Home video game industry case study

Case Study #2 (10-15 Pages) A thorough analysis is expected. Below is a suggestion on how to structure your write up and key questions to consider at each stage.

1. The history, development and growth of the company over time (4 marks~2 pages)

– Intro Paragraph

– Chart critical incidents for the industry as a whole (bullet form OK- do not need to restate all facts written in the case – just critical ones)

Questions to consider: a. Why the 82-85 Collapse of Atari b. What drove Microsoft’s decision to enter the industry with its Xbox offering?

2. SWOT analysis (4 Marks 1-2 Pages)

– The identification of the company’s internal strengths and weaknesses

– The nature of the external environment surrounding the company

• The SWOT Checklist Pg C4 provides detail

3. Evaluate the SWOT analysis (4 Marks 1-2 Pages

– Is the company in an overall strong competitive position?

– Can it continue to purpose its current business or corporate level strategy profitably?

– What can the company do to turn weaknesses into strengths and threats into opportunities?

– Can it develop new functional, business or corporate strategies to accomplish this change?

Questions to consider: a. Evaluate the competitive strategy of 3DO? What was 3DO’s strategy? What are the problems with this strategy? What flaws can you see in 3DO’s approach? b. Why has Sony PlayStation succeeded where 3DO failed?

4. The kind of corporate level strategy that the company is pursuing & the nature of the company’s business-level strategy. (6 marks 2-3 Pages)

– Define the companies mission and goals

– Debate merits of their current strategy.

– Identify the company’s generic competitive strategy – differentiation, low-cost, or focus – and its investment strategy, given its relative competitive position and the stage of the life cycle.

– Identify functional strategies that a company pursues to build competitive advantage through superior efficiency, quality, innovation, and customer responsiveness.

Questions to consider: c. How did Nintendo successfully recreate the home video game business following the Atari-era boom and bust? d. How was Nintendo able to capture value from the home video game business?

e. How was Sega able to gain market share from Nintendo?

5. Make Recommendations (4 Marks -2 Pages)

– Recommendations are directed at solving whatever strategic problem the company is facing and increasing its future profitability.

Questions to consider:

a. What lessons can be learnt from the history of the home video game industry that were used to help launch the Sony PlayStation II and Microsoft’s Xbox? Do Microsoft and Sony appear to have learnt and applied these lessons? b. Evaluate the introduction of the Xbox 360, Sony PlayStation 3, and Nintendo’s Wii. What lessons can be learned from these events? How did Nintendo re-establish itself in this market with the Wii?

An Industry Is Born In 1968, Nolan Bushell, the 24-year-old son of a Utah cement contractor, graduated from the University of Utah with a degree in engineering.1 Bushnell then moved to California, where he worked briefl y in the computer graphics division of Ampex. At home, Bush- nell turned his daughter’s bedroom into a laboratory. There, he created a simpler version of Space War, a computer game that had been invented in 1962 by an MIT graduate student, Steve Russell. Bushnell’s version of Russell’s game, which he called Computer Space, was made of integrated circuits connected to a 19-inch black-and-white television screen. Unlike a computer, Bushnell’s invention could do nothing but play the game, which meant that, unlike a computer, it could be produced cheaply.

Bushnell envisioned video games like his stand- ing next to pinball machines in arcades. With hopes of having his invention put into production, Bushnell left Ampex to work for a small pinball company that manufactured 1,500 copies of his video game. The game never sold, primarily because the player had to read a full page of directions before he or she could play the game—way too complex for an arcade game. Bushnell left the pinball company and with a friend, Ted Dabney, put up $500 to start a company that would develop a simpler video game. They wanted to call the company Syzygy, but the name was already taken, so they settled on Atari, a Japanese word that was the equivalent of “check in the go.”

In his home laboratory, Bushnell built the sim- plest game he could think of. People knew the rules

immediately, and it could be played with one hand. The game was modeled on table tennis, and players batted a ball back and forth with paddles that could be moved up and down sides of a court by twisting knobs. He named the game “Pong” after the sonar- like sound that was emitted every time the ball con- nected with a paddle.

In the fall of 1972, Bushnell installed his proto- type for Pong in Andy Capp’s tavern in Sunnyvale, California. The only instructions were “avoid miss- ing the ball for a high score.” In the fi rst week, 1,200 quarters were deposited in the casserole dish that served as a coin box in Bushnell’s prototype. Bushnell was ecstatic; his simple game had brought in $300 in a week. The pinball machine that stood next to it averaged $35 a week.

Lacking the capital to mass-produce the game, Bushnell approached established amusement game companies, only to be repeatedly shown the door. Down but hardly out, Bushnell cut his hair, put on a suit, and talked his way into a $50,000 line of credit from a local bank. He set up a production line in an abandoned roller skating rink and hired people to assemble machines while Led Zeppelin and the Rolling Stones played at full volume over the speaker system of the rink. Among his fi rst batch of employees was a skinny 17-year-old named Steve Jobs, who would later found a few companies of his own, including Apple Computer, NeXT, and Pixar. Like others, Jobs had been attracted by a classifi ed ad that read “Have Fun and Make Money.”

In no time at all, Bushnell was selling all the machines that his small staff could make—about

This case was prepared by Charles W. L. Hill, the University of Washington. This case is intended to be used as a basis for class discussion rather than as an illustration of either effective or ineffective handling of the situation. Reprinted by permission of Charles W. L. Hill.

The Home Video Game Industry: Atari Pong to the Nintendo Wii

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C36 Section A: Business Level Cases: Domestic and Global

10 per day; to grow, however, he needed additional capital. The ambience at the rink, with its mix of rock music and marijuana fumes, put off most potential investors, but Don Valentine, one of the country’s most astute and credible venture capitalists, was impressed with the growth story. Armed with Valentine’s money, Atari began to increase produc- tion and expand its range of games. New games included Tank and Breakout; the latter was designed by Jobs and a friend of his, Steve Wozniak, who had left HP to work at Atari.

By 1974, 100,000 Pong-like games were sold worldwide. Although Atari manufactured only 10% of the games, the company still made $3.2 million that year. With the Pong clones coming on strong, Bushnell decided to make a Pong system for the home. In fact, Magnavox had been marketing a similar game for the home since 1972, although sales had been modest.2 Bushnell’s team managed to compress Atari’s coin-operated Pong game down to a few inexpensive circuits that were contained in the game console. Atari’s Pong had a sharper pic- ture and more sensitive controllers than Magnavox’s machine. It also cost less. Bushnell then went on a road show, demonstrating Pong to toy buyers, but he received an indifferent response and no sales. A dejected Bushnell returned to Atari with no idea of what to do next. Then the buyer for the sport- ing goods department at Sears came to see Bushnell, reviewed the machine, and offered to buy every home Pong game Atari could make. With Sears’s backing, Bushnell boosted production. Sears ran a major tele- vision ad campaign to sell home Pong, and Atari’s sales soared, hitting $450 million in 1975. The home video game had arrived.