its Wi-Fi capabilities. In other words, the PSP was a little
unique device that mixed gaming, listening to music and watching movies into one pocket size gadget.
The quality of the graphics was superior to the other handheld gaming consoles of the same time, the
quality of the movies and music were equally exceptional. Another characteristics of the PSP, is the
carefully placed controls that allows the user to fully concentrate and immerse him or herself on the
video content (Sony Corporation, 2010-f). Another characteristic that also draws the eyes of the user
inwards is the shape, this allowing for even more immersion on the video content. The shape in general
with it’s cut out edges, the black and clear coloring and the acing grips that are situated on either side of
the PSP which makes it easy to hold are physical characteristics (Sony Corporation, 2010-a). To
summarize, we can say that, the mixing of its, video, music, gaming, internet use capabilities with
specific aspects about its appearance are what form the characteristics of the PSP. It was revolutionary
gaming console when it came out because of this unique mix.

1.3 Means-end analysis
To find out what types of values are important to an average person, a Means-end Analysis was done.
This means-end analysis was done is steps. First each team member interviewed two people. The
individuals interviewed did not have to be hard-core gamers, but just an average person who played
games, for isnance a board game, computer game or other. (The interviews and details about
interviewed can be found in appendix C)
The interview was done by continuously asking ‘why’ when the interviewee answered a question about
what his or her favorite game was. This was done to finally reach the essence of why the individual liked
that game. The various answers were then analyzed and linked together in the value map. (A larger
version can be found in appendix A). This is called ‘Laddering’. (Wansink & Chan, 2002)
Figure 7: Value Map
How does the Sony PSP address these values?

The main advantage of the product lies in the fact that it supports a standard of high quality video
games.
The Sony PSP supports a broad variety of games to address all of the above mapped consequences and
values. It is in the product's sound, video and game quality that it can fulfill these values as if it were a
PlayStation. The possibility of playing online against each other makes it so that it also addresses the
value “connected with society”.

Escape from daily life:
In this case the value that is achieved is actually the fact that people can momentarily take a step out of
their daily lives. A way to get your mind of things and get sucked into a different reality, for no specific
reasons. One of the consequences that cause this value is freedom. They want to decide themselves
when they want to game. They might have something going on, but not necessarily. They can also feel
bored and decide to start playing a game. The Sony PSP offers freedom in its game selection as well as in
its portability. The ability for a game to last is another attribute to this value, considering the many
addicting games that are out there the PSP addresses this value. However the PSP is a portable device
and the battery only last about 3 hours in WIFI gameplay.
Excitement:
Unlike we expected the excitement factor doesn't derive from loud sounds in combination with a big
screen. This value is a consequence of the challenge and fun that the video game brings forth.
Learning:
This Value is a direct consequence from exploring. The PSP provides several functions to support
exploration. Its games can be educational or from exploring nature, but the most important function to
support this value will be the internet. The internet enables people to explore the web, as well as
explore different worlds and get to know different players in games.
Work efficiency:
This value is actually a consequence of the ability to focus on something else. This focus can be reached
by solving a puzzle or plainly get involved in an exciting activity. Escaping from life is in this value a
cause, since they want/need to escape from their work; they want to focus of something else for a
while. The main difference with the value Escape from daily life is that there is a shift in emphasize.
Escaping from daily life is often accompanied with a long lasting gaming session, whereas in this case it is
a matter of minutes. This way people will work more efficient when they start with their work again. In
this case the PSP offers action and strategic games to keep you mind from wondering back to work.
However in this case the PSP can be dangerous as it can consume allot of your time.
Connected with society:

The internet function of the PSP enables multiplayer game mode from distance. Users can choose to
challenge friends, or engage in open game sessions with strangers. The PSP offers the ability for online
chatting and even the possibility to connect a webcam. (Sony Corporation, 2004)
Conclusion
In conclusion it can be said that most of the values are addressed by the games instead of the device
itself. As this device was the first commercially available, portable device that offered this variety of
games, the product was just the means to play the games. For this reason we conclude that the PSP
addresses all the above mentioned values.

1.4 Innovation success factors
1. Relative Advantage:
During the launch of the Sony PSP in 2004 its main competitor was the Nintendo DS. In comparison to
this Nintendo DS the PSP offers a different platform with advantages in: audio, video, compatibility and
storage. Where the Nintendo DS merely is a handheld game console, the Sony PSP is a handheld media
center with game graphics that could only be found on stationary game consoles. (Sony Corporation,
2004)
2. Trial Ability:
Figure 8: PSP tryout stand in retail stores. (Kennedy, 2005)
Sony's PlayStation range is always on trial in featured stores demonstrating all of its functions and
previewing a demo game. Considering the PSP to actually be a portable PlayStation, the platform is
already diffused into society. For this reason the only thing that had to be tried was the ergonomics and
overall feeling of the product, like how heavy it feels in your hand
3. Observability:
Because the PlayStation Portable is portable and carried around through society Sony does not need to
do anything more to show their innovation into society except for the Trial Ability. People who have first
bought the PSP can play with it in public spaces like in the Metro; other people will see this and think
about what product this is. People who bought it will also want to show it to their friends and family and
can easily do so because it is portable.

4. Communication Channels:
Sony uses all sorts of common media to communicate to the consumer such as TV ads, billboards,
internet banners and more. In the Asian-Pacific region game developers advertise their games primarily
and Sony shows that it is available on the PSP. In the western society, Sony advertises the features and
feel of the PSP, here the emphasis is on the device instead of the games.
5. Homogeneous Groups:
For the development and launch of the original PSP Sony specified a reasonable homogeneous target
group; gamers between 18 and 34 years of age. (Kohler, 2007) Within the category of gamers even
though sub groups exist, research shows that gamers can actually be called a homogeneous group. This
group shows strong resemblance because they game and their use of media. (Beemt, 2010)
6. Pace of Innovation/Reinventions
The history of the Sony PSP shows us a not to drastic pace of Innovation. They did not come up with a
new version of the PSP every year with several dramatic changes every time. Instead, over the past six
years Sony introduced three iterations on the first model and one new type, the PSP Go. Between the
first PSP, the PSP 1000 and the second generation PSP, the PSP 2000, there were minimal changes.
Between the PSP 2000 and the PSP 3000 though, there were a lot of innovative changes, essentially to
the performance. The final innovations done to the PSP go where also redesigns from a shape point of
view and not only on the performance. (For more detailed information, please see Appendix B)
7. Norms, Roles and Social Networks:

People, who are part of a social network, are a group of people who are connected in some way to each
other and thus communicate with each other about this common connection. These various groups of
social networks each have their own norms and roles. As the PSP is a hand held gaming device, it would
be logical to conclude that Sony approached the social networks of gamers by appealing to their norms
and patterns of behavior. But this is not the case with Sony. It seems that Sony depends on social
networks discussing their products naturally without having to push it. There is no evidence to prove
Sony’s use of social networks.
8. Opinion Leaders:
The apparent opinion leaders are, video game show hosts, professional gamers and writers. In the case
of the PSP, media critics such as TV show hosts and magazine writers addressed the PSP. Before the
launch these critics speculated about the introduction of the new device. It is not clear whether it’s Sony
initiative to start these rumors and publications during the launch of the initial PSP. Recent TV shows
indicate that it was Sony’s initiative to do so for the launch of the newest PSP Go.
For the American market Sony introduced a new child character Marcus Rivers (portrayed by child-actor
Bobb’e J. Thompson, Marcus can be seen as a made up opinion leader. Sony’s first TV commercial
featuring Marcus shows that Sony hires him in order to advise them upon the PSP. Following
commercials show Marcus taking full advantage of the PSP in comparison to the competition, where
Marcus heavily expresses his opinion upon both.

9. Compatibility:
In a time where portable media is getting increasingly popular the Sony PSP offers a total media package
with an astonishing capacity of 16 GB. The PSP's compatibility with the MP3, MP4 and 3GP codec
ensures a smooth diffusion. The memory stick slot in the PSP offers an expansion of its memory and is
compatible with Sony products that use this memory stick. The PSP is in the same category as the
PlayStation, but they are not compatible in the sense that they cannot exchange games. (Gizmocafé,
2010)
10: Infrastructure:
The PSP is part of the PlayStation family, it and its games depend on the sale channels and infrastructure
of its stationary brother, and they walk hand in hand. These sale channels are a central point in the
PlayStation family; many of these points include testing stations and a variety of media content.
In conclusion it can be said that Sony did apply all innovation success factors to a certain degree. The
fact that all factors are addressed heavily depends on the fact that the PSP relies on the foundation that
has been set by the PlayStation.
In terms of the homogeneous groups, Sony has committed a mistake. After the launch it turned out that
the product was actually more popular within a different age category. As a response to this Sony
launched a new campaign emphasizing this age category which resulted in the birth of Marcus Rivers.
(Kohler, 2007) For the Norms, roles and social network, Sony relied on the fact that the gaming
community would share information about the PSP because of its innovative characteristics, but there is
no proof of Sony doing so. There for we conclude that Sony relied on the fact that it would happen
naturally. Sony did not suffer majorly from this but it is likely that the PSP would have done even better
if Sony had used social networks to their advantage and concentrated more on their target group. This
might have also prevented a change in user group later on. It would thus seem that Sony did not pay
enough attention to this innovation success factor.

Step 2: Micro Business Environment Analysis
A micro business analysis allows for a better understanding of the multiple factors influencing the
product that you are researching. These influential factors can be suppliers, substitutes for the product
and more. For this analysis a Porter analysis was done.
The STEP Diagram can be found in Appendix D.
Suppliers of Sony:
The power of suppliers can be very strong, if they are in a position where they can determine the terms
and conditions of a contract. A supplier has more power when it is one of few. Switching to another
supplier can be especially difficult and expensive when the supplier can afford to take over competing
suppliers. (Oxford University Press, 2007)
Figure 9: Basic Structure of the Supply Chain. (Sony Corporation, 2010-l)

The process that Sony uses when selecting a new supplier is displayed below. This diagram show that
they are a high priority client to their suppliers and that they are able to choose their suppliers.
Figure 10: Supplier selection process. (Sony Corporation, 2010-c)
Sony believes in mutual trust, fair business practice, collaboration with their suppliers as well as
transparency and equal opportunities.
For this, Sony works with prescribed policies and procedures to guarantee fair business practices. When
speaking of transparency, Sony avoids random and arbitrary actions. As for equal opportunities, Sony
gives each potential supplier an equal playing field, no exceptions. (Sony Corporation, 2010-g)
This shows that Sony chooses its suppliers, but also finds it important to have the products adjusted to
what Sony requires. Sony also wants to know what’s going on within these companies, and keeps its
options open to switch between suppliers.
Sony is very strict when it comes to the companies they collaborate with. They want to assure that the
employees are treated well and that no corrupt activities are taking place. (The Sony Group, 2010)

Suppliers find it important to have a fair financial base so they can get the best available deal; therefore
Sony asks to provide information on their management and operations, including their financial
activities. (Sony Corporation, 2010-h)
Sony Supply Chain Solutions (Thailand), who also ensures the quality of the product Sony Suppliers
need to provide, writes about their way to handle Sony’s suppliers: “To ensure that the supplier's
capacity and parts quality are being managed accordingly to production plan, with monitoring and
expediting the Purchasing order in lead time commitment.” (Sony Supply Chain Solutions, 2009)
From this information it can be said that Sony is very demanding of its suppliers who have to fulfill many
requirements. They have the ability to choose their own suppliers, and keep track of their activities.
Therefore the power of suppliers is not very strong for Sony.
When it comes to the PSP though, in 2005, Sony decided to outsource the assembly of the PSP from
Japan to China and Taiwan. The stock could not keep up with the demands. This was to be able to fulfill
the demands of the American market before they had even launched the PSP in Europe. The
manufacturing of the parts would stay within the power of the Sony Corporation in Japan (Humphries,
2005). A dangerous matter when deciding to outsource is that a company such as Sony because of its
wide variety of product it produces, might lose the knowledge of the assembly. This would mean that
Sony would become fully dependent on its supplier for this crucial aspect. This would give a supplier a
certain bargaining power over Sony. Until now it would seem that Sony has been able to control its
suppliers by spreading them and usually depending on themselves or branches within the company. As
said previously, Sony keeps its suppliers on a very short leash to make sure to prevent giving their
supplier too much power.

Substitutes:
In the time of the first Sony PSP, substitute products can be found in many categories. Because of the
multifunctionality of the PSP, many stationary game consoles can be considered to be a substitute
product. Other such substitutes include board games, card games and childhood games.
The PSP could be substituted by its stationary competition, the products offers media playback but all
with a focus on gameplay. One might consider buying one of these products instead of the handheld
PSP. These devices are the Microsoft XBOX, the Nintendo GameCube and the Sony PlayStation 2. Sony’s
efforts in expanding their product range could be considered as cannibalization, but what is important
here is that Sony shows a clear relative advantage for each of their PlayStation products. For this reason
Sony is able to compete with the other consoles without substantially affecting their own products.
(Product source: (Wikipedia, 2010-a) ). Another substitute to the PSP is board games such as Monopoly,
Candy land, Do not get angry, and many more. A board game allows you to interact with friends and
family in a healthy competitive fashion, they are fun to pass the time and if you are fully engrossed in
the game you can get very excited and caught in the moment. Card games are a good pass time that
you can take with you and can play more or less anywhere like the PSP without worrying that you will
lose your dice or a small component of your game as you would with a board game. Card games such as
poker and Rummy are usually played with a group of at least two, some exception to this are solitaire
(and spider solitaire). But card games remain a fun way to stay entertained without causing too much
havoc. This could be why still so many elderly people love playing card games. Finally, childhood games
can be a free substitute to the PSP. Games such as hide-and-seek and tag are very social games where
people need to interact, it’s the whole essence of the game, and it can also be very energy consuming
and allows people to escape briefly from their daily life. If the players are adults, maybe it allows for a
glimpse back into the past when they were children. All in all there are various substitutes to the PSP,
more expensive or completely free. The majority of the substitutes are personal in a direct way which is
less present when it through an electronic devices such as the PSP. Each game form has its pros and
cons, it really depends what you are looking for.

New Entrances:
The threats of new entrances to the PSP since it came out in 2004 are relatively few, but have been
important. These new entrances include Apples IPod touch, the IPhone 3GS and finally the Zune HD
produced by Microsoft. (Wikipedia, 2010-a)
The IPhone 3Gs and the IPod touch are portable media players that are also a personal digital as well as
a Wi-Fi mobile platform. These are the same major characteristics as the PSP of Sony. Apple also has a
very wide variety of games to offer to their consumers. Consumers themselves can even create their
own games for the “App store” (Apples application store). For these reasons are the IPod touch and the
IPhone 3Gs threats to Sony’s PSP. The Zune HD produced by Microsoft is a portable media player. As
the PSP is also a portable media player, this entrance of this new small portable media player in late
2009 may hesitate between the PSP and the Zune if one of the main reasons for them to choose the PSP
was for its media options. This makes the Zune HD a threat to the Sony PSP market.
Industry Rivals of the PSP:

Industry rivals are companies who have the same type of products. In the Case of the PSP, other
handheld consoles. The portable Nintendo range such as the Gameboy and the DS offer a platform for
mobile gaming which has got a big overlay with the PSP. For this reason it can be said that Nintendo is
an industry rival of Sony’s PSP.
On another noteworthy product that can be seen as an industry rival from the time the PSP came out
was the Nokia N-Gage. This device is actually a mobile phone that offers 3d video games and media
playback. In comparison with the PSP this device resembles the functionality of the PSP the most;
however it’s primarily a phone which shows in game quality.

Buyers:
Sony sells its PSP to a lot of retailers. They make a distinction between online and store retailers.
Looking at big places in USA like New York they mostly promote the official Sony style stores if you look
for an official Retail store. It is unclear which channels sell the most PSPs in the USA, in Holland it is
online.
Figure 11: Sony retail store locations. (Sony Style, 2010)

For other parts of the world they have agreements with a lot of retailers. The only thing what we can say
is that retailers have to have certain standards before they can get an official Sony retailer. One demand
is for example: “Sony Retailers are properly trained on Sony products so they can answer your
questions” and “Sony Retailers only deal with factory-authorized merchandise, which hasn't been
tampered with or had its serial numbers altered by unauthorized third-party resellers.” Taking these
demands into account we can assume that only the bigger electronic retail organizations can get the
status of an official Sony retail store. (Sony Style, 2010)
Figure 12: Sony store. (Sony Style, 2010)
Biggest buyer in the Netherlands is NEDGAME; the fact that they want to stop selling the new PSP GO
tells us that they had already an agreement with NEDGAME for the rest of the PSP product line. (Glenn,
2009)
Sony also takes the power in his own hands by selling their products on their official website. They also
indicate there a long list of official retailers and online retailers. Official retailers have to fulfill for certain
quality and service aspects. Sony has his own stores called Sonny Style stores, where they sell only Sony
products. (Sony corporation, 2010-j)
Mobile phone bargainers offer the PSP as a gift in combination with a phone subscription and a phone.
These bargainers are for example, Orange, T-Mobile, O2, and Vodafone. (Free PSP Mobile Phones, 2010)
(Best Mobile Contracts, 2009)

Conclusion:
In conclusion it can be said that the largest threat is the one of the new entrances. Since technological
innovation is high, the new entrances are approaching the PSP's level of game quality. However contrary
to the PSP, the new entrances do not emphasize their games or gameplay but have different primary
functions such as phone calls, SMS and can play music. Currently the difference in game quality can
almost be neglected by those who are not considered to be "power gamers". If the difference between
the PSP and new entrances in game quality only becomes smaller the consumer market for the PSP will
shrink, because the relative advantage for the mainstream consumers will become insignificant.
Suppliers are not a great threat because Sony keeps a very short leash on its suppliers. Because of this
we can conclude that the risk of bankruptcy of the suppliers or shortage in supplies are very low.
The substitute products are not of a great risk because the difference between Sony PSP and these
products are big and they will not easily become a replacement of the PSP.

Step 3: Macro Business Environment analysis
To comprehend the environment surrounding a product in a certain country, it is wise to get a better
understanding of the big picture. The big picture can be studied by doing a STEP analysis. A STEP analysis
makes you look at factors such as economic, political, socio-cultural and demographical. In the case of
the United States when taking into account the PSP, the economical, the socio-cultural and the
technological factors are the most important. We have chosen to work on the United States (USA)
because it is in the USA that most gaming products and games come out first.
Economical
Figure 13: Where does the money go? (U.S. Departement of Labor, 2009)
Economic growth:
The credit and financial crisis, which began in 2007, were the cause of the global stock market crashes.
The economic recession over 2008-09 cut the incomes of the highest earners in many countries, and
triggered a high unemployment rate amongst laborers.
Although the financial crisis affected economies on a global scale, high earners were most affected in
developed regions such as North America and Western Europe. In 2008 the average annual disposable

income of the richest 10% of households in the United States of America fell by 2.4%. This in contrary to
China where this disposable income rose by 8.7% over the course of the same year.
However the income growth of high earners does not reflect the whole national economy. Real GDP
growth shows a meager improvement in most developed markets while unemployment rates remain
high.
Statistics predict a steady grow in income relative to constant 2009 prices. In order to draw conclusions
from these graphs, inflation has to be taking into account.
Figure 14: Annual Gross and Disposable Income (Euromonitor, 2010)
Figure 15: Annual Gross and Disposable Income (Euromonitor, 2010)
Inflation:
The table above shows a stable Gross and disposable income growth over the coming decade. If we put
these values in perspective according to the expected overall inflation (0.9% to 1.17% (FOMC, 2009),
growth is a fact.
Economic Projections:
2009 2010 2011 Long-Term
Economic Growth -1.3% to -0.5% 2.5% to 3.3% 3.8% to 5.0% 2.5% to 2.7%
Inflation 0.3% to 1.0% 1.0% to 1.5% 0.9% to 1.7% 1.7%-2.0%
Figure 16: Economic Projection. (FOMC, 2009)

Consumer Confidence:
Although the American economy appears to be slowly recovering from the Recession, many consumers
are keeping the habits they acquired during the downturn. This is the main finding of a survey
conducted by Booz & Co. In October 2010. The survey shows that the behavior patterns acquired during
the recession still apply for most consumers. In some cases consumers are cutting back even more on
their spending than during the recession. The survey found that 56% of respondents reduced their
spending on consumer electronics during 2010, which is an increase from the 53% in 2009.
(Euromonitor International, 2010)
This behavior can be confirmed by the pattern shown in payment methods.
Credit card usage has declined significantly since the recession. An annual survey by Javelin Strategy &
Research shows that credit usage in the USA dropped from 87% of consumers in 2007, to 56% in 2009.
These signs of lack in consumer confidence are supported by the fact that US consumers significantly cut
back on their purchases and attempted to pay off their debts. Since the recession debit cards became
the preferred method of paying for purchases.
Figure 17: Consumer data. (Euromonitor, 2010)

Unemployment Rate:
The recession led to a high, long term unemployment rates, according to the U.S. Bureau of Labor
Statistics, the jobless rate of 2010 stands at 10% of the total U.S. population. BLS predicts merely a small
improvement in the unemployment rate over the coming 10 years. These predictions support the low
consumer confidence.
Figure 18: Unemployment numbers. (Klemmer, 2010)

Socio-cultural
The United States of America is a federal constitutional republic. It is situated in North America and is
composed of fifty states. Each state has a certain amount of independence. For example educational
laws may be different in the state of Georgia then in the state of Alaska but no state may over tray
federal laws. Over the course of the last thirty years, the growing economical and market power of the
United States has grown, making it one of the major members of the Triad. The Triad, an expression first
used by Kenchi Ohmae, the combined power of three well developed markets. The Triad is composed of
the United States, Western Europe and Japan (Wikipedia, 2010-c) . The United States is a two party
political system unlike most European countries. The United States has long been on the frontier of
breakthroughs in science, technology and renowned for its cinematic endeavors. Now in the 21rst
century, the United States is a melting pot of cultures, but its soul is based on the American Dream with
its individualistic traits.
Lifestyle (the American dream)

The American dream which has been the base of the American lifestyle for the past fifty year is the
strong belief that no matter who you are, no matter what your status is, you can “pull up your boot
straps” and overcome poverty. (Clearly Cultural, 2009)
Figure 19: How Americans Shop. (Visual Economics, 2010)
When looking at every industry available, it can be said that an average American spends money in
every one of those. The five retail categories that the most important for Americans are: jewelry and
watches, consumer electronics, event tickets, computer hardware and books and magazines. In America
as in most countries in the holiday’s seasons, more money is spend then on an average normal day.
(Visual Economics, 2010).

Most likely due to the belief in the American Dream and the individualistic mindset within the United
States of America (USA), very few if none Americans take their paid holidays. This is the lowest toll
worldwide. The reason often used to explain this is that people who want to climb the ladders of the
company do not take paid holidays.
Figure 20: Paid vacation and paid holidays. (Mark, 2010)
Another characteristic of the lifestyle in the USA is the cost of health care. The USA has increased over
the course of the past fifty years to the highest tole of its gross domestic products when it comes to
health care than its peers
Figure 21: National Health Spending. (Rampell, 2009)

Capitalism
The USA is considered as a Capitalistic country. This term was used for the first time by Karl Marx, a
German Economist of the 19th century. His description of capitalism is “a system in which a small group
of people who control large amounts of money, or capital, make the most important economic
decisions” (Conte, 2003). According to Karl Marx a capitalist society was different form a socialist society
where most of the power is held by the political system. Nowadays, it can be said that the American
economic system has actually become a mix of the government holding a certain amount of power and
role within the private sector (Conte, 2003). Adam Smith is one of the lesser known founding fathers of
the USA. One of “Smith's great revelation was that political freedom would most likely emerge and
persist under conditions of economic freedom, what we now call capitalism.” (Schramm, 2006). This way
of thinking had allowed the USA to advances itself to become the birth place of modern commerce.
Nowadays we can say that in the USA the wonderful economic engine that has stayed strong through
the great depression is the entrepreneurial capitalism of Smith at work centuries after he has passed.
Even if it is now fighting through a new struggle. (Schramm, 2006)
Individualism
The United States of America is rated as the most Individualistic cultures in the world with France
ranking on the tenth place. The goals of each individual are the most important and most emphasized in
these cultures. “People in individualistic cultures emphasize their success/achievements in job or private
wealth and aiming up to reach more and/or a better job position” (Via-Web, 2010) . The fact is that the
“American Dream” that has been promoted over the past fifty years is a strong example of an
individualistic society. It represents Americans hope and belief in a better future as well as a higher and
better quality of life than their parents. (Clearly Cultural, 2009)
As the society is becoming more and more individualistic, it does not stay only on the general front of
society. According to (Datamonitor, 2008), a trend towards personalization is becoming stronger in the
consumers way of shopping. The fact is that a “just-for-me” way of thinking is becoming more
important and is driving the desire for products, as well as services and experiences. The products,
services nowadays have to cater to specific identities and needs. “Shoppers will increasingly expect
additional possibilities by which they can co-create and self-customize. By providing a platform for
customization possibilities, companies also enhance the probability of benefiting from word of mouth
multiplier effects.” (Datamonitor, 2008) It has become apparent of the course of the last few years that
the individualistic traits and attitudes are showing in the behavior of consumers and of society. This
individualistic characteristic that is driven by the maturity of the market also drives consumer societies,
thus this trend in individualism. (Datamonitor, 2008)
Vision on/of gamers

Since the birth of video games more than thirty years ago, this form of entertainment has become the
most influential within the USA. In the year 2000 one in every four households within the USA owned a
PlayStation of Sony. The power of video games within the US is not only influencing the economical
sector and entertaining millions of Americans, but is also provides a new cultural landscape. It is
allowing gamers to get to know other cultures and type of games like when Pokémon and Yu-Gi-Yo.
Video games have become so influential within the American community that some educators use them

to motivate students to learn. Video games primarily try to entertain the gamer. They also bring up
powerful emotions. These emotions are reactions caused within the user and can vary like a
rollercoaster from fear, to power, to aggression and joy. Video games are often played with a group of
friends, thus bringing them together. This can be seen as an outlet for young adolescents to use for
releasing their aggression or for escaping from daily life. Video games can be a powerful tool to
influence the impact of technology and the social context of certain communities. (Squire, 2002)
A hardcore gamer is defined by Charlie Scibetta as being “usually the early adopters that want to get the
latest version of something, and they'll be the ones that put it through its paces the hardest and give us
all kind of feedback and tell us what they like and don't like.” (Wikipedia, 2010-b). As the United States
has one of the most important gaming markets, it is here that many video games and consoles come out
first. This feeds the need of power gamers. Though the percentage of power gamers compared to
occasional gamers is low, in toll of millions of households, the number is still high. (Hanlon, 2006) Since
the use of social networks, social gamers have increased with leaps and bounds.
Figure 22: Gamers from different Segments. (Hanlon, 2006)
Content of games
The content of games is becoming seasonal. The content is adjusting itself to the season and is
becoming an annual trend. (Lee, 2010)
Game developers are also basing the content of their games according to the usage of social networks
and the direct competition it creates between users. (Fletcher, 2010)
The reinvention of classic characters seems to still hit close to home for gamers who have been around
for some time. For example Super Mario, Galaxy 2 has been rated as being in the top ten video games
that have come out in 2010. (Light, 2010)

Trends in gaming
One of the new major trends of the course of the last 4 or 5 years is a major increase in social
networking games. This is largely due to the quickly growing web of social networks such as Facebook
that have millions of members worldwide. Because of this the number of casual gamers grows steadily
every day. “The social networking game industry has also followed the trend towards wireless handheld
devices.” (Maginnis, 2009)
Developers, through their new strategies of targeting users looking for fun more than hard core gamers
seem to be paying off. Now a days you can even access you Facebook account via your Xbox 360 or
PlayStation and games such as Zynga’s Farmville has more gamers then accounts on twitter. It is
apparent that the future will hold more direct competition between gamers through the social media.
(Fletcher, 2010) One reason social gaming has become popular, is because it is nicer to play with your
real friends then with people you do not know. On Facebook alone there are more than 5,000 games.
(Takahashi, 2009)
According to (Datamonitor, 2008), another major trend is the possibility of customizable options. Such
as the Sims 3 online where gamers can upload their creations and share them with other gamers. The
Sudden increase in competition is making it difficult for companies to make money especially with the
havoc caused by the recession in 2008. The Fact is that there are so many free games out there of which
the quality is only increasing. About ninety percent of players that are using the web prefer to use free
games. (Takahashi, 2009) So if mobile devices such as a PSP allow access to the internet and thus
Facebook, Gamers will be able to play free games instead of buying games in the stores.
Another trend that was set in big part by Nintendo with its Wii that is likely to grow is the gesture-base
control systems. This control system has completely redefined how people play their games. Sony is one
of the companies that are likely to go more into this direction as well (Takahashi, 2009).
Figure 23: Trend map. (Ries, 2010)

Technological
Since the first PSP a lot has changed in the technology field of mobile electronics. Cellphones got smaller
and smarter, tablets made their first successful appearance (iPad), and mobile internet connected all
these new devices to each other anywhere in the world.
3g (internet focus)
In the constantly growing mobile world having an internet connection on a portable screen is getting
more important every day. It does not matter where you look, and you see people staring at their
screen, doing something on the internet. The internet has become such an important factor in our lives
that some people want to be online every moment they are not behind a computer.
The chips that provide internet access are now cheaper and smaller than ever, giving product designers
the option to include one in smaller products. The coverage of networks is getting better as well, as
more and more users are using 3G, and the operators are investing in new infrastructure. (Cellphone
Advertising, 2009)
The costs for mobile internet are cheap. There are now offers that give you unlimited connection for
only € 2, 50 a month. Compared to app. € 10, - for 100 mb one year ago this is a great step forward.
(Biffen, 2008)
Speed of development
According to Moore’s Law the size and speed of transistors (and therefore microchips) will double every
two years. If you look at the history of computers and electronics, the speed of development is going
faster and faster. When a new smartphone is announced, it is already old before it is even available in
stores. (Intel, 2010)
The same story goes for flash memory. A few years ago, the biggest size of memory card was 64 MB.
Nowadays, you can buy a flash card with 64 GB on it for about the same prize. That is a factor 1000
more than a few years ago! The file size of the most common files has not changed, which makes it
possible to store 1000 times more files now than when the PSP came out. (Kay, 2010)

Industry development (smartphone trends)
In this section we discuss the development of smartphones, because there has been a revolution in
mobile devices, which was caused by smartphones. Since smartphones are becoming a larger gaming
platform it has become important to consider.
Since the introduction of the iPhone, the adaptation of smartphones started. Smartphones were mostly
business focused and not attractive for normal consumers, the iPhone started a new trend of mobile
devices. The iPhone was the first usable smartphone. (Wee, 2010)
Figure 24: Smartphone growth. (Brown, 2010)
Since 2007 smartphones are gaining market share. This revolution is in close relation to the growth of
mobile internet, mobile application development (app stores), and cheaper components that make
smartphones affordable for the masses.
Since the beginning of the internet there have been social networks. Years of growth have resulted in
massive networks, like Facebook and Hyves with millions of members. When the revolution of mobile
internet came, these networks wanted to access those users as well. People with access to mobile
internet can be ‘online’ all day long, and not only when they are behind a computer. The generated page
views can result in large advertising revenue’s, see Figure 25: Mobile Page view Observations.
(Shannon, 2008)

Figure 25: Mobile Page view Observations. (Wee, 2010)
Services like Twitter and Facebook are tools to keep in touch, to be social. People without a mobile
internet device like a smartphone miss out on the fun. The popularity of these mobile services gives
people a reason to buy expensive smartphones, they can stay in touch. This is a radical change from
before, where smartphones were only used in a professional setting, and for normal consumers it had
little extra value. There is a so called ‘Social pressure to stay connected’. (Mc Lellan, 2010)
Company 3Q10 Units 3Q10 Market Share (%) 3Q09 Units 3Q09 Market Share (%)
Symbian 29,480.1 36.6 18,314.8 44.6
Android 20,500.0 25.5 1,424.5 3.5
iOS 13,484.4 16.7 7,040.4 17.1
Research In Motion 11,908.3 14.8 8,522.7 20.7
Microsoft Windows Mobile 2,247.9 2.8 3,259.9 7.9
Linux 1,697.1 2.1 1,918.5 4.7
Other OS 1,214.8 1.5 612.5 1.5
Total 80,532.6 100.0 41,093.3 100.0
Figure 26: Smartphone sales comparison. (Tudor & Pettey, 2010)
Over the last year, the total unit shipment of smartphones has doubled. The rise of Android and iOS,
both with an application store, is taking away market share from the PlayStation Portable and in smaller
amount from the Nintendo DS. (Farago, 2010)

Game Development
App Stores
The app store ecosystem, introduced by Apple, meant a big change in the way people buy and consume
content. In the early days, with WAP internet services, consumer could go to a website, download a
program, and pay by SMS or credit card. The whole process of paying and more important, finding
applications was not easy.
With the App Store users can download a wide variety of applications, pay with their iTunes Account
with a single click, and immediately start using the application. For developers, this meant that there
was an easy way of distributing to users, instead of hosting a website for downloads and integrating a
paying system, they could just upload it to Apple and receive money. It was now possible for everyone
to make applications and earn money with it, even for students and hobbyists. More than 200.000
applications were made and submitted to the app store, all available for 80.000.000 users. (Evans, 2009)
Traditional game development

If you want to bring out a game via traditional media, like the CD-Rom or UMD or other proprietary
media formats, it takes more effort and investment to bring it to customers. You need to make sure that
your final version is ‘finished’, there is no way to add updates or extra features later on most console
games. You need a game studio to create and distribute your game on the media format of the console,
instead of just uploading it to the app store. At last, your game needs to be in stores all over the country
in order to be seen by potential buyers, with enough in stock to sell to all customers if it is a popular
game. The creation of a prototype of a PS3 Blu-Ray game costs approximately $ 4 million, and can take
of a year, and than the rest of the process needs to be gone through as well. (Yoshida, 2007)
For many developers, the choice between expensive console game development and relative cheap
smartphone development is easy, only big gaming studios have the resources to make console games.
Many big game studios are starting to port their games to the app store for iOS, like EA Games and
Gameloft. Games like the Sims 3 are not only for consoles anymore, you can play them on your iPhone
as well now. There is a shift going on in the world of game-development. In the diagram you can see
that iPhone development (and therefore app store development) is generating more and more revenue,
and gets more interesting for developers to develop for.

Figure 27: US Portable Game Software by Revenue. (Farago, 2010)
Trends in gaming (technological)
Other distribution channels

Distribution through the internet is getting more populair, which makes the developers less dependent
from distributors. For example, WiiWare enables developers to distribute small Wii games directly to Wii
consoles, bypassing the need for stores. (Scheepers, 2008)
Different business models

Microtransactions are a good example of a new trend in gaming. Connection with the internet makes it
possible to offer add-ons for games for a small fee, like a special item in the Sims or World of Warcraft.
This creates an additional source of revenue, even after the game has been sold. Because of this the
price of the initial game can be lower, which can persue more people to buy it. (Scheepers, 2008)
Advertising has found its way in games as well. In games that simulate an environment where
advertisements are shown, like racing games or football games, the advertisements on the boards can
be used for varying ads. For instance, the billboards at the side of the road in GTA-San Francisco are
filled with real world ads, generating views for advertisers. (Scheepers, 2008)
Multiplayer online
More and more games have some sort of multiplayer in it. Populair iPhone games like Flight Control now
enable users to play against or with friends, by inviting them into a game and provide chat functionality
as well. Gaming is becoming more social, with achievements and global highscores (Game Centre for
iOS), and games where you can help each other get further in the game (farmville). (Smith & Hudson,
2010)

Step 4: Recommendations
Strengths:
Wide market spread:
As discovered in the organization section in step 1, Sony’s many holdings and companies offer an almost
complete in-house value chain. Sony is able to make their own content for their consumer electronics;
Sony BMG offersmMovies, music and video games. Another strength here is that Sony makes most of
their own parts this allows them to have a high control and low cost system. It is only when necessary
that Sony out-sources. All of this for a big part cancels out the dependence on suppliers and developers.
Transparency of relative advantage:

As stated in the core capabilities in step 1, Sony's products are top of the line products in their individual
segments. These products show through multiple means such as through their design, functionality and
marketing why they are different and better than the products of a competitor. For this reason Sony's
products are well known within their segments, and communicate their individual characteristics. For
this reason customers perceive the relative advantage as Sony’s supremacy to competitors.
Trial ability for a wide range of products:

Sony is one of few companies that actually demonstrate their products. They make them accessible by
prospective customers in an electronics or game store. This technique strengthens the relative
advantage by getting customers acquainted with the product. In case of the PlayStation range Sony
strategically places trial possibilities in the direct environment of their target group (e.g. Cinemas,
Music/Media stores and events)
Control of suppliers
What came out of the analysis of the powers of the supplier in step two is that a suppliers control over a
company can become very dangerous and crippling. This though, is not the case with Sony. When it
comes to suppliers, Sony keeps a very tight leash on their suppliers. Sony makes their suppliers fulfill
several requirements such as ecological demands amongst many others. A danger when using external
suppliers can be bankruptcies of the supplier, for this Sony asks the suppliers to provide information on
the management and operations, including the financial activities. Sony does everything in it power to
give as little power to its supplier. Sony wants to be in control which can avoid catastrophic problems.

Weaknesses
Product Segmentation
According to the section about market segmentation and product in step 1, Sony has high production
segmentation. Sony wants to have products that stand out in each segment, but Sony's efforts in
expanding their market reduce the product-brand association. For instance, most people know a
PlayStation because it is a PlayStation and not for being a Sony. This reduces brand loyalty since people
will be loyal to their product like the VAIO, but might not relate this with the Bravia televisions which are
in fact two Sony products. When coming out with a new product because this, the new products needs
to in itself already give the consumer enough reasons to buy it. If the product/ brand name were more
linked like for Apple, people might be, more inclined to buy a new product of Sony because they know it
is a product of Sony, and know of Sony’s high quality.
Opportunities
Wireless gaming platform
In step 3 the development of social and online gaming is discussed. These new games are a threat for
Sony, more and more users are playing these small and often cheap games, which leaves less time for
serious gaming.
Offering more than just gameplay, but also some social aspects, can make a game more populair, your
users advertise for you by their friends by telling them to join the game (like Farmville). The role of Sony
could be that they host a platform and enable developers to easily integrate this into their games.
Apple’s Game Centre for iOS is a good example of this.
Integration of technology/ compatibility

New technologies can offer new gaming oppurtunities. The Wii uses gesture based controls and infrared
tracking, which makes it possible for people to be actively involved in games. The iPhone uses a
gyroscope and accelometer to control (parts of) the game. The tight integration of motion with
gameplay combines the physical world with the virtual world, and creates a connection between them.
(Juneja, 2010)
Motion gaming is not suitable for all types of games, and sometimes hardcore gamers just want buttons
to play with. But Sony could integrate motion sensing in their new products, just like with the
PlayStation Move.
Update ability
One strength of app stores and digital distribution is that features can be added later, to keep the game
interesting. For instance, the immensely populair game Angry Birds for iPhone is updated once a month,
and users get new levels each time they update (free). This keeps the game interesting, and prevents a
game for offering everything at once. People have to wait for new updates, wich makes them exited
when there is an update. In contradiction, once you finish your game of Tomb Raider, you’re finished.

Cheaper wireless (3G)
The costs of wireless internet are getting lower and lower, and the bandwidth is getting better and
better. Following the trend of social gaming and online multiplayer, the integration of internet based
services in games is now fully possible. A game does not have to be static anymore, it can update itself
and offer more content in addition of what is on the game disk. Users could create things for each other,
or work together to get achievements.
App stores
App stores can adapt more quickly to trends, offer new updates and make all games easily reachable in
one place. In the growing digital world having a game on disk is old-fashioned, and adds a lot of cost for
the developer (distribution).
Sony could combine the advantages of an app store with their current system of retail, by offering
additonal features in an app store, or offer minigames to attrack a broader audience.
Threats
New entrances
When looking back at chapter 2, it has become clear that difficult factors to hold in account for
companies are the new entrances. As a company you can never be sure of what the competition is
doing. What is certain is that technology is getting smaller faster and more advanced. This is a danger for
Sony as their products can be surfaced or equaled fast by the new entrances. These threats in the case
of a product such as the PSP, a hand held gaming and entertainment platform are new entrances such as
IPhone 3gs and similar mobile devices with Wi-Fi and mobile games.
Dependency on suppliers
As the inbound logistics section of the first step says, Sony pay’s for finished parts and also pay’s the end
prize for some components. This creates a certain dependency on suppliers which they try to avoid. So,
even though Sony pays allot of attention to their supply chain and controls most of it, there will always
be the threat of suppliers. When depending on external supplier’s threats can be found when it comes
to the financial state and resources of a supplier.
Mobile phone competition

The advantage of the PSP, advanced games, is fading. A few weeks ago, the game Grand Theft Auto
Chinatown Wars was introduced for the iPad, and this was an exact copy of the PlayStation version. Big
game developers are started to develop for mobile phones and tablets, which means that even hardcore
gamers can satisfy their needs with a more versatile device, and don’t need a dedicated gaming device
anymore.

Figure 28: Firemint’s Real Racing HD. (Firemint, 2010)
For example, the game Real Racing HD offers a gameplay similar to racing games on the PSP, but adds
online multiplayer via Game Center. Racing game fans can now use an iPad as well.
Consumer confidence
In the economical section of step 3, it became clear that the average person significantly cut back on
their purchases. This happened even more in the electronics sector as that was seen as leisure and often
too expensive since the credit financial crisis of 2007. So people are not buying the products that Sony is
selling. Also because there are so many games with an increase of quality and decrease in price, there is
an increase of competition for Sony. As people do not want to spend a lot of money, they will buy a
cheap application or play a free social game faster then buy an expensive game or product.

Recommendations:
The SWOT analyses shows various threats and oppurtunities, which Sony can combine into a new strong
product. They have all the resources, the brand naming, the big game developers, and the user base.
They can now step up their game and introduce a new device, which integrates more with current
trends, but still keeps the strengths of the Sony PlayStation.
In order to keep up with competitors and new entrances Sony needs to expand the functions of their
PSP. Doing so will expand their customer range from power gamers to all types of gamers that
appreciate game quality.
We suggest Sony should take a look at Apple's iPhone, but from a strong PlayStation point of view. Sony
can minimize the competitor’s relative advantage and preserve the PSP's relative advantage which is
essentially uniqueness. To reduce the advantage of other companies Sony needs to take part in the
application trend.
Using a PSPhone Sony can implement cheap social games that are a big hit at the moment and still let
gamers use the platform to play advanced PlayStation games. They can offer 3G wireless for multiplayer,
live chat or even augmented reality gaming. The PSPhone should be considered as a game console that
can be used for phone calls instead of a phone that is the base of a multimedia.

Task devision
Introductions:
 General introduction: first by Sharon, re-writen by Sophie

 Chapter 1: Sophie
Step 1.1: Company Background
 Initial research: Sophie, Glenn & Edwin

 Writing: Edwin
Step 1.2: The Current Product
 Initial research: Sophie and Tijmen

 Re-writing:
 Target group: Sophie
 Target Geography: Tijmen
 Product Characteristics: Sophie
1.3 Means-end analysis
 Interviews: Tijmen, Glenn, Edwin, Sophie, Sharon

 Initial analysis of individual interviewees: Tijmen, Glenn, Edwin, Sophie
 General value chain: Glenn and Tijmen
 Conclusions: written by Glenn, analyzed first by Glenn and Tijmen
1.4 Innovation success factors
 General reasearch:
 Relative Advantage: Glenn
 Trial Ability:Glenn
 Observability:Glenn
 Communication Channels: Glenn
 Homogeneous Groups: Glenn
 Pace of Innovation/Reinventions: Glenn
 Norms, Roles and Social Networks: Glenn
 Opinion Leaders: Glenn, Sophie, Tijmen
 Compatibility: Glenn
 Infrastructure: Glenn

Re-writing
 Relative Advantage: Glenn

 Trial Ability:Glenn
 Observability:Tijmen
 Communication Channels: Glenn
 Homogeneous Groups: Glenn
 Pace of Innovation/Reinventions: Sophie
 Norms, Roles and Social Networks: Sophie
 Opinion Leaders: Glenn
 Compatibility: Glenn
 10: Infrastructure: Glenn
 Conclusions: Glenn, Sophie
Micro buisness analysis
General research
 Suppliers of Sony: Sophie, Tijmen

 Substitutes/ Inudustry rivals: Sophie
 New Entrances: Sophie
 Buyers: Tijmen
Re-writing:
 Suppliers of Sony: Sharon, Sophie

 Substitutes: Glenn, Sophie
 New Entrances: Sophie
 Buyers: Tijmen
 Industry Rivals: Sophie
 Conclusions: started Tijmen, Glenn helped with English
 Step 2 diagramme: Sophie

Macro buisness analysis
Initial research
 Economie: Glenn
 Socio-cultural: Sophie, Sharon, Tijmen
 Technological: Tijmen
Re-writing:
 Economie: Glenn
 Socio-cultural: Sophie
 Technological: Edwin
Conclusions and recommendations
 Initial discussion: Tijmen, Glenn, Edwin, Sophie

 Going through the report for relevant info: Glenn, Tijmen and Sophie (seperatly)
 Placing them in the SWOT table: Tijmen
 Finilazation: Glenn, Sophie, Tijmen, Edwin, Sharon
 Initial writing: Glenn
Re-writing
 Control of suppliers: Sophie

 Trial ability for a wide range of products: Sophie
 Transparency of relative advantage: Sophie
 Wide market spread: Sophie
 Weaknesses: Sophie
 Wireless gaming platform : Edwin
 Intergration of technology/ compatibility: Edwin
 Update abilitity: Edwin
 Wirless cheaper (3G): Edwin
 App stores: Edwin
 Customizable product: Sophie
 New entrances: Sophie
 Deependency on suppliers: Sophie
 Mobile phone competition: Edwin
 Consumer confidence: Sophie
 Reconmmendations: Glenn,Edwin, Sophie

Finalization
 Going through the report for English and small feedback comments: Sophie
 Going through report second time for English and sentence-constructions: Edwin
 Combining report and making everything the same: Edwin

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Table of Figures
Figure 1: Sony Group Organizational Chart. (Sony Corporation, 2010-e) 6
Figure 2: Governance Structure. (Sony Corporation, 2010-e) 7
Figure 3: Disassembled Sony PSP. (Talic, 2010) 9
Figure 4: PSP in hand (Marianna, 2005) 10
Figure 5: Value Chain. (Porter, 1985) 12
Figure 6: Disassembled PSP. (Talic, 2010) 13
Figure 7: Value Map 17
Figure 8: PSP tryout stand in retail stores. (Kennedy, 2005) 19
Figure 9: Basic Structure of the Supply Chain. (Sony Corporation, 2010-l) 22
Figure 10: Supplier selection process. (Sony Corporation, 2010-c) 23
Figure 11: Sony retail store locations. (Sony Style, 2010) 27
Figure 12: Sony store. (Sony Style, 2010) 28
Figure 13: Where does the money go? (U.S. Departement of Labor, 2009) 30
Figure 14: Annual Gross and Disposable Income (Euromonitor, 2010) 31
Figure 15: Annual Gross and Disposable Income (Euromonitor, 2010) 31
Figure 16: Economic Projection. (FOMC, 2009) 31
Figure 17: Consumer data. (Euromonitor, 2010) 32
Figure 18: Unemployment numbers. (Klemmer, 2010) 33
Figure 19: How Americans Shop. (Visual Economics, 2010) 34
Figure 20: Paid vacation and paid holidays. (Mark, 2010) 35
Figure 21: National Health Spending. (Rampell, 2009) 35
Figure 22: Gamers from different Segments. (Hanlon, 2006) 37
Figure 23: Trend map. (Ries, 2010) 38
Figure 24: Smartphone growth. (Brown, 2010) 40
Figure 25: Mobile Page view Observations. (Wee, 2010) 41
Figure 26: Smartphone sales comparison. (Tudor & Pettey, 2010) 41
Figure 27: US Portable Game Software by Revenue. (Farago, 2010) 43
Figure 28: Firemint’s Real Racing HD. (Firemint, 2010) 47

Appendixes
Appendix A: Hierarchical Value Map
Appendix B:Step 1: PSP Innovation
Appendix C: Interviews
Appendix D: STEP Diagram

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Introduction

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1.1 Company Background

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Figure 1: Sony Group Organizational Chart. (Sony Corporation, 2010-e)

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Figure 2: Governance Structure. (Sony Corporation, 2010-e)

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3) Difficult for competitors to imitate (A core competence should be "competitively unique": In

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Design for Assembly

Figure 3: Disassembled Sony PSP. (Talic, 2010)

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Design for ergonomics

Figure 4: PSP in hand (Marianna, 2005)

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Figure 5: Value Chain. (Porter, 1985)

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Figure 7: Value Map

How does the Sony PSP address these values?

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Connected with society:

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Figure 8: PSP tryout stand in retail stores. (Kennedy, 2005)

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7. Norms, Roles and Social Networks:

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The STEP Diagram can be found in Appendix D.

Figure 9: Basic Structure of the Supply Chain. (Sony Corporation, 2010-l)

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Figure 10: Supplier selection process. (Sony Corporation, 2010-c)

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Industry Rivals of the PSP:

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Figure 11: Sony retail store locations. (Sony Style, 2010)

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Figure 12: Sony store. (Sony Style, 2010)

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Figure 14: Annual Gross and Disposable Income (Euromonitor, 2010)

Figure 15: Annual Gross and Disposable Income (Euromonitor, 2010)

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This behavior can be confirmed by the pattern shown in payment methods.

Figure 17: Consumer data. (Euromonitor, 2010)

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Figure 18: Unemployment numbers. (Klemmer, 2010)

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Lifestyle (the American dream)

Figure 19: How Americans Shop. (Visual Economics, 2010)

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Figure 20: Paid vacation and paid holidays. (Mark, 2010)