The Sony Corporation is a Japanese conglomerate, focusing on sectors such as electronics, media, and entertainment. Their Playstation games consoles are produced by their Sony Computer Entertainment division.
In 2005, Sony's position as the dominant player in the video games industry looked assured. Having led the market with its two previous systems, the Playstation, and the Playstation 2, they were attempting to continue their success with the Playstation 3 (PS3). This system looked set to compete against the upcoming Xbox 360, and the Wii, consoles developed by Microsoft and Nintendo respectively.
The games industry: generation cycles
Competition in the games console industry is intriguing because games consoles are released in ‘generations', which is to say in recent years competing consoles have been released within a year of each other, then have had a lifespan of at least three years before being succeeded by a new generation. Figure 1 below shows the progression of the previous few console cycles. The specification of a console is almost unchangeable; small changes like the amount of game save storage are possible, but increasing processor speed or graphics capability is not possible, because it could lead to incompatibilities. However, small changes such as using a cheaper version of a processor with the same specifications are possible, and are a way for the manufacturers to reduce cost over the generation.
[...] However, selling at a loss is not uncommon in the early period of a games console's life cycle; the PS3's components price is expected to drop to $320 after 3 years. On the other hand, the materials cost for the Xbox 360 was estimated to be $470 at launch, compared with its launch RRP of $399. Yet it is the Wii which has the upper hand over its competitors at launch. With its components calculated at costing only $158, it is the only console from this generation to make its manufacturer a profit at launch, having an RRP of $ But how can they do this? [...]
[...] Lynch, R. (2006). Corporate Strategy. Harlow, New York: Financial Times/Prentice Hall. Porter, M. (2004). Competitive Strategy; Techniques for Analysing Industries and Competitors. New York, London: Free Press. Case References The Economist. (2008). Business: Play on; Video games. Vol Issue 8611. http://qsf5.com/2008/12/30/exclusives-watch-2008-final/ 30th December 2008, Accessed 5th January 2009 Ofek, E., Sarvary, M. (2003). Marketing, and the Success of Next- Generation Products. Marketing Science. Vol No pp. [...]
[...] Putting this analysis in the context of broader life cycle theory, it appears that the games console industry may actually be closer to “Alternate Model”, published in the Harvard Business Review (Vol Issue 10, p93). This is because the Alternate Model deals with two industries; an emerging industry becoming dominant over an established industry. This is much like how a new generation of consoles becomes a company's in Boston Consulting Group's growth-share matrix (Lynch 131), whereas the old generation of consoles goes into the decline stage, and would become the “cash cow”. [...]
[...] In wider terms, this case is also relevant to other situations where the product specification cannot be changed after release. This is especially applicable to technology, e.g. the recent Blu-ray and HD-DVD format war. Both products could have small upgrades over time, e.g. having the possibility of better interactive content. However, any upgrades to their specifications could not go past a point where the first models of Blu-ray or HD-DVD players could not read the new specification discs. Bibliography & References Bibliography Angwin, D., Cummings, C., and Smith, C. [...]
[...] 355-370 http://www.guardian.co.uk/technology/2008/jan/31/games.technology1 Charles Arthur, 31st January 2008, Accessed 5th January 2009 http://www.guardian.co.uk/technology/blog/2006/feb/19/merrilllynchp Jack Schofield, 19th February 2006, Accessed 5th January 2009 http://www.reuters.com/article/technologyNews/idUSTRE5050GJ20090106 Jennifer Martinez, 5th January 2009, Accessed 5th January 2009 http://www.guardian.co.uk/technology/2007/feb/01/games.guardianweeklytechnol ogysection2 Steve Boxer, 1st February 2007, Accessed 6th January 2009 http://www.tnsglobal.com/news/news-185D8B66AE3F44C3B60E79E03A469E24.aspx 24th April 2008, Accessed 6th January 2009 Daisuke Wakabayashi. (2008). Hope Fades for PS3 as a Comeback Player. Wall Street Journal. 29th December 2008. Hiroko Tabuchi. (2008). Sony, Microsoft Bullish on Game Systems. Wall Street Journal. 10th October 2008 http://www.engadget.com/2006/12/15/wii-manufacturing-costs-ring-up-to-just- 158/ Darren Murph. 15th December 2006, Accessed 7th January 2009. http://www.businessweek.com/technology/content/nov2005/tc20051122_410710.htm Arik Hesseldahl. 22nd November 2005. Accessed 7th January. 2005-2006 Source: retail estimates of console purchases by [...]
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