Lorenzo Pellizzari | Ludovic Beauvois | Soong Kah Weng

Video Gaming Industry

Fit external position + internal capability 1

FIT EXTERNAL POSITION + INTERNAL CAPABILITY (5 STEPS)

Industry profitability

Key Success Factors

Implication of KSFs

Appraise resources

and competence

s

Strategy implications

1. INDUSTRY PROFITABILITY

1. INDUSTRY PROFITABILITY Not recession proof but certainly recession

resistant Held up better than other industry The whole industry still make an overall

operating profit

1. INDUSTRY PROFITABILITY Sony Playstation 3

Launch price $500(20GB ver.) - $600(60GB ver.) Cost $800 - $840 Loss of $240 - $300 per units sold Sony games division posted a $1.97b loss for

year ended Mar 07 Only started to become profitable in Q3 2008

1. INDUSTRY PROFITABILITY Positive drivers for profitability

Lower component costs (eg. Blu-ray disc diodes cheaper to manufacture)

Falling hardware cost (eg. Decreasing cost of manufacturing cell microprocessors)

Operational efficiencies Increase games library

1. INDUSTRY PROFITABILITY Negative drivers for profitability

Decreasing production due to decreasing sales, cannot achieve scale economies

State of global economy, increasing unemployment affects discretionary spending

Rise in prices of raw materials and fuel Lack of new game titles Increasing substitutes (eg. Ipad, Smartphones) Weakening of US$ against Yen which will affects Sony and

Nintendo, 73% of the market.

2. KEY SUCCESS FACTORS Visionary Leadership

Management creates an environment that encourage experimentation and innovation

Religious Zealous to Innovation Ability to constantly create products before other

companies could conceptualize them. (eg. First to use 32bit 3D graphics on PS1)

Innovative culture

2. KEY SUCCESS FACTORS Human Capital

Especially the top-notch engineers in the R&D department

Able to constantly attract top talents since it is a well-known MNC

Competence in utilizing innovation Incorporate Blu-ray technology into PS3 Make use of core competence in miniature technology

to create cell-microprocessors for PS3

Brand Management

3. IMPLICATION OF KSFS New product development capability

One of the first to come up with PS1 and PS2 for their respective generations and dominates it

Brand strength Well known for its innovative and high quality

electronics products As of April 2011, the PlayStation brand is the

"most followed" brand on Facebook, with over 11 million fans and followers

4. APPRAISE RESOURCE AND COMPETENCES Resources

Sony Playstation has relative strength in Finance Technology Brands

Capabilities Sony Playstation has relative strength in

Product development Engineering R&D Marketing & Sales

ASSESS CAPABILITIES THROUGH THE VALUE CHAIN Inbound logistics:

Threshold: Complex inbound logistics to serve its worldwide plants

Operations: Distinctive: linked diversification through several SBUs Weaknesses: Slow to respond to new market demands

(eg: they enter tablets war only now)

Outbound logistics: Distinctive:

large network of distribution IT systems to track order, products and payments

ASSESS CAPABILITIES THROUGH THE VALUE CHAIN Marketing:

Distinctive: historical expertise in marketing Weaknesses: World’s Most Valuable Brands ranking:

94th in 2010 whereas 21th in 2001

Services: Threshold: Sony Centers, eSupport, call centers, etc.

Firm infrastructure Distinctive: synergy management between SBUs thanks to a large base of worldwide manufacturing

plants

ASSESS CAPABILITIES THROUGH THE VALUE CHAIN Human resource management:

Threshold: awards, incentives, particular training programs

Technology: Distinctive:

Historical culture of innovation Strong R&D Tacit knowledge

Procurement Distinctive: High bargaining power Weaknesses: Dependance to key components

VRIN?

5. STRATEGIC IMPLICATIONS Principal Strength

Strong financial support Excellent R&D Engineers constantly come up with new innovative

products and complimentary (eg. Playstation move) Brand associated with innovation and quality

Key weaknesses High initial manufacturing costs due to high innovation

and technologies involved Weak sales and marketing program for PS3

5. STRATEGIC IMPLICATIONS Primary Implications and Future Emphasis

Compete on innovation, quality and brand instead of cost Developing more exclusive games meant for PS3 that

suits a larger market taste Developing more complementary to enhance gaming

experience Additional fund to improve sales and marketing

program to enhance sales and pave the way for future PS

Creating strategic intent for the future 2

PESTEL Scenario analysis

Strategic customer

KSFs

Strategic Capabilitie

sMobility Barriers

Vision

Acquire, Develop or Incubate

PESTEL Political

Increasing views that video gaming as an act of anti-social, causing violent behaviours, increasing aggression and having negative impact on the youths

Economical Rapidly emerging market such as China, India and Brazil

might provides a greater potential for higher sales.

PESTEL Social

Trends towards social networking, social gaming Market will have higher expectation out of games

and consoles performances Average age of gamers slowly rising

PESTEL Technological

Advances in IT would require more functions, capabilities, higher performances out of the gaming console.

Shift towards a powerful AIO entertainment utility console

Environment Emphasis on using environment friendly materials and

production process. Minimizing environmental impact The needs for energy efficiency

PESTEL Legal

Increase in regulatory protecting the young from violent games.

Increase in protection against intellectual property rights so that “copycat games” will be minimized.

Regulations on stricter privacy (eg. PlayStation Network Flaws)

SCENARIO ANALYSIS Key Drivers

2 main drivers: Convergence towards cloud gaming VS games that can only be played

on specified platform or console Consumers’ preference towards expensive-to-develop complex games

(need for performing processors) VS Consumers’ preference towards cheap-to-develop social games (or applications, social networks’ games, etc.)

SCENARIO ANALYSIS – DRIVE MY CAR Towards a digital media/content

business Leverage on its current technology in PlayStation

Network Expand the function of its console as an AIO

multimedia device Make full use of advancing internet speed Towards a disc-less environment Large developers with hardcore games. Not only able to buy digital games for playing, but also

digital music and videos distribution

SCENARIO ANALYSIS – ACROSS THE UNIVERSE Towards an integrated gaming network

At home, play games, listen music, watch movie through the console

Outside, continue from where you left and do the same through portable console

At office, through the web version Big number of developers with non-complex

creative games Ensure maximum exposure and gaming experience

no matter where the person is.

STRATEGIC CUSTOMER Decision-making power still lies with

The end-users and platform owners (eg. Apple Store, Playstation Network)

Video gaming consoles are beginning to perform similarly to one another The end-users will have to decide based on the

exclusive games offered by each respective company.

The functionalities of the consoles The overall value gained from using the consoles

KEY SUCCESS FACTORS Future KSFs

Innovation that offers values to end-users In terms of convenience, experience, performance Match with the requirements of the platforms

Future market leaders should be offering: High performance and capabilities integrated consoles Compact and energy saving consoles Accessibility and large selection of digital games,

music and video files Able to integrate with portable gaming console and

the internet

STRATEGIC GROUP AND CAPABILITIESJustification

for price premium

Arcade

Portable

Video Gaming Console

Personal Computer

Gaming Development

STRATEGIC GROUP AND GROWTH POTENTIAL LESS / MORE

Justification for price premium

Arcade

Portable

Video Gaming Console

Personal Computer

Gaming Development

STRATEGIC GROUP AND MOBILITY BARRIERS

Justification for price premium

Video Gaming Console

Gaming Development

Strategic barrier?•Require huge amount of technological resources and innovation.•Need to have games that can support the consoles.

Strategic barrier?•Require the use of miniature technology to produce compact device.•Require to come out with a modified gaming system that works with the arcade

Choosing Strategic Method 3

VISION

“ to become a leading global provider of networked consumer electronics, entertainment and services ”

How? Strengthen each pillars of core

business Innovation for further growth

DEVELOP INTERNALLY, M&A OR ALLY?

Sony uses the 3 methods to grow: Internal developments M&A Strategic alliances

PAST STRATEGIC ALLIANCES Development of PlayStation was aided by

alliances forged between hardware designers and creative game-software developers

Other alliances:

PAST ACQUISITIONS Sony Corporation has made 99 acquisitions

while taking stakes at 59 companies. The company has 90 divestitures since 1983.

Sony's biggest acquisition to date is that of Columbia Pictures, valued at U$3.4 billion at the time of purchase.

DEVELOP INTERNALLY Internal Development: Focus and

Integrate PlayStation console from the Gaming Division PlayStation network from the Software Division Movies from Sony Pictures Entertainment and its

subsidiary Columbia Pictures Music from Sony BMG Music Entertainment Games from Sony Computer Entertainment

To form a Digital Multimedia Console which can target to a larger market

ACQUIRE

Towards a integrated gaming network,Cloud Gaming No discs, no high end hardware, play same game on PC, Mac or TV

OnLive acquisition? Current value: $1.8 billion

ALLIANCE WITH GOOGLE Since 20th May 2010

to provide a range of new and rich entertainment experiences that combine Google's open-source Android platform with Sony's expertise in technology and product design.

First step of this collaboration:

Strategy Development 4

EXTERNALLY IMPOSED STRATEGY Government

Video Games to be labeled or censored

Disks to be regional-specified so that only consoles that are manufactured to be sold in that particular region can play it

Tighter database security and control after the Sony Playstation Network security flaws

LOGICAL INCREMENTALISM Sony Playstation and Developers

Developers including Valve found the PS3 difficult to program for Activision and Blizzard CEO criticized on the PS3 high development costs

and inferior attach rate

Sony moves to make the system more developer-friendly Resulted in Valve developing Portal 2 for PS3 system which would help to

make it the best console version on the market

Gabe Newell of Valve said "The PS3 is a total disaster on so many levels, I think it's really clear that Sony lost track of what customers and what developers wanted”

Doug Lombardi VP of Marketing for Valve stated Valve's position, "Until we have the ability to get a PS3 team together, until we find the people who want to come to Valve or who are at Valve who want to work on that, I don't really see us moving to that platform".

VISIONARY LEADERSHIP AND STRATEGIC PLANNINGVisionary leadership:

Especially in the early days with Marita (co-founder):

Pocket-sized radioWalkman

Strategic planningMarita: «There are three creativities: creativity in technology, in product planning, and in marketing. To have any one of these without the others is self defeating in business»

RESSOURCE ALLOCATION RULES Inside merger

Sony’s Electronics and Game Businesses merged into 2 new strong entities: Consumer products & devices Group

For traditional hardwareaim to strengthen coordination of development and

strategy planning between final products and their key components

Networked products & services GroupFor new network differentiationMaximizing coordination and integration between

Playstation and consumer electronics businesses

The EndQ&A