UNIVERSITY OF ONTARIO INSTITUTE OF TECHNOLOGY

Nintendos Strategy in 2009

The Ongoing Battle with Microsoft and Sony
Group 7 Jeremy Abbaterusso 100217118
Strategic Management 1 BUSI 4701
April 1st, 2011
Word Count: 1246

The Attractiveness of the Console Video Game Industry (Porter 5 Forces)

Suppliers (Medium to Low)
Suppliers include Foxconn Precision Components, IBM etc. for chip manufacturing,
product assembly, video game creators, and content providers. Each supplier wou
ld provide a small piece of the complete product and as such bargaining power wo
uld be low (pg. 282). Buyers (Low)
Buyers consisted of various retailers that carry the product and would vary in b
argaining strength depending on their size. From the sheer number of retailers t
hat carry the product along with the global presence of the major competitors in
the industry there is no single retailer in a position to exert any significant
level of power. Substitute Products (Medium)
Direct substitutes for the console video game industry are personal computers, a
rcade machines, and handheld game devices which vie for consumer spending (pg. 2
79). These substitutes are near in cost and provide no switching costs aside fro
m their price. Combined with the presence of a large number of near substitutes
vying for entertainment expenditures there is a threat from substitute products.
Threat of New Entrants (Low)
Large capital investments, distribution channels, technological complexities and
other critical factors within the game console industry would be barriers for n
ew entrants. Also the creation of an assortment of games and accessories would b
ring down the threat of new entrants even further as this would be a huge obstac
le to overcome. Rivalry among Competing Sellers (High)
Rivalry within the video game console industry would be high. Microsoft, Sony, a
nd Nintendo would battle for market supremacy (pg. 275). This battle would weaken
differentiation by competitors developing products that were technologically sup
erior and more powerful than the offering of rivals (pg. 283). This benchmarking
lead to price wars by competitors squeezing profit margins and limiting market
share gains (pg. 281).

Conclusion With the recession making 2009 sales decline to $382.6 million from $
617.3 million in 2008 (pg. 283) and with the overall assessment of the five forc
es the video game console industry would not be attractive. This accompanied by
the high risk technological complexities and the increased intensity of competit
ion the industry would be considerably unappealing.
Success in the Game Console Manufacturing Industry
The 3 4 critical success factors are:
1. 2. 3. 4. Advancement in Technology Price and Strategy Research and Developmen
t Quality and Innovation of Gaming Accessories (ex. Games, remotes, etc.)
a) Distinctive Resources/Capabilities Leverage by Nintendo: 1. Differentiating t
he User Interface and Remote
Value There is a high value in Nintendos ability to differentiate its product off
ering in comparison to Microsoft and Sony as it allows Nintendo to appeal to a n
ew market segment which included people who did not generally play video games (
pg. 281). This value is best shown with Nintendos dominance in unit sales for 200
9 (exhibit 4, 5, and 6). Rarity The user interface and remote was rare as Ninten
do was the first to bring together a Bluetoothactivated wireless controller whic
h provided gamers with a wide range of motion capabilities (pg. 280). This new a
bility harnessed by Nintendo allowed users, to physically interact with the virtu
al world, significantly changing the experience of video gaming (pg. Pg.280). Imi
tability Patent protection would protect this technology from being duplicated,
but the remote capability and interface could be substituted by competitors. In
fact, Microsoft and Sony had announced intentions to create a variety of ways fo
r their consumers to interact with games on their systems (pg. 287).
(Temporary Competitive Advantage)

2. Marketing Strategy Innovation

Value
(Temporary Competitive Advantage)
This is of high value as it would allow Nintendo to appeal to a larger market an
d create an infinite possibility for profitable growth (pg. 281). Also, since th
is new segment did not require technological complexities and hyper realistic gr
aphics (pg. 281) Nintendo was able to cut down drastically on costs and have a p
rofit margin of an estimated $50US per unit where Sony took a loss of around $25
0US per unit sold (pg. 284). Rarity This was rare as Nintendo was attempting to
target new customers rather than fighting with competitors for old ones (pg. 283
). Its overall rarity would be explained by Brian ORourke as he states, Microsoft
and Sony spend a lot of time developing cutting edge technology. Nintendo is not
a technology company - it is a toy company. It is not interested in bleeding ed
ge electronics and graphics (pg. 284). Imitability This marketing strategy could
be duplicated by Sony or Microsoft. This is possible by the competing firms leve
raging into new ways for its consumers to interact with its consoles as both com
panies have shown intentions to pursue the casual gamer market (pg. 287).
Organization for both Resources Nintendo was able to leverage these capabilities
by bringing together the companys research, innovation, technology and functiona
lity (pg. 280). The organization was also able to leverage its success within th
e DS, and interactive games like Duck Hunt and Track and Field (pg. 281) while f
ocusing on differentiating.

b) Resources and Capabilities Leveraged by the Competition:

Sony
Technology and Innovation
Value There is great value in developing faster and more advanced consoles. As t
his allows Sony to secure consumer interest and market share by being able to pr
ovide a more realistic gaming experience (pg. 275). Rarity A focus in technologi
cal development is fairly unique although it is a capability pursued by two of t
he three main competitors in the industry: Sony and Microsoft, and so is not ver
y rare. (pg. 275) Imitability The development of technology would be made easier
by the experience that Sony had in the research and development of earlier mode
ls. This would create time compression diseconomies as competitors attempt to de
velop similar advancements.
(Temporary Competitive Advantage)
Microsoft
Building a Successful Community with Xbox Live
(Temporary Competitive Advantage)
Value This was valuable as Xbox utilized various PC features. These features inc
luded a broadband connection and memory storage which connected Xbox players all
over the world (pg. 283). The value to the consumer was the online voice chat,
opportunity to download new video game content, and the ability to play multipla
yer games over broadband (pg. 286). Rarity Neither Sony nor Nintendo had an esta
blished online gaming community. In fact, this was one of Microsofts biggest diff
erentiating factors to its competitors (pg. 285). Although it had been tried befo
re this would still be considered rare as currently within the marketplace no ot
her competitor had the capability.

Imitability The
bstituted Dream
was the ability
83). However it
aws.

idea was imitable as it could be substituted. Xbox themselves su

casts online initiatives with Xbox Live. The advantage Xbox had
to leverage advances in both technology and social trends (pg. 2
would not be able to be duplicated do to patent and copy right l

Is This a Blue Ocean Strategy

Yes this is a blue ocean strategy as Nintendo was able to give players the abili
ty to physically interact with a virtual world, thus changing Nintendos direction
to an undetected marketplace. This change was more compelling to consumers who
had never considered buying video game consoles before (pg. 280). In fact, Ninte
ndo was able to simplify its consoles design and focus less on hyper realistic g
raphics saving money and also attracting individuals who didnt ordinarily play vi
deo games (pg. 281). Even the name Wii was created to emphasize that this consol
e was for everyone, which went into a completely different direction then current
industry rivals (pg. 281). This strategy moved Nintendo into a larger and more d
iverse market while giving them a large increase in sales and in profit margins.

Marking Scheme 5 FORCES: 28/30 Overall this section is extremely well done. The
analysis is clear, succinct and supported.
VRIO: 30/35 For the most part the analysis is well done, organized, clear and su
pported. For Nintendos inimitability consider issues like time compression, path
dependence and first mover advantages. Im not sure if it is a clarity issue or re
quires further explanation as the features you have mentioned for the Xbox are f
or the most part offered by the Playstation 3. There is a possible rarity argume
nt though. Well Done.
BLUE OCEAN: 10/10 This section was extremely well explained.
MECHANICS: 23/25 There is minimal writing issues present. For example, The user i
nterface and remote was rare as Nintendo was the first to bring together a Bluet
ooth-activated wireless controller which provided gamers with a wide range of mo
tion capabilities (pg. 280). Change to were as the plural version should be used af
ter the compound subject.
Overall an outstanding job!
TOTAL: 91/100