Shinra at Columbia Business School: A Seminar from Yoichi Wada
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On October 22, President Yoichi Wada delivered this seminar to Columbia Business School students entitled, “How will Shinra build the next game industry ecosystem?”
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Shinra at Columbia Business School: A Seminar from Yoichi Wada
- 1. The Game Changer How will Shinra build the next game industry ecosystem? Oct. 22nd, 2014 Yoichi Wada, President Shinra Technologies, Inc.
- 2. Characteristics of Content Industries Content is intangible. Value is generated when content becomes product.
- 3. Content Industries in the 20th Century Movie Film Industry Literature Book Publishing Industry Music Record Industry Game Game (Console) Industry
- 4. Transformation from Content to Product Significant Added Value Publish Manufacture Retail Distribution Create Revenue allocation varies in each industry, however typically only 5-30% (45% max) is given back to the content creators. As contents get more digital, creators receive higher shares.
- 5. Characteristics of Game Industries Computer games are the most complex software applications. A specialized platform is required. The game industry ecosystems were shaped by each specialized platform.
- 6. Arcade Games : 1970s onward One Machine, One Game Expensive Hardware Consumer cannot invest in extremely expensive arcade machines. Arcade operators purchase machines and had consumers insert coins to recoup cost. Birth of a new form of entertainment.
- 7. Console Games : 1985 - 2000 One Machine, Multiple Games Inexpensive Hardware Game console makers adopted a vertically integrated business model, and the ecosystems were built on the basis of third parties being only on the game development layer. The introduction of this new business model led to substantial growth in the game industry.
- 8. Console Games : 2000 onward Non-gaming features (e.g. DVD) added to console hardware The effective investment required on the part of customers to play games was reduced Other forms of entertainment (e.g. movies) became increasingly fused with games
- 9. General Purpose Device Games: 2005 onward Smartphones and Laptops Players no longer have to invest money solely for the purpose of playing games Reaches wider target segments and geographical regions • Moms playing Farmville • Emerging markets where game consoles were too expensive
- 10. 120,000 100,000 80,000 60,000 40,000 20,000 0 Smart TV The games market has grown through each expansion of devices Mobile(SP, Tablet) PC Online Connected Console Console/HH/PCソフ ト Arcade Game 12 10 8 6 4 2 Billion $ 1975 1980 1985 1990 1995 2000 2005 2010 2015e 2020e
- 11. Cloud gaming will change the game industry fundamentally
- 12. The Innovator’s Dilemma Quality Customer Expectations Time Switch
- 13. Until now we have seen only partial alignment with the theory Quality Time Partial Switch Partial Switch Arcade Game Console Game General Purpose Device Game
- 14. 120,000 100,000 80,000 60,000 40,000 20,000 0 1975 2006 12 10 8 6 4 2 In the game industry thus far, we have not seen complete disruption. Rather, various device markets have piled up similar to geographical strata. When there has been a change in device, the reason we haven’t seen a complete shift from one device to another has been due to the “experience” provided by the uniqueness of the device itself.
- 15. 120,000 100,000 80,000 60,000 40,000 20,000 0 1975 2006 12 10 8 6 4 2 The Platform will move from Device to the Cloud The differentiation in colors will become meaningless.
- 16. Quality The situation will change completely Time Switch ! Client Game Cloud Game
- 17. Two New Value Drivers The New Game Experience The New Ecosystem
- 18. Two New Value Drivers The New Game Experience Games have shifted from consoles to general purpose devices. While the market did expand, uniqueness and variety was lost. Cloud gaming is a solution to bring forth new, unique attributes of games similar to special purpose devices.
- 19. Two New Value Drivers The New Ecosystem Until now, the industry ecosystem has been built around the device manufacturers (clients). As value shifts from the client to the cloud, the new ecosystem’s leadership will revolve around the cloud operator.
- 20. Shinra Technologies, Inc. is pioneering this new era. We anticipate huge opportunities in the game industry’s greatest transformation.
- 21. Shinra Enables New Game Experiences New experiences occur on a supercomputer designed for games We free game developers from strangleholds such as: The difficulty of creating online games The need to support multiple devices and OSs The limited processing availability in devices We present players with new ways to interact with games
- 22. Shinra Establishes A New Ecosystem Via the cloud, create a world that ties together users, developers and related parties in a way that is both satisfying and economically palatable F2P, crowd funding, crowd sourcing, etc Include all these new trends to create a true “ecosystem”
- 23. We are building worlds no one has seen before, and we cannot do it by ourselves Shinra adopts an Emergent Strategy
- 24. Get on a rocket ship : shinra.com
Editor's Notes
- Content, such as movies and music, is an intangible asset with no physical substance, and this aspect makes it extremely difficult to turn content into a business. For example, music itself is impossible to trade, so you need to record it on a CD and turn it into a physical product. The content industry used to place its utmost business value in commercializing its content.
- Movies, literature and other businesses were respectively called the film industry, book publishing industry, etc. Content was turned into product by placing content onto media. The content industry was in essence a media industry.
- In the content business, media companies take most of the revenue and only marginal amounts are given back to the content creators.
- The game industry is part of the content industry. On top of that, not only are computer games intangible, they are the most complex software applications. You need high-performance machines to run them. Since versatile machines are too expensive to sell and distribute widely, game companies developed specialized computers dedicated to playing only games. In the game industry, these manufacturers are called platforms and they created the gaming ecosystem. The game industry was actually a game machine industry. Tracing the history of game machines will give you a better picture of how the industry ecosystem has changed over the years.
- When computer games first appeared in the 70s, one specialized machine was used to play one specific game. For example, an arcade machine for Space Invaders could play no other games, and it cost $2000 a unit! Of course, individual consumers could not buy such a machine, so the business model was to have game manufacturers sell them to video arcades, and arcades recouped the cost by having players insert coins according to how much they played. This was the beginning of the game industry. Leading game manufacturers gradually began to run their own arcades, which eventually led to a vertical integration within the industry.
- In the early 80s, Nintendo came into the picture. Nintendo adopted a complete vertically integrated business model. Not only did they develop, manufacture and sell game machines, they also developed and sold software. Nintendo eventually opened up software development to third parties, incidentally creating a positive externality and resulting in a significant expansion of the market.
- PlayStation 2, released in the year 2000, also functioned as a DVD player. From this point on, machines dedicated to playing only games disappeared. In the same year in Japan, games were also available on feature phones, which was the beginning of the mobile game market.
- Players no longer had to invest money solely for the purpose of playing games. From this point on, and as the slide says, the game market expanded even further.
- This shows game software sales for each device from 1975 to a prediction for 2020. The market grows as more types of devices that could play games came into the market. The market in each device continues to expand today, and as a result, the cumulative growth of the game market as a whole is tremendous.
- Cloud gaming will fundamentally change the game industry. Games have run on the client – on the device. As a result, until now, each new device created its own ecosystem. With cloud gaming, games will be processed solely on the cloud.
- I’m sure you’ve all seen this—the innovator’s dilemma.
- Let’s put this in perspective with the game industry. This shows you how mainstream devices shifted over different phases of the history of games. Interestingly enough, there has not been a complete shift to a new device.
- In the game industry, until now we have not seen complete disruption. The reason is due to the unique experiences provided by the device itself.
- When platforms shift from device to cloud, the ecosystems once led by the device will now be led by the cloud.
- This is a picture of the same market but from a different dimension. As before, we will continue to see games played on various devices and the market for each device will continue to grow. However, the initiative to develop the ecosystem will shift entirely to the cloud, and I believe that enterprises that base their business on the cloud will take control. The ecosystem that was once divided by device will soon be integrated into one huge ecosystem.
- Moving the platform from client to cloud is not merely a shift of who takes the lead in business. It creates new values that can also become the driver to further expand the market. Let’s look closely at each of these points.
- Offer completely new game experiences. Fresh new surprises are the most important factor for entertainment to succeed. Even if we continue to offer the same quality, when content becomes stale, consumers grow tired and value declines. Until now, the game market grew in proportion to the types of devices that could play games. However, this also indicated a relative setback for game-dedicated devices. You could see it like this: in order to expand the market, the game industry sacrificed to some extent the distinctive characteristics and richness of what games could express. When the platform shifts to the cloud, numerous users share the computer on the cloud, which also from an economical perspective, makes it possible to set up a game-dedicated machine in the datacenter.
- Forming a new ecosystem. Thus far, device operators on the client side worked to make an intangible asset like games into a product. Going forward, cloud will be the center of the new ecosystem. Everything in the value chain will change.
- Shinra intends to open a path to a new era. A radical change in the industry presents huge risks to existing businesses, but Shinra sees this revolutionary time as a great opportunity. There are opportunities in change.
- Shinra will enable completely new gaming experiences. Shinra will build a supercomputer on the cloud. While it’s possible to make supercomputers with generic parts instead of custom-made chips, Shinra’s patented technology makes it possible to build highly cost-effective supercomputers optimal for game processing. Game designs that could not be accomplished on devices are now possible on the cloud. On top of that, lowering the threshold for developers and making it easier to develop games augments development capability; that is to say, the total supply capacity.
- Shinra believes that it can bring forth a new ecosystem. Let me go into some conceptual talk. Think of a tray as the environment, blocks on the tray as the contributing players, and how the blocks align as the ecosystem. If the blocks are big-- like rocks-- and we change the tray, the blocks will not line up perfectly anymore. That is to say, the ecosystem fails to work properly and adapt to the new environment. However, blocks the size of small pebbles are flexible and can adapt to the shape of the tray. As long as the ecosystem is what it should be, the blocks will align perfectly. Players contributing to the industry, the blocks in this example, are generally units of business. I see America’s advantage as being flexible to restructure organizations-- the ability to change the shape of the blocks themselves. In the internet era, blocks no longer have to be businesses; they can be individuals - grains of sand, so to speak. Micropayments, crowdfunding and crowdsourcing are important infrastructures to make this happen. We have the ingredients; however, until now, network businesses worked in a hybrid of network and real life, and we were not able to fully utilize these features. Now, in the cloud, everything can be accomplished solely on the network. Moreover, cloud’s unique properties will push this trend even further. To cite an example, game developers would be free to deliver feedback to the customers at their own will. It is possible, even now, to revise code as needed depending on customers response; however, there are limits to what we can actually do because this process imposes loads of patches to the customer. This would not be a problem in the cloud. Revisions and updates are handled solely in the cloud, so there would be no patches on the client side.
- Shinra’s goal is to design an ecosystem that adapts adequately to a new environment and becomes the platform that leads the world to a new direction. We will create a world that no one has ever seen before. We have the vision and the technology. The details are left unsolved. In fact, we feel that we should not work out the details alone. We work out the algorithm, but the point is to not document data on our own. By this method, we gather your feedback necessary to develop the details or change them as needed. I feel that an emergent strategy is the corporate strategy for the coming age.
- Thank you.