Implementing Situation Analysis to Identify Marketing Opportunities
The industry chosen for this analysis is the video game industry. This industry is primarily involved in the development, production, marketing and sales of video game consoles, accessories, software and merchandise. The market environment in the video game industry is very complicated. The industry has seen over 70 different consoles released often competing with each other in generations. The seventh generation (the current generation) has seen four main gaming platforms dominate the market; the Nintendo Wii, Sony’s Playstation III, Microsoft’s X-Box 360 and the PC (personal computer) (Adolph 1). Currently, the three main competitors in gaming platforms are Sony, Nintendo and Microsoft (producing the X-Box and the PC). Competition is stiff between these companies and the industry is predicted to hit revenues of $70 billion by 2015 (Rishe).
The real competition in the industry comes from the software developers. These are the companies developing the games played. It is estimated that there are over 1000 video game developing companies that are active. In 2012, these developers released more than 200 games, most of them for the Playstation, X-Box and PC. These video games account for most of the industry’s revenue. Revenue is also being collected from online gaming. Modern video games allow players to play together over the internet and the game developers and publishers use this to collect revenue. The software developers are the most important part of the video game industry because they produce the industry’s most important product and bring in more revenue than any other section of the industry.
The last few years have seen several new trends sweep over the industry by storm. These new trends have brought innovations and taken the industry to new levels. One key trend is the integration of motion sensors into video games. This started with the Nintendo Wii console, which was first released in 2006 (Adolph 14). Sony and Microsoft caught onto the trend and introduced their own motion sensor technology with X-Box having the Kinect and the Playstation having the Sixaxis controller. The introduction of motion sensors ushered in a new era in gaming that saw, for the first time, games introduced that required some amount of physical exertion to play (Poh).
Another key trend in the video game industry is online gaming. This is the process of playing video games over a gaming network, usually the internet, with other people. Online gaming had been in existence for a while but it is with the seventh generation consoles that the concept became truly feasible. Online gaming over consoles had started in 2002 but the release of the seventh generation consoles coincided with better internet connectivity and a greater need for multiplayer gaming over the internet (Adolph 1). Seventh generation consoles operate with high graphics making them unable to sustain multiplayer games on the same consoles. Therefore, the release of these consoles saw online gaming as the new platform for conducting multiplayer gaming (Adolph 2).
Sales of video games have also shifted to the internet. Released games are now sold physically and online through digital distribution companies such as Valve (Adolph 2). The sale of video games online, along with online advertising, has helped developers deal with critical issues such as piracy and cut down on shipment and production costs (Poh). The online sale of video games and related software helps developers to keep track of their consumers knowing how many there are, their demographics and geographic location. This helps the developers in their planning and in the development of new market strategies. Selling games online also makes it easier for developers to push their clients to the internet where more revenue can be generated through online gaming and through the release of new content for video games that had already been produced.
Another trend that goes together with online sales is the introduction of cloud gaming. In cloud gaming, video games are stored in servers and when a user purchases a game, they get access to the games stored on the server. Cloud gaming is widely considered the future of gaming for both the gamers and the developers (Poh). Firstly, the system would virtually eliminate all piracy from existence. Developers will no longer lose revenue to leaked copies or bootlegged copies of games. Secondly, the developers would eliminate all shipment costs (Adolph 14). New releases would no longer be transported to stores for sale and the developers would no longer need to hire the services of warehouses. For the gamers, cloud gaming would mean that gamers no longer have to worry about storage space on their gaming platforms. The system would also mean that they no longer have to wait for updates from developers. The implementation of these systems is expected to begin in 2014 (Poh).
The most recent trend in the video game industry has seen developers try to use 3D technology in new video game productions. 3D technology has been a massive hit in the movie industry and has helped boost revenue generated by new productions (Adolph 16). Merging this technology with video games would refresh the video game industry and perhaps push it into a new generation. 3D in video games would not be limited to a visual experience. Developers currently have plans to develop virtual reality gaming systems that completely immerse the user into the virtual world of the game (Poh). Developers are also trying to incorporate other senses into the systems and enhance the overall sensory experience. The first virtual reality gaming devices are expected to hit the market in 2014 with the introduction of visual accessories that enhance the gaming experience (Poh).
Another significant trend in the video game industry is a change in the industry’s target demographics. Initially, the market targeted by the industry was dominated by 15-36 year old males living mostly in the west and the Far East (Adolph 2). These demographics have changed drastically over the last few years. Recent studies have shown that women now account for up to 40% of all gamers in the United States. More than a quarter of all gamers in the United States are over the age of 50. The average video game player in the United States is 34 years old (“How Much Do You Know about Video Games?”). These statistics revealed that teenage boys were no longer the predominant gamers. However, the industry appears to have failed to adapt to these demographic changes with video games still being released to appeal to younger males.
One last trend observed in the video game industry is an increase in open source gaming. These are games developed a cheap costs and made available to gamers at very low prices or, in some cases, none at all (Takahashi). The purpose of open source gaming is to make the games played cheap to create for developers and cheap to purchase for the gamers. Seventh generation consoles turned out to be very expensive and this locked out many gamers. Open source gaming is mostly found on portable platforms such as the iPhone and android phones and on the PC. Coupled with cloud gaming, open source gaming presents a future of cheap and affordable video games that can be played with ease on most platforms.
These trends provide numerous market opportunities that can be exploited by developers and console manufacturers. One market opportunity that is there is the provision of server services. The video game industry is very optimistic about cloud gaming and the provision of servers needed to host the data could be a good business opportunity. Another market opportunity that exists is the development of a fully immersive virtual reality device. The product in this case would be a device that creates the virtual reality for the user by using the user’s sense of touch, sight, hearing and smell. There is also a business opportunity in the development of video games that specifically target female gamers. These games would not necessarily cut down on violence because the fact that women are increasingly playing games means that they are drawn to the virtual violence just as much as men are. These new games would instead be developed in ways that make them more appealing to women. For instance, developers might want to create more games that feature a female lead character.
The biggest market opportunity is the development of a new console. This new console would be part of the next generation of video games. The biggest problem that the seventh generation consoles faced was that gamers shied away from them due to their high prices. Previous generation consoles such as the Playstation 2 single-handedly outsold the entire seventh generation (all seventh generation consoles put together) by a significant margin (James). This new console would target those gamers who felt that the Playstation3 and the X-Box360 were too expensive but still wish to play video games that have reasonably high graphics. This console would support mid-range graphics as a way of cutting down on costs because this is the aspect that makes the seventh generation consoles so expensive. To improve the gaming experience, the console would have a high-end processor to improve the A.I. (Artificial Intelligence). This would mean that the gamer’s opponents would be much smarter and react more like human opponents.
The new console
would target all the gamers left out by the seventh generation consoles.
Figures show that the seventh generation consoles sold only 68 million units
while older systems such as the Playstation 2 sold as many as 140 million units
(James). This means that 72 million gamers chose not to buy seventh generation
consoles. Assuming that half of these gamers turned to consistent platforms
such as the PC, the demand size for the new console would come to roughly 35
million people. This would be the target market for the new console. To capture
“hardcore” gamers who were already using other platforms, the new console would
support cloud gaming. This would make it possible for users to play games with
high-end graphics as well.
Adolph, Martin. “Trends in Video Games and Gaming.” ITU-T Technology Watch Report, 2011. PDF file.
“How Much do you Know about Video Games?” ESRB Entertainment Software Rating Board. n.p. n.d. Web. 07 May 2013
James Wagner. “How Sony Can Boost PS3 Sales.” GIGAOM. n.p. 28 Dec 2008. Web. 07 May 2013
Poh, Michael. “Future of Gaming: 5 Exciting Emerging Trends.” HONGKIAT.com. n.p. n.d. Web. 07 May 2013
Rishe Patrick. “Trends in the Multi-Billion Dollar Video Game Industry: Q/A with Gaming Champ Fatal1ty”. Forbes. 23 Dec 2011. Web. 07 May 2013
Takahashi, Dean. “The Top 12 Trends of the Video Game Industry”. GamesBeat. VentureBeat. 15 May 2009. Web. 07 May 2013.