Responding to the Wii? XXXXXXXXXX R E V : J A N U A R Y 4 , XXXXXXXXXX ________________________________________________________________________________________________________________ Professor Andrei...

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Responding to the Wii?
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R E V : J A N U A R Y 4 , XXXXXXXXXX
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Professor Andrei Hagiu prepared the original version of this case, “Microsoft Xbox: Changing the Game?” HBS No XXXXXXXXXXThis version was
prepared jointly by Professor Andrei Hagiu and Professor Hanna Ha aburda. This case was developed from published sources. HBS cases are
developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of
effective or ineffective management.

Copyright © 2009, 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call XXXXXXXXXX-
7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be
digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
A N D R E I H A G I U
H A N N A H A Ł A B U R D A
Responding to the Wii?

Kazuo Hirai, chief executive of Sony Computer Entertainment Inc. (SCEI), had just gotten off a
conference call with journalists. It was late August 2008, and the reporters were inquiring about
Afrika, a new safari videogame for Sony’s PlayStation 3 (PS3) console that allowed players to watch
wild animals and take virtual pictures. Hirai could not help feeling frustrated. Most of the
conversation—like many others with Sony outsiders in the past month—had revolved around two
questions: Was Afrika Sony’s answer to the casual games that were partly responsible for the
unaway success of rival Nintendo’s Wii videogame console? And more generally, how was Sony
planning to respond to the Wii, which was leading Sony’s PS3 and Microsoft’s Xbox 360 consoles in
sales?1, a
To Hirai, the notion that anyone would view Sony as needing to respond in the battle for
videogame console supremacy was profoundly disconcerting. Ever since Sony’s entry in 1994 with
the original PlayStation and through two generations of console hardware, Sony had dominated the
videogame industry and largely defined its course. But the tables had turned dramatically with the
cu
ent generation. Although the Wii was technologically far less advanced than PS3 and Xbox 360,2
the Wii’s ease of use, innovative motion-sensitive controller, and simple but fun games had made the
console a hit with all demographics: 9-year-olds to 65-year-olds, males and females. As a result,
Nintendo had stolen a march on its two larger rivals by appealing to people who were traditionally
not avid videogame users. Microsoft’s and Sony’s more powerful machines remained targeted at the
traditional, “core gamer” audience: 18- to 34-year-old males.3
Formerly the head of Sony’s U.S. game operations, Hirai had replaced Ken Kutaragi at the helm of
SCEI in April 2007 after (and according to some, because of) half a year of disappointing sales for
PS3.4 Kutaragi was widely known as the “father” of the PlayStation franchise, which he had led to 10
years of uninte
upted supremacy. Hirai was determined to restore that supremacy, in the cu
ent
generation or the next. He knew that whether or not he publicly defined SCEI’s strategy as a response
to the Wii, he had to find a way for his company to deal with the new order of the videogame
industry that Nintendo had created. In seeking to do so, Hirai might find guidance in the history of
the industry, which had been marked by rapid and frequent changes of fortune.

a 32.4 million units for the Wii vs. 15.5 million and 20.9 million units for the PS3 and Xbox 360, respectively.
For the exclusive use of M. Yonatan, 2022.
This document is authorized for use only by Milkias Yonatan in MGMT 430 Spring 2022: Full taught by David Sirmon, University of Washington from Mar 2022 to Sep 2022.
Mohamed Mohamud
Mohamed Mohamud
XXXXXXXXXXResponding to the Wii?
2
Market Birth, Collapse, and Rebirthb
The videogame industry got off to an uncertain start in 1972, when television maker Magnavox
introduced Odyssey, the first home videogame console. Priced at $100 (the equivalent of $516 in 2008
dollars),c Odyssey needed a television screen to project its very limited action. The system came with
12 games, including versions of tennis and ping pong, each on a printed circuit board.5 However,
partly due to some uninspired marketing and distribution decisions, Odyssey’s appeal proved
limited. Magnavox sold more than 100,000 game systems by year-end, but sales quickly declined and
Odyssey was pulled from the market.6
Enter Atari
Around the same time, a young entrepreneur named Nolan Bushnell was developing arcade
games with the use of then-new microprocessor technology.7 In 1972, the company he started, Atari,
launched its first hit game—an arcade version of ping pong.8 In Pong, two players batted a ball of
light back and forth between on-screen paddles. The game instructions were simple: “Avoid missing
all for high score.”9 Pong was an immediate success: 8,500 arcade consoles were sold in the first
year.10
Bushnell and Atari then went on to create the home videogame industry. In 1974, the company
developed a home version of Pong. While most retailers were wary of the videogame market after
the failure of Odyssey, Sears took the plunge in 1975, and by the end of the year it had sold more than
150,000 Pong systems for $100 each ($400 in 2008 dollars).11 At the same time, thanks to a chip
developed by General Instruments, dozens of toy makers were able to introduce Pong clones. By
1977, almost 75 types of clones were available, each selling for a few dollars.12
All of these early game systems came with one or several games hardwired in their circuits; they
did not allow consumers to add other games.13 This changed in 1976 when Fairchild Camera
introduced Channel F, the first videogame console that could play multiple games stored on
interchangeable cartridges. Fairchild sold each cartridge for $19.95 and the Channel F console for
$170 ($644 in 2008 dollars).
In 1977, Atari introduced the Video Computer System (VCS) 2600 with games on interchangeable
cartridges and a novel peripheral—a joystick.14 With consoles and games now separated, Atari (and
its competitors) had more flexibility in how they priced their products. Computer makers at the time
were giving away software to sell more hardware, from which they earned their profits. Atari turned
this model upside down. The VCS retailed $199 ($708 in 2008 dollars), which was just a small margin
over the console’s manufacturing cost. Each cartridge cost less than $10 to manufacture and sold for
$30.15
The Atari VCS did not sell particularly well, however, until Atari licensed the popular arcade
game Space Invaders in 1980. One million copies of the game were sold during its first 18 months on
the market, while Atari sold over 15 million VCS systems between 1979 and XXXXXXXXXXBy 1980, Atari
commanded an 80% share of the videogame market.16 According to an Atari history website,
“designers had unknowingly created a console whose hidden potential was quickly discovered by

This case focuses on the market for home videogames played on consoles; it does not cover arcade games and videogames
played on handheld devices.
c All conversions to 2008 dollars were calculated using the Federal Reserve Bank of Minneapolis’s “CPI Calculator,” available
at http:
www.minneapolisfed.org/.
For the exclusive use of M. Yonatan, 2022.
This document is authorized for use only by Milkias Yonatan in MGMT 430 Spring 2022: Full taught by David Sirmon, University of Washington from Mar 2022 to Sep 2022.
Responding to the Wii? XXXXXXXXXX
3
programmers who created games far outperforming what the console was originally conceived to
do.”17
One group of such designers was Activision, founded in 1979 by four programmers18 who had left
Atari. Activision was an instant success, which stimulated further defections of Atari employees to
independent game-design houses.
Atari perceived these first independent developers as a threat to its business. It sued Activision
for $20 million, claiming unfair competition and conspiracy to appropriate trade secrets.19
Eventually, Atari had to agree to allow any independent game designer to market games for the
VCS 2600, on the condition that Atari receive a fixed royalty for each cartridge sold.20 Since Atari had
not foreseen this a
angement before VCS 2600’s launch, it had not designed the console with the
technological capability to lock out unwanted developers. Therefore, it had very little success
enforcing the payment of royalties. Most independent game makers developed their games without
obtaining permission from Atari—or paying anything to Atari. Soon, more than 100 independent
developers were marketing more than 1,000 games of highly variable quality for the Atari system.21
Too Much of a Good Thing—Prices and Volumes Crater
The quick growth of the home videogame market ended a
uptly in 1983. After reaching a peak in
1982, the industry lost 97% of its annual sales volume in three years. Many blamed the industry’s
crash on the proliferation of cheap and uninspired game software.22
Independent software houses collapsed into bankruptcy like dominoes, unloading their unsold
game cartridges with retail prices as low as 99¢, lowering demand and depressing prices for all other
games in the process. According to one source, of more than 130 significant videogame software
firms in 1982, only five or six survived the crash.23 One of the most notorious examples of the
inventory nightmare associated with the market crash involved an Atari game based on the movie
ET:
Answered 1 days AfterApr 05, 2022

Solution

Jose answered on Apr 07 2022
11 Votes
Management
Strategic Management
Student Name
Student Code
Date
Abstract
Companies always face competition from the national and international players. It is the duty of the business organizations to identify effective strategies and methods for managing the competition in a productive way (Jacob et al 2010). While analysing the case study we can understand that the CEO of Sony group is facing pressure from the Nintendo Wii, and Microsoft Xbox 360. In this research paper we are analysing the strategic problems faced by the company and we are also trying to identify the solutions that helps the company for improving the performance.

Strategic Issue
From the case study we can understand that the Sony entered in to video console market in the year of 1995. The new product play station helped the company to became the market leader and the most of the customers are satisfied the services provided by the company. While analysing the case study we can understand that the market is dominated by three major game consoles. Microsoft's Xbox, Sony's Play Station 3, and Nintendo's Wii are the three. Because of the large profits this market has historically delivered to gaming console manufacturers, competition among these three competitors has been quite fierce throughout the years. When we examine the industry's evolution, we can observe that it has had high peaks and falls. The CEO of Sony Computer Entertainment Inc. was under pressure as a result of Sony's PlayStation 3 game, which was losing market share to the Nintendo Wii. Hirai had a critical commercial dilemma in determining how Sony should respond to the Nintendo Wii, which is more family-oriented, interactive, and less expensive. When examined from the perspective of industry analysis, the video game console market was not appealing.

Root Cause
1. Root Cause One: The industry is cyclical
2. Root Cause Two: Technological advancement is the key
3. Root Cause Three: Versatility is also important
The major problem faced by the company Sony is that they do not have the advanced technology to manage the competition from the major players. If we are not technically good it really affects the business.
5 Force Analysis
Five force analysis always helps for understanding the competitive intensity and attractiveness of the market. Now we can analyse the five forces video game console industry.
Force One: New Entrants
Conclusion: The market has only provided the opportunity for the new systems, for entering in to the market the companies have to give importance to advanced technology. The company also required large installed base for managing the third-party publishers (Jaison et al 2011).
Logic: It is not easy to enter in to video game console industry and the companies required huge fund and capabilities.
Force Two: Suppliers Bargaining Powe
Conclusion: Bargaining power of the supplier is low and companies required best quality components for developing the games.
Logic: There exist a tight competition between the electronic manufactures. The companies are searching for best...
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