Home Video Games <ul><li>First Video Game: 1967 </li></ul><ul><li>Needs devices such as </li></ul><ul><ul><li>Television (...
Targets <ul><li>Main target:  </li></ul><ul><ul><li>Teen Agers and Young Adults (Existing gamers)‏ </li></ul></ul><ul><ul>...
Technologies <ul><li>ROM Cartridge on Video Game </li></ul><ul><ul><li>Introduced in 1976 (Fairchild Channel F)‏ </li></ul...
Opportunities 3DO Saw <ul><li>Superior Hardware </li></ul><ul><ul><li>Draw attention of Users </li></ul></ul><ul><ul><li>B...
Market and Its Neighbors,  1991 World-Wide Home Video Game $3 Billion North America Entertainment Arcade games,  Movie the...
Players in Industry <ul><li>Suppliers </li></ul><ul><ul><li>Hardware components </li></ul></ul><ul><ul><li>Software develo...
How Industry Worked
Source of Revenue <ul><li>Two Main Source of Revenue: </li></ul><ul><ul><li>Software Loyalty </li></ul></ul><ul><ul><li>Ha...
Pricing Strategy of Industry
Multiple Layers Industry Value Added * $50 Retailers $27.5 Developers Software Hardware $5 License Fee $450 –  Retailers M...
Industry Structure Map Independent Collaborative Closed Open Original  map was drawn by Hirabayashi Hisakazu, Akio Koichi ...
Market Share <ul><li>Nintendo Ruled until 1994 </li></ul><ul><li>Sega almost catch Nintendo in U.S. Market </li></ul><ul><...
What’s Attracts Gamers? <ul><li>Own Games Titles </li></ul><ul><ul><li>Best Seller? </li></ul></ul><ul><ul><li>Many titles...
Strategic Move: 3DO  (1)‏ <ul><li>Intrude untapped home entertainment area </li></ul><ul><ul><li>Dream Team Alliances:  </...
Strategic Move: 3DO  (2)‏ <ul><li>Open platform </li></ul><ul><ul><li>Large Comparability – New Standard </li></ul></ul><u...
3DO’s Multiple Layers Value Added $75 Retailers $40 Developers Software Hardware $3 Royalty Fee $700 – Retailers * Manufac...
Perceptual Map, 1993 Own Game Titles Few High Low Performance Many Super NES $200 Genesis $190 3DO $700
Strategic Reaction: Sega <ul><li>Use its strength: </li></ul><ul><ul><li>Own amusement centers and Arcade games </li></ul>...
Strategic Reaction: Nintendo <ul><li>Keep low pricing strategy </li></ul><ul><li>Enhance existing system </li></ul><ul><ul...
Perceptual Map, 1994
Strategic Move: Sony <ul><li>New entrant with Play Station  (later PS-X)‏ </li></ul><ul><ul><li>32bit, CD-ROM machine </li...
Perceptual Map, Late 1994  (with SONY)‏ Own Game Titles Few High Low Performance Many Saturn $450 (400)‏ 3DO $500 PS-X $50...
As time goes by…
Epilogue <ul><li>Enhancement to catch competitors: </li></ul><ul><ul><li>M2 Accelerator </li></ul></ul><ul><li>Price drop ...
Why 3DO failed? Too Expensive (High entering cost)‏ Few Titles and  No “Star Player” No focus on its identity <ul><li>No “...
Pitfalls: Trip Hawkins should not:  (1)   <ul><li>Focus too much on Software Industry </li></ul><ul><ul><li>License fee is...
Pitfalls: Trip Hawkins should not:  (2)   <ul><li>Try to put everything in 3DO </li></ul><ul><ul><li>Needs to reduce cost ...
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  • 3 Do

    1. 2. Home Video Games <ul><li>First Video Game: 1967 </li></ul><ul><li>Needs devices such as </li></ul><ul><ul><li>Television (Display)‏ </li></ul></ul><ul><ul><li>Joystick or Control Pad (Input Device)‏ </li></ul></ul><ul><li>How different from computer? </li></ul><ul><ul><li>More specialized machine (Cheaper)‏ </li></ul></ul><ul><ul><li>Limited number of Input / Output Devices </li></ul></ul><ul><ul><li>Use ROM (Read Only Memory) as a Medium </li></ul></ul><ul><ul><li>No or very small storage devices (RAM)‏ </li></ul></ul>Ralph Baer’s “Brown Box”, 1967 Nintendo Entertainment System (NES), 1983
    2. 3. Targets <ul><li>Main target: </li></ul><ul><ul><li>Teen Agers and Young Adults (Existing gamers)‏ </li></ul></ul><ul><ul><ul><li>Has some Spending Power </li></ul></ul></ul><ul><ul><ul><li>Having some preference on brand </li></ul></ul></ul><ul><ul><li>Young Children (New comers)‏ </li></ul></ul><ul><ul><ul><li>Less Spending Power </li></ul></ul></ul><ul><ul><ul><li>Rely on their Parents </li></ul></ul></ul><ul><ul><li>Parents </li></ul></ul><ul><ul><ul><li>(No Idea about games :)‏ </li></ul></ul></ul><ul><li>How much they can spend? </li></ul>
    3. 4. Technologies <ul><li>ROM Cartridge on Video Game </li></ul><ul><ul><li>Introduced in 1976 (Fairchild Channel F)‏ </li></ul></ul><ul><ul><li>Dominant Media of Video Game System </li></ul></ul><ul><li>CD-ROM (1985) on Video Game </li></ul><ul><ul><li>Introduced on 1988 (TurboGrafx-CD)‏ </li></ul></ul><ul><ul><li>Slower loading, but more capacity </li></ul></ul><ul><ul><li>CD-Drive is expensive, but Disk is cheap </li></ul></ul><ul><li>Early stage of 3D, “Virtual Reality” </li></ul><ul><ul><li>More Computing Power needed </li></ul></ul>
    4. 5. Opportunities 3DO Saw <ul><li>Superior Hardware </li></ul><ul><ul><li>Draw attention of Users </li></ul></ul><ul><ul><li>Better Titles </li></ul></ul><ul><li>Open Architecture </li></ul><ul><ul><li>Attract Developers </li></ul></ul><ul><ul><li>Reduce Converting Process </li></ul></ul><ul><li>Joint Venture with Leaders </li></ul><ul><ul><li>Aiming even the other Multimedia Entertainment Market </li></ul></ul>
    5. 6. Market and Its Neighbors, 1991 World-Wide Home Video Game $3 Billion North America Entertainment Arcade games, Movie theater, Video Rental Japan Europe Asia Home Video Game Companies belong to: All other amusement and recreation industry (713990)‏ $29 Billion Overall
    6. 7. Players in Industry <ul><li>Suppliers </li></ul><ul><ul><li>Hardware components </li></ul></ul><ul><ul><li>Software developers </li></ul></ul><ul><li>Video Game System Companies </li></ul><ul><ul><li>Usually exclusive manufacturer </li></ul></ul><ul><li>Wholesalers and Retailers </li></ul><ul><li>Consumers (Gamers)‏ </li></ul>
    7. 8. How Industry Worked
    8. 9. Source of Revenue <ul><li>Two Main Source of Revenue: </li></ul><ul><ul><li>Software Loyalty </li></ul></ul><ul><ul><li>Hardware sales </li></ul></ul><ul><li>In case of Nintendo 64,* </li></ul><ul><ul><li>Hardware Margin: 1~5% </li></ul></ul><ul><ul><li>Software Margin: 45% </li></ul></ul><ul><li>… Why? </li></ul>* Business week Jun., 9, 1997 <ul><li>Estimation including cartridge mfg cost (Nintendo)‏ </li></ul><ul><li>Loyalty Data from OEM Magazine (1996, 8), Software Pricing from NPD Group Inc. (1997, 8)‏ </li></ul>
    9. 10. Pricing Strategy of Industry
    10. 11. Multiple Layers Industry Value Added * $50 Retailers $27.5 Developers Software Hardware $5 License Fee $450 – Retailers Manufacturer ** (Closed Architecture)‏ 1~5% Margin * In case of Sega’s case. ** Only estimation is available, but some says that retail price could be lower than manufacturing cost. (http://www.alexassoc.com/white/sony.shtml)‏ $19.5 Revenue
    11. 12. Industry Structure Map Independent Collaborative Closed Open Original map was drawn by Hirabayashi Hisakazu, Akio Koichi (1996), and slightly modified <ul><li>Exclusive </li></ul><ul><li>Heavily rely on software loyalty </li></ul>Industry <ul><li>Solely rely on Hardware sale </li></ul><ul><li>Collaborative </li></ul><ul><li>Software Royalty only </li></ul><ul><li>Licensing Hardware </li></ul>
    12. 13. Market Share <ul><li>Nintendo Ruled until 1994 </li></ul><ul><li>Sega almost catch Nintendo in U.S. Market </li></ul><ul><li>In 1993, HHI was 5,468 * (Highly Concentrated)‏ </li></ul>From: Feasibility analysis of domestic game system development, Hee Soo Kim, Jan, 2002 Total Revenue (in Million$)‏ * Excluded NEC’s TurboGrafx-16, which discontinued in 1993, and Philips’ CD-I, which had minimum market share.
    13. 14. What’s Attracts Gamers? <ul><li>Own Games Titles </li></ul><ul><ul><li>Best Seller? </li></ul></ul><ul><ul><li>Many titles sold? </li></ul></ul><ul><ul><li>Competitors have it? </li></ul></ul><ul><li>Technology – Better System </li></ul><ul><ul><li>Quality of Graphics or Sound? </li></ul></ul><ul><ul><li>Speed of Processing, Loading </li></ul></ul><ul><li>Price </li></ul><ul><ul><li>How many gamers can buy it? </li></ul></ul>…
    14. 15. Strategic Move: 3DO (1)‏ <ul><li>Intrude untapped home entertainment area </li></ul><ul><ul><li>Dream Team Alliances: </li></ul></ul><ul><ul><ul><li>EA, Matsushita, Time Warner, Kleiner Perkins, AT&T… </li></ul></ul></ul><ul><ul><li>Comparable with a lot of Media Formats </li></ul></ul><ul><li>The most advanced machine </li></ul><ul><ul><li>First 32bit, RISC Microprocessor </li></ul></ul><ul><ul><li>CD-ROM based High-end platform </li></ul></ul><ul><ul><li>24bit Graphic Processor </li></ul></ul><ul><ul><li>Expandable </li></ul></ul><ul><ul><ul><li>Peripherals and Enhancements </li></ul></ul></ul>
    15. 16. Strategic Move: 3DO (2)‏ <ul><li>Open platform </li></ul><ul><ul><li>Large Comparability – New Standard </li></ul></ul><ul><ul><li>Favor for Developers </li></ul></ul><ul><ul><ul><li>No hardware license fee </li></ul></ul></ul><ul><ul><ul><ul><li>Anyone can produce 3DO </li></ul></ul></ul></ul><ul><ul><ul><li>$3 for Software Royalty per Disc </li></ul></ul></ul><ul><ul><ul><li>Free Contents Libraries </li></ul></ul></ul><ul><li>Pricing: </li></ul><ul><ul><li>$700 for Hardware </li></ul></ul><ul><ul><li>$75 for Software </li></ul></ul>
    16. 17. 3DO’s Multiple Layers Value Added $75 Retailers $40 Developers Software Hardware $3 Royalty Fee $700 – Retailers * Manufacturers (Open Architecture)‏ * Retail price is vary from manufacturers to manufacturers. Any manufacturers can make 3DO if it is comparable with 3DO. No License Fee Revenue
    17. 18. Perceptual Map, 1993 Own Game Titles Few High Low Performance Many Super NES $200 Genesis $190 3DO $700
    18. 19. Strategic Reaction: Sega <ul><li>Use its strength: </li></ul><ul><ul><li>Own amusement centers and Arcade games </li></ul></ul><ul><ul><li>Convert them into Home Video Game Consoles </li></ul></ul><ul><li>Introduce CD-ROM – Earlier than 3DO </li></ul><ul><ul><li>Sega CD – Add-on for Genesis </li></ul></ul><ul><ul><li>Announce Next 32bit machine, with CD-ROM </li></ul></ul><ul><li>Sega Channel – through cable network </li></ul><ul><li>Other enhancements: </li></ul><ul><ul><li>Network add-on: Edge 16 </li></ul></ul><ul><ul><li>Enhance add-on: Genesis Super 32X </li></ul></ul>
    19. 20. Strategic Reaction: Nintendo <ul><li>Keep low pricing strategy </li></ul><ul><li>Enhance existing system </li></ul><ul><ul><li>Enhance add-on: Super FX </li></ul></ul><ul><ul><li>Showcase title: Star Fox </li></ul></ul><ul><li>Project Reality (later Nintendo 64)‏ </li></ul><ul><ul><li>Announce 64bit System </li></ul></ul><ul><li>Appeal existing system’s capability </li></ul>
    20. 21. Perceptual Map, 1994
    21. 22. Strategic Move: Sony <ul><li>New entrant with Play Station (later PS-X)‏ </li></ul><ul><ul><li>32bit, CD-ROM machine </li></ul></ul><ul><li>Use the other subsidiaries </li></ul><ul><li>License with software community </li></ul><ul><ul><li>$3 ~ $9 per disc </li></ul></ul><ul><ul><li>Advanced commitments from software developers </li></ul></ul><ul><li>Pricing System: </li></ul><ul><ul><li>$500 (1994)‏ </li></ul></ul><ul><ul><li>Later $300 </li></ul></ul>
    22. 23. Perceptual Map, Late 1994 (with SONY)‏ Own Game Titles Few High Low Performance Many Saturn $450 (400)‏ 3DO $500 PS-X $500 (300)‏ Nintendo64 $250 (200)‏ * Number inside of ( )‏ Is actual retail price
    23. 24. As time goes by…
    24. 25. Epilogue <ul><li>Enhancement to catch competitors: </li></ul><ul><ul><li>M2 Accelerator </li></ul></ul><ul><li>Price drop (1996)‏ </li></ul><ul><li>Out from Hardware Development (1996)‏ </li></ul><ul><ul><li>Sold to Samsung (1997)‏ </li></ul></ul><ul><li>Become a Software Developer (Studio3DO)‏ </li></ul><ul><li>Bankrupt (2003)‏ </li></ul>
    25. 26. Why 3DO failed? Too Expensive (High entering cost)‏ Few Titles and No “Star Player” No focus on its identity <ul><li>No “star” game producers </li></ul><ul><li>No bestsellers </li></ul><ul><ul><li>Too broad targets </li></ul></ul><ul><ul><li>What really is it? </li></ul></ul><ul><ul><li>$200 (Super NES) </li></ul></ul><ul><ul><li>$190 (Genesis) </li></ul></ul><ul><ul><li>$700 (3DO)‏ </li></ul></ul>
    26. 27. Pitfalls: Trip Hawkins should not: (1) <ul><li>Focus too much on Software Industry </li></ul><ul><ul><li>License fee is coming from developers, but </li></ul></ul><ul><ul><li>Who really pay the License fee? “Gamers” </li></ul></ul><ul><li>Underestimate power of major game publishers </li></ul><ul><ul><li>They already have strong influence to gamers, but </li></ul></ul><ul><ul><li>New developers don’t have it. (So 3DO does)‏ </li></ul></ul>
    27. 28. Pitfalls: Trip Hawkins should not: (2) <ul><li>Try to put everything in 3DO </li></ul><ul><ul><li>Needs to reduce cost by remove unnecessary parts </li></ul></ul><ul><ul><li>Make consumers focus on </li></ul></ul><ul><li>Open Architecture </li></ul><ul><ul><li>Sony priced PS-X as $299 while manufacturing cost was above $339. Could 3DO do that? * </li></ul></ul><ul><li>Go too far from consumers </li></ul><ul><ul><li>Affordable “future” </li></ul></ul>* Shakeup at SONY: What's the Playstation Costing? (http://www.alexassoc.com/white/sony. html )‏
    28. 29. Thank You

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