How and ultimately why did Microsoft enter the games console market?

A video game console is an electronic device designed to play video games. It is primarily a home entertainment device and an extension of games to the electronic platform. The output is usually a TV or a Monitor.  The game console market came into existence about 6 decades ago and it is a multi billion dollar market today.

The game console market has been growing rapidly since the 1990’s and today has major world corporations competing for market share. The major competitors in the game console market in the 90’s were Sega Dreamcast, Playstation2 and Nintendo’s 64.  These players competed in the market by creating technology that was better than the other to increase their market share. During the 90’s Sony was the dominant player in this market with very successful game consoles and new games. In 1999, Sega launched the Dream Cast the most advanced game console in its time, many critics felt it had arrived ahead of its time and subsequently with launch of other game consoles its popularity has been limited to Japan only.

As video games became a larger part of the home entertainment foray DVD format has played a big role with larger memory capacity to store games in turn the gamer enjoying 3D graphics, better sound and a enhanced gaming experience. It also lent an additional feature to the game console being used as a DVD player for home use.

The paper also tries to access different markets and the reasons for the success of certain game consoles. The gaming industry is poised for rapid growth with a convergence of technologies viz. internet, mobile technology, real time graphics, etc.

The subsequent part of the paper is organised as follows

Section 2 describes the research carried on for this project. It includes the aims and objectives of the research and why this particular topic was selected. It gives us what the paper is trying to achieve and the areas it would cover.

Section 3 discuses the relevant literature that has been reviewed in the preparation of this paper and includes a brief discussion of management theories that describe Microsoft’s strategy in entering the game console. It starts by telling us the history of the game console market, how globalization and technology has changed the way business is operated and the new up coming trends changing in the market place, the competition in the market and their products, the different models that can be applied to this research. Therefore this section sets up a scenario and theories that need to be understood about this proposed research.

Section 4 outlines the methods adopted and the spirit of the methodology underlying the analysis of the findings. The methodology describes about three basic research done for this project that is the home based library research, model for analysis and the choice of research methods used and why is it important.

Section 5 presents the findings including analysis of the data collected and answers questions like why did it enter the game console market and what strategies did it apply during the entry, also how did it market itself in a saturates market and the future of this industry.

Section 6 constitutes the conclusions giving a brief over view of the entire proposed research. Section 7 is a brief recapitulation of critical reflections and personal insights acquired on account of the writing of this paper. Section 8 list all the references and bibliography used for the proposed research.

3.0 – Research

The proposed research question is: Why did Microsoft ultimately enter the game console market and the strategies used during entry and the game console market in the future. A qualitative study was done to answer this question.

3.1 – Aims

This paper aims to describe the history and the present situation of the game console market. It gives analysis on the various factors that encouraged Microsoft to enter the game console market and what strategies did they apply for their entry. It describes the Microsoft game console and how is it different from the competition.

It gives us a synopsis of whether the decision made by Microsoft proved them to be successful or no. Furthermore, it tells us where the future of the game console market is and how Microsoft will adapt to the changing trends in the market.

3.2 – Objectives

The objectives of the research is to answer the above stated proposed question and with the help of different business models apply Microsoft’s strategy of entry into the saturated game console market.

3.3 – Selection process

The reason why this topic is selected is because it is very interesting to find out how Microsoft would enter in the game console market trying to capture market share from the already established players. Microsoft is known for its innovative and qualitative product and is fascinating to know what product would they launch that would further satisfy the demand for video game console.

Now that we have described the aims and objectives, we will further illustrate the literature review which will give us a background of the game console market.

4.0 – Literature Review

The literature review explains to us the history and emergence of the game console market and how is it operating today. It also tells us how Globalization and Technology has changed the trends in the market and how it is changing the need for video games. Further it describes the competition and the products sold by these competitors. It then portrays about the situation of the market before the entry of Microsoft and Microsoft’s decision to enter with a new product. Lastly it tells us about how different models can be applied to the strategy used by Microsoft to enter the game console market. We will now start with giving a background of the game console market which is as follows:

4.1 – History of Game Console

The craze of the Video Games started only in the 1970’s despite it being in the market for over 50 years. In the late 1970’s as the standard of living of the people improved and children being fond of more graphics the popularity of video games increased.

1950’s

Video game was first introduced by Engineer Ralph Baer, who presented to his boss of Loral Electronics in 1951 in New York. The head of Loral Electronics rejected the idea as he was not convinced with the concept of interactive television.

OXO, the first graphical game that could be played on the computer was developed by A. S. Douglas. He was from the University of Cambridge and in 1952 while working on his thesis on the interaction between the human and computer developed this game. The OXO which is also none as tic- tac- toe or noughts and crosses could be played on an EDSAC computer.

William Higinbotham, in 1958 started a game called Tennis for Two which represented tennis court from the side. The control used to play this game was bulky and had a knob to shoot ball from either side.

1960’s

An MIT student designed a game called the Space war in 1961 that could be played on a DEC computer. Then in the mid 60’s another video game named Chase was introduced that could be played on TV.

1970’s

Bushnell introduced the Atari in 1972. The game was sold like wild fire and the Atari’s Pong was a huge success and sold 19,000 units.

The very first game console entered the market in 1972. It was connected to a TV and was built using analog electronics. Then in the late 70’s Atari came with a cartridge – based console called the Atari 2600.

The golden age of video game console market started in 1978 when Taito launched the release of Space Invaders. This game was a big blockbuster and created a market for video games. After this big blockbuster was launched a number of manufacturers saw this as a new business and through out the 80’s and 90’s came out with colour arcade games.

Also during the same time Atari released its new game called the Asteroids which was replaced by Lunar Lander.

As technology advanced and computer became popular the distribution of these games in the form of floppy disks, cassettes etc, became a big hit.

1980’s

During the 80’s video games became very popular and games like Pac-Man, Radar Scope, Donkey Kong, ruled the market.  1985 was the start of the Nintendo Era whereby under the name of Nintendo Entertainment the company came out with a number of new games like the Mario Bros, The Legend of the Zelda and Metroid. Nintendo dominated the market in the 80’s and during the late 80’s introduced a monochrome handheld console called Game Boy. At this time Sega had introduced the Sega Genesis that was a 16 bit console.

1990’s

During the 90’s as the video game console market increased tremendously, Nintendo launched the Super Mario Bros version 3 along with a 16 bit super console. At the same time Sega launched Sonic. Nintendo and Sega were the two dominant players in the market.

In the mid 90’s console games with 32 bit technology came into existence. Sega released Saturn, Sony released PlayStation and both these consoles used 32 bit technology and 3D settings. Also, Nintendo released its Nintendo 64 in 1996, it was a huge success selling more than 1.5 million units in a short span of 3 months. By 1996 the demand for video games had increased so tremendously that more and more players wanted to enter this lucrative market.

Nintendo and Sony competed for the market in the late 90’s. Nintendo had come out with use of cartridge instead of CD ROM’s and was one of the biggest blunders made. This blunder increased the demand for Sony PlayStation and therefore it ruled the market.

The competition during 97-98 was among 3 players, Nintendo, Sony and Sega of which Sony had won the market as Nintendo and Sega failed to sell their product to the market.
 

2000’s

It was in the early 2000 that Sega released Dreamcast, Sony released the PlayStation 2, Nintendo released the GameCube and the successor to the Game Boy Colour, the Game Boy Advance. Studying the game console market, Microsoft entered the market to compete with the three big players that are Nintendo, Sony and Sega. It launched its new home console called the Xbox. It was during this time that Sega stopped the manufacturing of Dreamcast. Soon even Nokia entered the market with its multimedia handheld console called the N-Gage and so on.

Now that we have learnt about the history of the game console market we will further explain as to how globalization has affected the changing trends in the market place.

4.2 – Globalization and Technology

Globalization and advances in technology are the key factors for the changing trends in the game console market. Globalization is the key to multinational businesses today. Because of globalization companies save on the cost of production as they will have the ability to manufacture different parts of the game console in different cheaper markets. This reduces their production cost drastically and they can produce better and more efficient products to satisfy the needs of the consumer. From example China is very cheap and many companies can import products from there which will yet be half of their manufacturing cost as compared to more developed nations.

According to Cogburn (www.unesco.org) “globalization is about the monumental structural changes occurring in the process of production and distribution in the global economy”. According to him “global companies can break apart business functions and spread them across the globe”. As a result of these processes “developing countries are facing tidal wave of changes, opportunity and challenges”.

Also globalization has opened the doors for labor that is cheaper in other countries. Therefore many companies today outsource their labor to the other foreign markets for better results, higher profit margin by lower administrative cost. For example, India has a lot of cheap knowledge workers that many companies can take advantage of to make their software. 

Globalization has also made the world a smaller place to live in. therefore competition in every field has increased drastically. There are certain advantages and disadvantages to this factor. The positive side is that newer markets open for many multinational companies as the trade barriers is minimal making it easy for a foreign company’s to compete with the local company.

For example, Sony Corporation being a Japanese company can sell its game consoles in Japan, because of Globalization it gives a chance to Microsoft which is an American company to sell its products in Japan. In the above case globalization has bought a new market for Microsoft and therefore it can sell globally.

But there can be a disadvantage to globalization as there will be no barriers for competition therefore there will be many companies making similar products to see itself in the market. This can be explained with an example of the game console market. The market first was dominated by a few players but as globalization  increased more and more companies started selling game consoles. Therefore the only way possible for a company to survive in this competitive globalize world is to sell unique products that can differentiate themselves from the competition.

A brand name is therefore very important for a company to sell its product as the brand is the image and value of the company. 

As in the case of Microsoft it has a good brand image and value for the PC market. It will have to develop the same brand name in the game console market. This will help Microsoft to create a perception in the mind of the consumer of good quality and high technology oriented product.

Advances in technology have also changed the way business are operated. “The internet will change how people live, play and learn. The industrial revolution brought together people with machines in factories, and the internet revolution will bring together people with knowledge and information in virtual companies...it will promote globalisation at an incredible pace. But instead of happening over 100 years like the industrial revolution, it will happen over seven years”. [Micklethwait John and Wooldridge Adrian (2000), p 36]

Moreover, technology advancement has created a need for higher end technical products which provide better speed and quality. As in the case the game console market technology has changed the trend and demand of products as the customer wants more speed, quality, graphics  and functionality of the game console than that was provided in the market earlier.

Therefore it can be seen from above that globalization and technology have also been a key factor to the changing trends and competition in the game console market.
 

4.3 – Products Specifications and Competition in the market

Sony Corporation

Sony Corporation has years of experience in electronics and became the market leader after it introduced the PlayStation. Sony has always been known for its sleek designs and therefore wins the heart of the customers for its ease of use and classy looking consoles. By Understanding the competition it came out with a newer version of PlayStation that was called PlayStation2 and which had added features for the customer as compared to the earlier model. The PlayStation2 had an integrated DVD player, a feature that was not provided by the competition at that time.

Sony also sold its PlayStation2 not calling it a video game system but a computer entertainment system which is a complete package. The best selling software for a long time was the ‘Matrix’. But it is also important to understand that there was a lot of hidden cost to Sony Corporation. They were making a loss with every console that was sold in the market. The first year their profits dipped by almost 50% and the profit forecast was literally half. The production cost of making a PlayStation 2 software is very high and therefore the developers had a very difficult time creating the console of the game. Just recently Sony admitted to the rough times by "slashing its full-year profit forecast in half, citing widening losses at its game division," says Bloomberg, a news and information source for investors.

Nintendo Corporation

Nintendo was the first company who entered the game console market with the launch of Atari. The company is now over three decades in the console market and is trying to capture its market. Nintendo is one of the only companies who make huge profits from the console market. But Sony Corporation and Microsoft have been threatening them to leave the market.

Nintendo developed the next generation machine keeping in mind the balance of power, usability and how they could make profits.  It did not give features such as a DVD player and therefore the company had no hidden cost attached to it. This can be clearly made out with the cost and design of the system. They also teamed up with NEC and IBM to produce cheap micro processors and one of the only companies that make profit on its consoles.

Nintendo applied a completely different strategy as compared to Sony and Microsoft who were ready to sell their console for a loss just to establish their name in the market. As on the development side it is quoted as one of the post powerful and friendly 3D consoles ever created. Nintendo 64 was its biggest success because it sold good quality products at a reasonable cost. But with the problems faced by Game Cube it has always been difficult for Nintendo to supply consistent and good quality products to the market. As the company is not getting into DVD and internet, it is only concentrating on the video game market differentiating themselves from the rest of the competition.

Nintendo's President, Hiroshi Yamauchi says, "A new product has to be accepted by the market as being valuable. [The Xbox] won't necessarily galvanize the market unless it proves to be a valuable product."

He goes on to say, "There's no doubt worldwide Mr. Gates is a great entrepreneur, but there are a lot of things he doesn't know because he is a human being, and gaming is one of them”. The President of Nintendo was trying to say that Bill Gates might have the money to invest in the game console market, but it is for him to realise that money is not going to teach him to operate in this market. Due to all these expenses, he feels that "Sega is not the only one. Other game makers can't afford to introduce new game consoles. I think [Microsoft's] Xbox will be the last one."

"I think Microsoft is going to have a tough entry to an already established market," said Billy Pidgeon, a computer games analyst for Jupiter Communications.
 
Microsoft was depending on developers to produce new games that would be accustomed to the Xbox.

"Eighteen months out we have to go to developers and talk to them about the platform, talk to them about the tools and the architecture so that when the product ships, there are amazing games available," said Robbie Bach, a vice-president of Microsoft.

Pidgeon said. "I'm wondering how different X-box will be from current PC games," he said.

“Microsoft intends to muscle its way into a market dominated by Sony and Sega, which seem unfazed by the challenge.” said Peter Moore of Sega America.

Microsoft Corporation

Microsoft entered the game console market only in 2000 with Xbox. The Microsoft Company is one of the most successful software companies today. Microsoft came out with the Xbox which had a few more added features as compared to Sony Corporations PlayStation 2.

The Xbox included DVD function with remote for an extra cost. Moreover, it also had a 8GB Hard Drive and a Ethernet Port from the box itself. These features were much more added benefit as none of the other competitors offered. As the competition that is Sony and Nintendo were already ready with their generation next video game consoles, Xbox had to be developed fast if they needed to get a market share from the already established giants in this industry. If it was not launched ASAP then Microsoft could face severe marketing problems by the competition. So if they would release Xbox in 2002 it would be very late for them.

Microsoft was completely new in this market and therefore it had to launch the Xbox by creating a positive perception in the mind of the consumer to switch its loyalty from other established competitors. The Xbox needed to be of a good quality if not it would be overlooked. Also it was important for Microsoft to understand that Sony and Nintendo had well established names under its back like Final fantasy and Mario respectively. Microsoft had a long way to go as it did not have any experience dealing with the console market. What Microsoft needed to do is have a huge marketing campaign with enough promotions and incentives to convince buyers to switch their brand.

4.5 – Models

4.5.1 – Porters Five forces model

Porter’s Five Forces model can serve as a useful paradigm to design a strategy for a new firm entering a market with established players. We will discuss the five forces below that are barriers to entry, power of suppliers, power of buyers, threat of substitutes and rivalry among the existing firms. This is very important because it gives us the entire market condition that Microsoft will be in if it enters the game console market.

Barriers to Entry

Microsoft is a new entry into this market itself. But as Sony entered the market earlier and is at number one position ahead of Nintendo, Microsoft is applying the same strategy to become number one in the business. As we know that investing into the game console market is a lot of investment which can be handled only by big corporations. Therefore the risks of small contenders are minimal in manufacturing the game console. As we know that manufacturing of the game console is a loss for Microsoft as it makes its money from the software that is the games it sells. As a person may by one console but buys multiple number of games with it. These games are easy to duplicate once they are hacked. Hackers break into the system and try some method of duplicating it by which it becomes cheaper. This price is accepted by the consumer who does not mind buying a product for a cheaper price even though the quality must have not been the best. Therefore there may be barriers to entry in manufacturing of the game console but not in the manufacturing of software as it can be duplicated.

Power of Suppliers

The main input for Microsoft’s products remains human capital. Innovation is the key to success for new products but the supply or raw material is equally important. As mentioned above in the Literature review that globalisation had made is possible for companies to outsource their human capital and supplies from different areas of the world. Therefore new sources of human capital can be obtained from other nations that maintain a lower standard of living and cost of labour. Also because of globalization it can now sell its product globally giving them a much bigger and better market to target.

Power of Buyers

Nearly 80% of Microsoft’s revenue comes from corporate purchases. As Microsoft is a huge corporation it has the power to buy its raw materials at a cheaper cost. This is where economies of scale and economies of scope come into existence. Because of this Microsoft can lower its cost and swipe out the competition.

Threat of Substitutes

Microsoft’s is a new competitor in this market. Therefore its main threat is the competition that is already established and formed its customer base. As Microsoft is a new entry in the market with lack of experience the competition may make it very difficult for Microsoft to enter. Hackers are also a problem as the console created by the company has to be so well tested that the hackers would not be able to break in. Therefore a lot of money has to be invested to test the product.

Besides this it also has to be taken into consideration that there are many other players in the market and substitution to other products is possible. Therefore the company has to develop its brand name to sell in the market.

Rivalry among Existing Firms

As we know that the gaming market is saturated therefore it is important to get new products to the market that has unique features to be accepted by the customer. Firms will begin to integrate vertically and horizontally to protect the viability of their products.
4.5.2 – SWOT

Strengths:

Brand Value – Microsoft has well established brand value in the technology area. Its products mainly include software and computer devices. The reputation of Microsoft gives it an edge over any other new entrant in the field.

Cash Flow – Being one of the largest corporations in the world, it benefits from deep financial resources and hence can invest heavily in Research and Development, advertisement, promotional offers, etc

Software development – As MS specialises in the field of software development and has been a pioneer and leader in the PC based gaming market, it has resources to develop and create new games which play a major role in determining the success of the console.

Internet Gaming – It has large gaming presence on the internet, which can be leveraged as part of its overall online gaming experience.

Weaknesses:

Feature rich – Earlier on the X-Box made a mistake by bundling the console with many features which were later scaled down in order to be feasible in the market.

Market assessment – Although a large corporation, its lacks expertise in the gaming market which leaders Sony & Nintendo enjoy. Also Japan is the largest gaming market in the world and Microsoft rivals enjoy home advantage there.

Miscalculation – Price is sensitive to the game console market and MS suffered losses on terms of high input costs because of many extra features.

Opportunities:

Overseas Market – Japan has been a market well captured by arch rivals, MS has an opportunity to offer its advanced game console with newer and more exciting games

PC game leadership – It can extend its user base from the PC based and internet game following to the X-Box. This can be done by common game initiatives and enhancing the broadband based game console connectivity.

High powered hardware – X-Box undoubtedly offers the most powerful game console, which if marketed well can earn significant market share

China – A large market waiting to be explored as games need to be translated into Chinese. With large development centres, MS can afford to rapidly offer such games.

Threats:

High entry cost – Large pool of funds for advertisement and promotion as rivals are well established and control significant market share

Japan – Failure of X-Box in Japan due to a lack of games focused on the Japanese market. Being a large market it cannot be ignored.

5.0 – Methodology

The methodology will describe as to how research was carried on to answer the proposed research question.

5.1 – Home and library research

The method used for this research was secondary data carried on by home and library based research. Databases such as the EBSCO, INFOTRACK, and Business Premiere were used to make it a scholarly research. Other than books, academic journals, business reviews, articles on magazines, newspaper and various other sources of information to gather secondary data was used.

5.2 – Models used for analysis

To answer the proposed question and strategies applied by Microsoft to enter the video game console market models have been applied to better understand its strategy. Therefore different models such as Porters Five Forces Model and SWOT Analysis were used.

5.3 – Choice of research method

Due to the large information of data availability it was a consideration on what data needed to be selected. it was therefore very important to analyse and trim data to fulfil the aims and objectives of the research proposal. Finally, the research question was shaped by the personal experience of owning a video game console and knowledge of the industry.

The data collection was secondary and obtained from books, journals, etc. The inquiry process adopted in this paper is subjective. The research approach adopted here is inductive in nature seeking not so much to impose a pre-conceived model. Given this aspect of the paper, the time – frame chosen is necessarily longitudinal.

6.0 - Findings and Analysis

6.1 - Reason for Microsoft’s entry

The market was completely ruled by the three players, before Microsoft entered. Microsoft was ready to face the challenges as it would be a new entry. The market was mature with players already have purchased consoles and Microsoft was aware that it needed to make better console and games at an acceptable cost for it to be successful in this mature market.

Microsoft carried in research to design its entry strategy. The decided to concentrate on the gamers who spent more than 25 hours a week on playing video games. These were called as ‘core gamers’. Therefore Microsoft held a survey for this group as their feedback would be very important and would have a strong influence in the market. Their entry strategy was based on this primary source of data as well as research and analysis about their competition and their products.
Microsoft wanted to identify the needs and wants of the core gamers as they were the influencers in the market. The primary research recommended the products design to be more attractive to the young people. There were also certain technical and functional requirements that would fulfil the needs of the gamers. They wanted a console that could play high quality graphic games that are complex with a really good speed and good audio for them to really enjoy the game.
The other secondary research suggested the name not to be Microsoft but completely different. The Xbox was launched in 2001 and was a very sleek design with a huge X on the box.  The console was created in such a way that it would deliver speed with performance to create the best experience in the mind of the customer. The games were running much faster and had better graphics and audio something that the consumer wanted.
“The game console market stakes are huge. U.S. consumers will spend $11 billion dollars on games this year. Revenues the retail revenues from interactive software games will be in excess of box office receipts at the movies," Moore said.

Features of the Xbox

The unique selling point of the product was the features it offered. It provided three times the graphic performance as compared to all the other available consoles. It had a CPU which was powerful for smooth running of the game. The Xbox also had an internal hard drive which was a new introduction in the market and it was built to provide flexibility while playing games. The Xbox had ports that allowed more than one player to play a game and also the internet connection was a unique feature to play games via broadband.

Success of the Xbox

The Xbox was successful because it provided unique features that was not provided by the other competitors at that time. After the initial launch of the product Microsoft wanted to increase its market share and therefore lowered the price of the Xbox by almost 50%. This helped it to increase its market share as customers were getting a high technology oriented game console for an almost equal price like their competitor.

6.2 - Strategies used for entry method

“The established market players would be an obstacle to Microsoft, as Sega’s Dreamcast, Sony’s PlayStation2 had already been successful in the market. Another major console maker, Nintendo, will announce a new game machine ahead of Microsoft early next year”, Pidgeon said.
Microsoft had budgeted $500 million to invest in marketing of the Xbox, the company’s first project in the game console market. Xbox would compete with Sega Dreamcast, Sony Playstation2 and Nintendo’s new product Dolphin.
Microsoft provided many features over and above the competition. It provided Intel's Pentium III processor, a custom 3D graphics processor, 64MB of memory, an 8GB hard drive, a DVD drive and a high-speed Ethernet connection for Internet access. The box is also used as an interactive television and it would use Microsoft's new Microsoft TV suite of software applications, which the company markets to cable and satellite TV providers to offer email, chat and Internet surfing to subscribers.
Xbox major marketing strategy was also to target the online gaming. Microsoft spent a lot of money to convince consumers about its TV and Internet usage with the Xbox.
The $500 million would be spent on advertising campaigns in the first one and half year to build its demand in the multi billion dollar market. Some of the contribution made to the advertising would be used in promoting the hardware by making the price competitive. It also made about 30 games that could be used by Xbox. It had also give development kits to third party game suppliers and collected royalty from Xbox.
Microsoft had also clearly studied its market before it decided to launch Xbox. The analyst had said that Microsoft’s planned subsidy would give Xbox a boost. Price was also an important factor because if they could have sold it for a price equal or less to the competitors it will attract more buyers.
The president was also going to make sure that produce 150,000 units weekly and refill as stock is over. They also had a factory in Mexico which would be making the Xbox and sending it across the border for there to be full stock during the holiday times.
Microsoft's chief executive Steve Ballmer is enthusiastic about the launch. "We see a lot of opportunity, not just in the first generation of X-Box but in driving the range of businesses and services that will bring us more deeply into the home market than we have ever been before. Ten years from now you may not be able to tell the difference between a TV set-top box and a games console. But at the moment all we are concerned about is developing the best games console in the business."
Microsoft would launch the first party games which would be published in the gaming magazines. TV ads would run close to the holiday season when sales were expected more than usual. Ads would be designed as 27 seconds of game play and rest on branding of the Xbox. Microsoft’s awareness was 70% in the market due to the word of mouth strategy and the brand name Microsoft itself. They had also informed the retailers not to pre sell the products and to sell the inventory on retail price of $299.
These were the few marketing strategies applied by Microsoft before its entry into the market and now we will further discuss the how Microsoft will launch Xbox in a saturated market.

6.3 - Marketing of Xbox in a saturated market

Sales for Microsoft got to a good start with products nearly sold out in the first week. Retailers such as Electronic Boutique, Kmart, Toys "R" Us, and Wal-Mart reported that Xbox and GameCube consoles were completely sold out within a week. Microsoft said it immediately sold all 300,000 available units. These numbers compared with the 500,000 PlayStation 2 units Sony sold when that machine arrived in 2000. Both Nintendo and Microsoft noted that their sales far outpaced the box-office receipts for the Harry Potter movie that broke sales records that weekend.

But despite strong holiday sales by both Nintendo and Microsoft, the suddenly venerable PlayStation 2 won the 2001 holiday season. According to market-tracking reports, Sony's PlayStation 2 outsold Xbox and GameCube, selling 1.4 million units through December 8, compared to 934,000 Xboxes and 615,000 GameCubes; that trend continued throughout the holidays.

The reason why Sony benefited was because they had a wider range of games as well as they had stocked up its supply in each store and therefore consumers bought a playstation2 when the Xbox was sold out.

Microsoft’s Xbox was a success taking into consideration its quick entry in the market. The strategy applied by Microsoft to already sell Microsoft's Xbox is placed on the shelf be an unqualified success, given the company's quick entry into the market and success in wooing developers.

Xbox can be used for a wide area of technology and to become a major player in the game market it follows a strategy: Enter the market with a first-generation product and then build a bigger and better version.

6.4 - Future game console market

6.4 - Future game console market

Xbox Power Facts:

- The Xbox has 80 Gigaflops of computing power.  That's equivalent to the power found in a Cray C94 supercomputer.

- It would take everyone on Earth one hour to calculate what the Xbox calculates every second.

- If the HyperTransport link in the Xbox was a pipe carrying water, and every bit of information equalled one gallon, the pipe would fill up the Pacific Ocean every second!
(Source: www.microsoft.com)

There are a few major factors that affect the development and changes in the gaming industry – JAPAN and USA are the two key large markets in the current scenario. China is fast catching up with the 1 child rule of the land forcing parents to spend substantial sums on video games.
The Japanese market is peculiar and driven by a large following of favorite genre games – RPG’s. Microsoft’s X-Box has virtually no market share in Japan due to a lack of games in that genre. The Japanese consumer is just not appealed too. On the other hand the Nintendo Game Boy and Sony’s PlayStation2 have a large market share due to the availability of games. We can expect Microsoft to work hard on developing games and introducing them in the very tough and huge Japan market.

For the Chinese market, Sony has recently launched in 5 cities. Video game publishers for Sony have been working on translating games into Chinese. Sony is targeting 10million house holds in the 5 cities.
Video games just like software are what keep gamers loyal to their consoles. Microsoft realizes that with its own success in the PC gaming market where it has over 50% market share in the US.

The internet is playing a big role in the way people play games and online gaming is catching up very rapidly. X-Box has an advantage as its console comes with built in broadband connectivity and large memory for that real time experience. It also has the advantage of being very successful in Internet based PC gaming via its website www.zone.com
Another key feature is portability and Nintendo has clearly succeeded with its Game Boy Advance. Most people want handheld devices that offer mobility and true gaming experience. With the advancement in technology viz. smart LCD displays, smaller and faster processors and nano components that can run longer without draining battery power can be seen in the future. In Dec’ 04 Sony introduced the handheld Play Station Portable in Japan. The launch was done particularly in time for the Christmas and holiday shopping season. The low cost and wide range of games offered make it an attractive buy for the consumers.
This is what Sony has to say about the technical specification of its new product:
(Source: http://www.us.playstation.com/consoles.aspx?id=4)

Companies have also started looking at adults as a huge market and this is where the game marketers feel the growth potential lies. Games specifically designed to meet the adult audience are being developed and the efforts to position the console as a high tech gadget are being made.

X-Box has been specifically positioned and advertised to talk about its huge hardware power that delivers better 3D graphics, sound and faster response to gamers moves.
Gaming consoles have moved beyond just being in the children domain. Adults have shown large interest in them and are especially attracted to high tech features such as Web browsers, DVD movie playback and high definition television support. The genre of games that are being made for adults focus on adventure like flight / racing / sports games with realistic graphic simulation and sound. Large screen HDTV sales have picked up and gaming consoles are compatible with them thus attracting adult buyers interested in what has always been a kids medium.
For the competition Nintendo’s Game Cube console is finding their former child players are growing up to new technologies. Dreamcast which held some promise is popular only in Japan now.
(Source: http://www.galaxine.com/Xbox-Game-Consoles.htm)

A large and potential market in the future is that of the online casino business. As broadband connectivity increases its reach and more and more homes are connected, game consoles that can handle large graphics and are enabled for broadband connection will have an edge.

Apart from game consoles being sold with more built in features and portable handheld gaming machines, the mobile phone market is a buzz with activity. As internet connectivity is offered over mobile phones game developers see this as a large opportunity to offer games capable of being played on the mobile phones. The concept works where developers offer versions of popular game console video game titles for handhelds and these can be downloaded on mobile phones for a fee. The games are made specially to work on mobile phones and in the future can be an attraction for mobile phone users to buy the game consoles and enjoy all the features of the game currently limited on a mobile phone.

The research clearly shows a large market awaiting gamers – development to fulfil the needs with the best possible technology and medium are underway. Microsoft has got the most powerful hardware with the X-Box now it has to develop games / titles that can draw the crowds to buy its console.

In recent developments Microsoft announced what people can expect in the new Xbox.

Features of the Next-Generation Xbox Guide include:
Gamer Cards: These cards will give gamers a quick look at key Xbox Live™ information. They will help players instantly connect with people that have similar skills, interests, and lifestyles.
Marketplace: Browse-able by game, genre, and a number of other ways, the Marketplace will provide a one-stop shop for consumers to acquire episodic content, new game levels, maps, weapons, vehicles, skins, and community-created content. 
Micro Transactions: Breaking down barriers of small-ticket online commerce, micro-transactions will allow developers and the gaming community to charge as little as they like for content they create and publish on the Marketplace. Imagine players slapping down $.99 to buy a one-of-a-kind, fully tricked-out racing car to be the envy of all their buddies.
Custom Play lists: This feature eliminates the need for developers to support custom music in games. The guide instantly connects players to their music, so they can listen to their own tracks while playing all their favorite next-generation Xbox games.
To support consumer demands for the HD Era, the next-generation Xbox is designed around key principles that let developers maximize real performance, using concepts they are already familiar with. The next-generation Xbox hardware design principles include the following:
A well-balanced system that will deliver more than a teraflop of targeted computing performance.
A multicore processor architecture, co-developed with IBM Corp., that provides developer “headroom” and flexibility.
A custom-designed graphics processor, co-developed with ATI Technologies Inc., designed for HD Era games and entertainment applications.

The HD Era gaming platform will strike an elegant balance of hardware, software, and services to power the new experiences that consumers demand. Gaming and entertainment features, such as the Next-Generation Xbox Guide, represent a shift toward more immersive and integrated consumer experiences. This shift will be further illustrated by:
A significant leap to high-definition graphics, in which character movements and expressions are intensely vibrant and nearly indiscernible from real life,
Multi channel, positional audio fidelity so clear and precise that players will be able to hear the faintest enemy footsteps sneaking up behind them,
Richer online communications, and
An abundance of on-demand game console content

(Source: http://www.xbox.com/en-US/news/2005/0309-gdc2005.htm)

7.0 – Conclusion

The gaming business is indeed big business – Large corporations have poured in billions of dollars to develop and market these entertainment devices. Microsoft identified this in 2000 and has made some in roads in the market. Its X-Box has definitely woken up with competition because of its high powered nature.

The craze of the Video Games started only in the 1970’s despite it being in the market for over 50 years. From the first computer game OXO, a game that could be played on the computer to the latest PlayStation's and Game Boys, the market has come a long way. During the process it has seen a MIT student design a game called Space war in 1961 that could be played on a DEC computer and another game called Chase. The 70's saw the first major game console 'Atari' being sold in large numbers due to the growing use of television. The 80's saw two major players emerging with Nintendo and Sega. As technology advanced the 90's the market saw a leap and Sony and Microsoft were the latest entrants offering their games to the people.

Being a new player, MS did not enjoy current game followers and has had to work towards creating a cult for itself. Rival Sony with its largely popular Play Station 1 had a well established following of loyal customers. It has been observed that gamers are usually loyal to their consoles. With the launch of PlayStation 2, it had an instant hit with people wanting to upgrade along with first time buyers.

The advantage X-Box has that it enjoys a position of respect in the market and is till date the most powerful gaming console. The future now depends mainly on the ability to deliver games that appease to large markets across different countries. With a marketing strategy clearly defined and funds lined up, the response in the future to the console needs to be seen.

As a large market, gaming has gained significant momentum in the last few years. This can be attributed to the growing of the market segment – Adults have become big buyers of game consoles. Online gaming is another factor as broadband internet connectivity reaches more and more homes. As part of the strategy of every major player it offers online gaming via a dedicated website.

Microsoft has already announced details of what gamers can expect in the next version of the Xbox; similar announcements can be expected to be made by other competitors. The trend in the coming few years can be seen as one of technological supremacy and who can market their games better

The future can see heated competition and a convergence of technologies like mobile phones, television, game consoles and the personal computer.

8.0 – Critical Reflections

Working on the paper proved to be enlightening in several ways as outlined below

8.1 - Data Collection and Interpretation

First, I learned that the process of data collection and interpretation need to be defined with precision if one is not to accumulate irrelevant data. Second, I learned much through the process of selecting the data. Given the fragmented nature of the data, and the difficulty involved in acquiring it, I decided used data from secondary sources of information.
8.2 - Application of Theory

I also learned what it means to apply theory into practice. Various theoretical models were considered to determine best – fit with the data. Given the broad implications of the model, thus was not something that could be done with precision. If I had to choose the model that helped me the most, it would be the conventional SWOT (Strength, Weakness, Opportunities and Threats) analysis and the Porters Five Forces model.

8.3 - Management Style

As for my management style, I found that I favoured a generalist approach rather than a focused one. A second part was that I thought about processes and ideas in completion. As a result, I learned that I have difficulties in setting limits to the scope of the organisation. More personally, I found however that the act of writing out my thoughts required me to qualify and limit my assertions.

8.4 - Future Projects

Any project successfully executed produces a change on a transformation in a manager. This is particularly true in this case. This itself implies that a future project would be approached differently. In general, my approach would be first to gather data, to examine it for emerging patterns and later to crystallize these in a structured fashion to eliminate biases that could creep in if I were to approach the project in a priori fashion without preliminary data to guide my conceptual framework.