BASM 580A – Responding to the Wii Case

Analysis and Recommendations

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

November 15, 2010

 Responding to the Wii Case
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• In the short term, Sony should leverage the performance of its consoles while
delivering interactive games that appeal to a broader demographic. Sony should Resolution
also differentiate by creating network externalities via online gaming capabilities.
• In the longer term, Sony should utilize its technological superiority to establish
leadership position in other media delivery channels
• Sony needs to establish a strategy in response to Nintendo’s recent success and
ensure its viability in the long term within the video gaming industry
• Wii’s innovative use of wireless motion-sensing controllers changed the way Complication
customers interacted with games – the intuitive nature attracted non-traditional
customer segments
• Wii is not only generating positive operating margins (59.8% vs. Sony -9.7%) but
also outselling Sony in volume (2:1 ratio), beating it in every month since August
2008 except one
Situation
• Strong product introduced by Nintendo has been able to capture market share
from traditional and non-traditional players in the game console industry
Executive Summary
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”?

Increase Market Improve Operating

Share Margins

Increase Price Reduce Cost

First Mover’s Build Network
Lower Price
Advantage Externalities

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

Releasing a game console before the competition allows • Fast R&D

First Mover’s gamers to purchase the console first and gain traction for
• Market Timing Medium
Advantage network externalities. It essentially blocks consumers from
purchasing competitor consoles if they can only afford one. • Distribution

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

Gamers are the backbone of success. They are the • # of Game Titles / Quality
consumers of consoles and games. Developing a large
Gamer Buy-In • Console Performance High
network of gamers for the console is critical to becoming
the leader. • Console Usability / Interaction

Market share is only one factor to becoming the market • R&D

Reduced Console leader. It is important to also ensure operating margins are • Console Components
Low-Medium
Cost high to increase profits. Keeping the cost of each console • Developer Support
low 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
Industry Direction

First Mover’s  The ability to introduce console and technology to Sony Nintendo Microsoft
Advantage market first

Nintendo SonyMicrosoft
Online  Support of online community to play games with one
Community another and purchase software / games

Royalties / Nintendo
Microsoft
Sony
 The profits developers realize from selling their games
Profits
Game Developers

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

Development console

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.
Gamers

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

Microsoft Nintendo

Interactivity Controller Use

Profits

Sony Microsoft Nintendo

Pricing  Price of the console and/or accessories

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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
Industry Direction

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

Royalties / Nintendo
Microsoft Sony
 The profits developers realize from selling their games
Profits
Game Developers

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

Development console

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.
Gamers

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

Interactivity Controller Use

Profits

MicrosoftSony Nintendo
Pricing  Price of the console and/or accessories

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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

Male & Female
appeal to loyal core players
Wii
• Interactivity as a point of parity

• 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 games online Male

• Direct sales model reduces costs to

gamers and game developers

• Facilitate and improve interactivity of multiplayer

online gaming experience (beyond XBox)

• Online storage for games – potential source of

subscription revenue
Compete on Middle Ground

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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
bile and increased penetration provides
Mo ation
r additional channel for growth
integ 3D
an d en t
t ert a in m
en

As entertainment
platforms become
more integrated, Sony
Multi-
needs to leverage its
functional
OEM capabilities in home User interfaces in
other segments to fully entertainment gaming will
integrate the center change how users
Playstation console interact with other
media centers;
Interactive Sony needs to set
Gaming and the pace for
online network evolving user
interfaces

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