BASM 580A – Responding to the Wii Case

Analysis and Recommendations

Presented By:
Davin Luke, Jesse Goranson, Kelly Moss, Jorge Lobo, Kyler Tebbutt, Howe Gu

Responding to the Wii Case

Executive Summary

Responding to the Wii Case

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Historical Positioning Strategy
In recent dynastic cycles Sony has dominated the gaming console industry. However, with the introduction of the
Nintendo Wii, Sony’s competitive position has been dwarfed by its inability to penetrate non-traditional customer
segments.

Nintendo

Microsoft

Sega
Sony

NEC

Nintendo

Atari

Fairchild
Coleco

Casual Mixed Serious

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 Current Industry Assessment – Porter’s 5 Forces Framework
Although Sony has few competitors (Microsoft & Nintendo) due to high barriers-to-entry and startup costs, buyers
and suppliers (game developers) have high bargaining power and low switching costs – they can easily choose
between console systems that provide the most innovative attributes.

Supplier Entry Internal Buyer Substitutes

Power barriers rivalry Power

HIGH

MEDIUM

LOW

Hardware: Low High High High Low

Many suppliers R&D costs PS3 & XBOX Many (cheaper) Other living room
Low switching cost Network core player options entertainment:
Software: High Brand equity Wii causal player Low switching TV, PC & Movies
Developers chose Aligned developer & core player costs

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Problem Statement and Scope
The main problem facing Sony is that they are competing fiercely with Microsoft’s XBox for the serious gamers while
Nintendo Wii has also been stealing market share and opening new opportunities within the casual gamer segment.
External Internal
How can Sony regain its market leadership How can Sony improve operating margins by at
position for video game consoles by the next least 10% during the next “Dynastic Cycle”?
“Dynastic Cycle”?

Share Margins
Increase Market Improve Operating

Increase Price Reduce Cost

Advantage Externalities
Lower Price
First Mover’s Build Network

R&D

Online Community Game Developers Gamers

Console Hardware

Developer Support
Royalties / Profits Ease of Development # Game Titles Appeal
Distribution

Legend Serious Casual

Point of Differentiation –
Being Different from Competitor Performance Usability / Interactivity

Point of Parity – Technology / Innovation

At Least Match Competitor

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Key Levers of Success
Based on the success of video game consoles throughout history, there are a number of critical factors that
determine whether a console will be successful in the future. Sony needs to focus on these levers to drive
improvement.

Levers Description Success Drivers Impact

First Mover’s Releasing a game console before the competition allows Fast R&D Medium
Advantage gamers to purchase the console first and gain traction for Market Timing
network externalities. It essentially blocks consumers from Distribution

purchasing competitor consoles if they can only afford one.

Game Developer Winning the hearts of game developers will ensure a large Profit Incentives High
Buy-In selection of game titles and quality. Without great games, a Easy Development Interface
console will not succeed. Support

Gamer Buy-In Gamers are the backbone of success. They are the # of Game Titles / Quality High
consumers of consoles and games. Developing a large Console Performance

network of gamers for the console is critical to becoming the Console Usability / Interaction
leader.

Reduced Console Market share is only one factor to becoming the market R&D Low-Medium
Cost leader. It is important to also ensure operating margins are Console Components
high to increase profits. Keeping the cost of each console low Developer Support
improves margins. Distribution

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Current Positioning Strategy – Previous Generation
Sony is currently positioned to compete head-to-head with Xbox 360 on performance and home entertainment
features but is allowing Nintendo to compete on its own in the casual gamer segment with little competition.
Dimensions Description Positioning Strategy
Poor Average Good
First Mover’s §The ability to introduce console and technology to Sony Nintendo Microsoft
Advantage market first

Nintendo Sony Microsoft

Online §Support of online community to play games with one
Community another and purchase software / games
noi t ceri D yrt s udnI

Royalties / §The profits developers realize from selling their games

Nintendo
Microsoft
Sony

Profits

Ease of §The complexity of game development for a particular SonyNintendo Microsoft

Development console
sr e pol eve D e ma G

Quality & # of §The number of games for a console platform and the Nintendo Microsoft Sony
Game Titles quality of those games

Console §CPU, Graphics Performance, Hard Drive Space, Blue Nintendo Microsoft Sony
Performance Ray Features, etc.
sr e ma G

Usability / §Motion sensing (i.e. Wii), Intuitive Interface, Ease of Sony

Microsoft Nintendo

Interactivity Controller Use

Sony Microsoft Nintendo

Pricing §Price of the console and/or accessories
sti f or P

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Recommended Positioning Strategy
Sony should focus efforts on developing a robust online community to use network externalities as a competitive
advantage, develop broader interactive games that appeal to casual gamers, and compete less on performance
Dimensions Description Positioning Strategy
Poor Average Good
First Mover’s §The ability to introduce console and technology to Nintendo Microsoft Sony
Advantage market first

Nintendo Microsoft Sony

Online §Support of online community to play games with one
Community another and purchase software / games
noi t ceri D yrt s udnI

Royalties / §The profits developers realize from selling their games

Nintendo
Microsoft Sony
Profits

Ease of §The complexity of game development for a particular SonyNintendo Microsoft

Development console
sr e pol eve D e ma G

Quality & # of §The number of games for a console platform and the Nintendo Microsoft Sony
Game Titles quality of those games

Console §CPU, Graphics Performance, Hard Drive Space, Blue Nintendo Sony Microsoft
Performance Ray Features, etc.
sr e ma G

Usability / §Motion sensing (i.e. Wii), Intuitive Interface, Ease of Microsoft Sony Nintendo

Interactivity Controller Use

MicrosoftSony Nintendo
Pricing §Price of the console and/or accessories
sti f or P

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Implementation
Sony should focus on becoming the first mover with developing a robust online gaming community and expanding
its target customer. Technology is easily copied with each generation. However, like iTunes, it is difficult to copy a
model that focuses on creating value through network externalities.
Positioning Target a broader audience while maintaining
Casual player 6 to 95
appeal to loyal core players Male & Female

Interactivity as a point of parity Wii

Casual Games
PS4
Reduce marginal improvements of
console hardware to enable higher
operational margins

PS3, XBOX & Wii

Core player
Online Community Focus R&D to be the first movers 18 to 36
Allow purchasing and publishing of Male

games online

Direct sales model

reduces costs to
gamers and game
developers

Facilitate and improve interactivity of

multiplayer online gaming Compete on Middle Ground
experience (beyond XBox)

Online storage for games – potential

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Long term strategic positioning
To continue a leader in the gaming and home entertainment industry, Sony needs to leverage is existing successes
with other areas of core competencies to meet shifts in customer demand

Strong market trends of shift

towards 3D entertainment formats,
which Sony can capitalize on with
its technology in 3D televisions.
Rapid growth in mobile technology
and increased penetration provides
additional channel for growth

As entertainment
platforms become
more integrated, Sony
needs to leverage its
OEM capabilities in
User interfaces in
other segments to fully gaming will
integrate the
change how users
Playstation console
interact with other
media centers;
Sony needs to set
the pace for
evolving user
interfaces

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