Competitive Structure of the Videogame Industry in the US and the Impacts of Each of the Forces
The video game industry also known as the interactive entertainment is a sector of the economy that is owed with the responsibility of developing, marketing and selling of video games. There are dozen of jobs that are encompassed in this sector. This therefore means that a lot of people rely on the industry for their livelihood. Many consider the sector to have been born in the seventies and since then, the industry has grown rapidly from a concentration in markets to being focused into the mainstream. According to a report presented in 2007, the US video game industry is asserted to have made sales of 9.5 billion US dollars and in 11.7 billion dollars in the following financial year (Inc Facts on File, 2005). The role that video gaming has played in the invention of personal computers can not be overlooked. It is as a result of innovation and improvement of the previous video games that devices such as sound cards, 3D graphic accelerators and graphic cards originated. UNIX for instance was as a result of the development of a program that was intended to play space games.
The coming into the market of Sony play station 2 and Microsoft Xbox has given a new definition to the type of competition existing in the video game industry. This introduction has seen the video game industry grow very fast and even outdoing Hollywood movies. The two introductions has led to the fourth major shift in the video game industry and the battle is currently being focused on two major firms, Microsoft and Sony, neither of these two firms was in the industry only until recently. The only favoring factor for the two firms is the top notch brands that they posses. They are also being favored by the expertise they posses in marketing, plenty of resources and they are all geared towards taking control of the industry, something that will be fascinating to watch (Lampel, Shamsie & Lant, 2006).
In the first days when the video game was introduced into the console industry, consoles were the single game machines which replicated video games that were common at the time such as pong. However, in 1976, the 2600 Atari was launched. This was the first console that constituted removable cartridges. Colecos Coleco Vision and Mattels intellivision gave a major boost to this invention leading to generating interests that took over by storm the market for a number of days. However, the emergence of arcade technology was accompanied by rapid technological improvements that led to making the console technology decline and wane.
The arcade technology was in operation till Nintendo entertainment system (NES) introduced Nintendo in 1985. A number of innovations were brought into the industry by the firm, such as the replacement of the joystick by the use of a pad controller. This led to the production of a number of arcade games. After these innovations, the entity priced the consoles aggressively with the hope of making high returns from their sales. As a result, NES led to the video game market to rapidly grow and those interested with the development of games especially those for homes were highly motivated to do the same.
The capability of the graphics and the speed were the major factors that led to competition among the factors. Manufacturers would tout latest CPUs with bits ranging from 8-16 and include other parameters such as sounds and colors in their games (Grabber, 2010). Competition would also be seen in video games that were not produced by the manufacturers of the console. This is what led to Mario brothers coming into the limelight. This stage of competitions had consumers who were generally children and sometimes gamers.
The United States home video gaming industry has evidenced tremendous development over the last decade thus becoming one of the media technologies that has posed high competition on the motion pictures industries (Inc Facts on File, 2005). The 1999 financial year saw a case where the sales of the video games equaled the sales of motion pictures with a value of $ 7.5 billion and this industry has constantly been facing an upward growth and by 2002, it was estimated that the industry had total revenue of $13 billion.
In relation to the role that this industry is playing in the burgeon market, the industry has become one core factor in defining the American economic grounds especially in the media sector. This is due to the skyrocketing of the use of video games by the American population. The time that Americans are spending on video games has risen adversely and this rise is expected to continue at the expense of some ancient Medias (Lampel, Shamsie & Lant, 2006). From this, it is indisputable that the sector I very profitable. The sector has bypassed one of the greatest returns making entity, the movie industry. This therefore means that for those in the industry, the returns that they are making are very favorable.
Environmental Trends Driving Change, Key Success Factors in the Industry and What Can Be Done By Firms
The dawn of 1997 saw the video game sector take a different direction; the market was slowing as a result of the penetration of the market by console games. Parallel to this slow down, digital technologies like MP3 music, digitalized photography, connectivity of the internet and DVD movies became very popular. The multi games that were common in computers were enabled by the internet connectivity. Similarly, the PlayStation 2 and the Xbox were boosted.
These technologies became very popular; nonetheless, they led to a drastic fall in price as a result of economies of scale and technology development. As a result, the developers of the game console have been forced to come up with a brand potential path to enhance their growth. This was to make the consoles take control of consumers’ needs of entertainment, video games, music and movies. From this unfolding, it is apparent that in a short run, a single platform shall be differentiated from the other by the same factors that were in the previous competition stages i.e. the strengths in marketing and distribution.
However, from a different perspective, in the long run, it is apparent that a number of differentiating aspects shall arise. Some of these factors shall be total number of compelling and interesting internet extensions to be directed to the standard console like the episode games that involve the download of new scenes from the internet and multiplayer game. There shall also be number of compelling none game applications like the software which will manage various devices and technologies present and those to be developed in the future.
From another perspective, the use of technical features as differentiating units in a stage is not very significant. This can be evidenced by the use of Sony to refer to the 128 bit that is found in the heart of its PlayStation 2 as an “Emotion Engine”, Inc Facts on File (2005), so as to get rid of technical terms and attract consumers who are wary of technical jargons and terminologies. Apart from taking this major step, it is important that the console manufacturers pay attention to the user experience, they should keep it simple and to the point. They should also be reliable and fast, this should not be compared and related to overloaded personal computers. This shall avoid mass movement of tired and bored consumers to rival firms such as Nintendo which of ate is developing pure gaming gadgets like the GameCube which works without a DVD player.
This is a competition base that is asserted to make the fourth completion stage. The past experiences where consoles would be employed in playing video games are gone. As Microsoft and Sony become increasingly market oriented, they are targeting children and gamers and as a result this will tend to increase the interoperability and functionalities making them more significant. It is the hope of these two entities that the future shall be encountered with consumers who are interested with owning only a single device in their homes from which they can access all their digital entertainment contents. The two entities i.e. Microsoft and Sony are capitalizing on the game console to filtrate all the living rooms of households with the intentions of anticipating for that day when average clients will be ready to store all their music files as MP3s and download other files from the internet.
How the Forces Have Changed since the 70’s and Opportunities and Challenges in the Industry
The competitive environment that is presented in the video game industry has been encountered by a numerous evolutions which go back to the 70s. The console that was invented at this period was competent and sufficient enough for the development of simple and single operative devices. This operation was in production until the mid 80s when Nintendo came up with new inventions that led to the revolution of the entire industry. The seventy’s was a period that was faced by a large production of consoles. The consoles were produced in large scale and they had very high profit returns thus being the ones that represented the video game mainstream industry. This is the period when three core manufacturers; Microsoft, Nintendo and Sony were the major players in the industry since Sega had just withdrawn from it.
According to Grabber (2010), Nintendo created a platform as a leader in loss making to the 1990s. Sony capitalized on its strengths especially its marketing capabilities in the production of mass consoles. Today’s market battle is very ambitious. The console developers are attempting to come up with devices that will be able to satisfy the needs of every household. As Lampel, Shamsie & Lant (2006) note, the current market will not be defined by the technical capabilities or its market sheer abilities, the winner of the present market shall be defined by an entity’s ability to come up with a clear third party program, content and hardware that embraces its platform.
The video game industry faces massive production and growth, opportunities and growth. Despite the market having evolved, the diverse dynamic that was created by non- interoperability has continued to influence the behaviors that are exhibited by entities in the industry. By viewing the industry from a segment perspective, either horizontal or vertical, it is essential to understand who the leaders are, the competitive ground presented and the changes that the industry is being encountered with. Whereas some divisions may be considered competitive and vibrant some are very concentrated especially in the handheld division of video games.
A competitive market is created by networks and this leads to the creation of an oligopolistic market where the room created is only for a few firms with the capabilities to dictate the market. A market in which terms are dictated by the system and thus forcing those that can not keep up with the pace that has been created. Though the pressure is considered to result to two effects, the worst one is that which leads to locking other potential individuals who may be armed with innovation capabilities. The pressure has also presented the leading firms to abuse the market power it has. This is often manifested in poor quality products being produced and unreasonable contract offers and. At times, the prices are very unfavorable to clients especially those in the economic level.