Video and Computer Games Industry
Organizations rely on environmental scanning to carefully monitor their internal and external environments with the aim of detecting opportunities and threats that may have a bearing on their current and future plans. Changes in technology have contributed to increased dynamics in the video and computer games industry, and companies have been forced to transform and adapt to stay competitive. Enterprises focusing on the retailing of DVD/CD/Computer games have been affected by the advent of competition especially from companies utilizing digital platforms to provide video and computer games to their clients (Grüsser et al., 291). There has been the explosion of Internet-based access points such as video streaming that have revolutionalised the way companies provide products and services to their customers.
Industry/Sector Analysis
The industry is vibrant and constantly produces a steady stream of games characterized by their diverse nature and impact, meaning that they can be social and collaborative with many operating on platforms that allow a large number of people from different global locations to participate simultaneously. Generally, video and computer games comprise of complex systems involving interaction of rules, and gamers are expected to think like designers and constitute hypotheses regarding how the interaction of rules makes it possible for them to accomplish goals and cause emergent results (Griffiths et al., 484). The enthusiasm displayed by the consumers of video and computer games provides a vital role in the introduction of a commercial need to invent products with better graphics and higher processor speeds. This has contributed in making the products popular. Research indicates that four out of five homes in U.S. have gadgets that are used for playing video and computer games (Michael et al., 28).
The video and computer game industry has undergone total transformation over the past decade, and growth and emergent trends around the world present employment opportunities, career prospects, and trading opportunities. Raessens (54) predicts that the industry will continue to grow in the coming years and by 2020 the industry will be the 3rd largest segment, by growth rate, of the Entertainment and Media market. It is estimated that video game consoles will constitute the segment of greatest economic significance. Companies wishing to compete globally must leverage presence in national markets to survive, since according to the product lifecycle theory, the foundation hardware and game software segments are usually at different stages of market maturity across international borders (Squire, 12). It is characteristic for first world countries to experience the maturity phase while developing countries are starting the growth phase (Deterding et al., 14).
The video and computer games industry has been analyzed and the key drivers of change presented as per the following discussion.
Overview of the Industry
The traditional description of the industry referred to gaming presented using display devices whose resolution was established using the number of pixels contained in the image (Dyer-Witheford et al., 104). Technological advancement including 3D polygon imagery has made it possible to describe gaming according to the type of display device. The display device evolution and advances in platform technology has made choice diversity possible as any device with the capability of manipulation of video display signal can potentially be useful in playing games. Mobile phones and handheld devices are now part of the hardware of video and computer games industry, meaning that the devices that are available for physically games have increased considerably (Jain et al., 17). Furthermore, the industry can be described according to two more sectors. Firstly, the software sector that is made up of the videos and games, and secondly, the technology and infrastructure sector which forms the framework required to undertake distribution and achieve actual game play.
Structural Analysis of the Industry
The analysis provides a framework for assessment of the competitive forces influencing an industry that are important in the development of competitive strategy. The video and computer games industry has different segmentation. The first segmentation criteria provide five vertical stages that include development, publishing, manufacture, distribution, and retail. The second segmentation criteria highlight software and hardware arenas. The upstream market features the manufacture of hardware, and software development (Egenfeldt-Nielsen, 19). The downstream market starts with the distribution phase, and its examination considers both software and hardware aspects. The software sector is organized so publishers facilitate the distribution process to retailers. Publishers operate under license to sell games relating to specific consoles and they must undertake to pay royalties for each game sold to manufacturers. This implies that manufacturers are actively involved in the determination of the cost structure, and therefore the consideration whether to engage in-house publishers or outsource the services depending on cost-benefit analysis (Kücklich, 8). In contrast, hardware manufacturers undertake the organization of their distribution by engaging local or regional franchises that deliver products to retailers. Competitiveness is achieved and maintained by hardware manufacturers through exploitation of opportunities along the value chain through increasing involvement or forming formidable alliances with software segments (Zyda, 31). Porter’s ‘Five Forces’ model is a crucial framework for understanding the developments within industries more generally. Driven by competition and rivalry, the model pinpoints five influential factors within industry analysis. Firstly, the degree of the rivalry, marked by industry concentration, product differences and brand identity. Next, the threat of substitutes including price performance, Buyer inclination and switching costs. Thirdly, supplier power, including: supplier concentration, differentiation of inputs and importance of volume to suppliers. Fourthly, the threat of new entrants into the industry and instigated barrier to entry by those already firmly within the industry. Lastly, the effects of buyer power, including volume, information and price sensitivity (QuickMBA, 1). These factors will form the basis of this analysis into the game industry.
Strategic Analysis
When examining Porter’s model we can see that the games industry presents many barriers to entry through product development expenditure, brand marketing, and product lifecycle innovations. These barriers effectively reduce the rate of entry of new firms that works to maintain profit levels (QuickMBA, 1). The console market features high costs related to research and development. It is estimated that establishment of production economies of scale early in the lifecycle of a product serves to help manufacturers to recoup initial costs associated with release of new consoles (Ritterfeld et al., 11). The strategy to forge strong brands and the establishment of a wider customer pool has the potential to drive software and accessory sales upwards. Moreover, a successful hardware category launch is considered instrumental in incentivizing third parties to undertake software development for the consoles (Izushi et al., 1847).
The publishing software market offers increased development cost barriers to entry. There are high costs associated with the cost of developing games, and risks exist regarding the success of the venture in the public’s mind (Van Eck, 9). Porter indicates that the situation serves to ward off potential entrants as many lack the necessary financial muscle to sustain performance after exposure to repeated failures with high exit costs (QuickMBA, 1). The production of series affords logistical economies of scale to the publisher as future games will require reduced developmental costs (Nareyek, 14).
Company Strategic Options
The following sections shall explore the strategic options of games companies through a case study. This case study shall examine world-renowned online retailer, developer and publisher; Jagex. Debuting in 2000, Jagex can be considered one company that has embraced the trends within the computer games industry and how consumers interact with the games they play and are continuing to grow from a loyal fan base with their free, interactive, online multiplayer games such as Runescape. The company has introduced several strategies in order to compete and thrive within the games industry, as the following sections shall detail (Jagex, 1).
Computer Games Company’s such as Jagex can pursue realistic strategic options based on the following four considerations. Firstly, company considerations based on the relevant degree of specialization. This relates to how the company undertakes to focus on the width of the products, the market segments to target, and the geographical markets to serve. Secondly, the company can seek to undertake brand identification as opposed to competition based on pricing and related variables (Vogel, 22). Thirdly, the company can integrate technological leadership, whether this is sought through associations with offerings from dealers and manufacturers embracing technology or independent company pursuits in using technology as a competitive strategy. Fourthly, the company can adopt cost positioning as a sales strategy that should involve selection of low cost or high cost focus with corresponding quality ramifications (Prescott et al., 65). In examining relevant theories, the PESTEL analysis can be considered useful in determining the factors that affect any given industry or business; illustrating political, social and economic factors and how they influence the industry. In support of this, SWOT analysis shall illustrate the strengths, weaknesses and opportunities that the Jagex company faces currently as well as their potential for future progression. The specific strategies available for Jagex will be explored in detail below (Professional Academy SWOT, 1).
Growing an Online Brand
The advent of the Internet and the related technological developments has changed the terrain for enterprises seeking to compete successfully in the global marketplace. The number of people with online access has significantly increased, and research indicates that there is wider coverage of broadband and high-speed Internet. This means that in the coming years online gaming will expand exponentially (Prensky, 21). As indicated through the PESTEL analysis, technological factors can influence new trends within market behavior. The move towards Internet based products introduces new methods in communicating with target markets and is a crucial point of consideration when analyzing the developments within the gaming industry (Professional Academy PESTEL, 1).
The current network development offers multidimensional potential for the industry, and challenges the traditional business model of selling videos and games through retailers offered as tangible products or as downloads to be run or operated using devices. It is likely that the businesses that will be the earliest in switching to offering their products and services via the online platform will remain ahead of the competition (Nelson et al., 20). The advantages associated with the switch include rendering digital piracy impossible, shipping costs would be eliminated or reduced, and revenues would be driven up because of the reduction in distribution costs. It will be possible to open new revenue streams by making it possible for game companies to sale advertising space within games. It will be easier and cheaper to undertake new product testing by offering limited trial access. There are opportunities of establishing online communities through the provision of portals attracting players of specific games (Schneider et al., 324). Jagex can be considered one of the most successful companies within the online gaming sector that has tapped into the growing online audience. The company has grown its brand around the success of its online game, Runescape, which has introduced sophisticated online gaming that connects users all around the world. The game operates freely to its consumers with additional content available with membership (Jagex). Regardless of membership level, gamers generate profit through advertising and the propagation of the game on the worldwide stage. Therefore, Jagex can propagate its brand message as a free game that allows networking all around the world with the overall aim to generate profits through advertising and association The rise of trial periods, advertising and feedback can be seen as an ever-increasing shift across the gaming industry with consumers’ desiring value for money. In turning to SWOT analysis, this is a clear indication of one of the Jagex company strengths; the ability to advertise through enhanced networking games such as Runescape. Through networking, the business forms an online platform from which to launch new developments and products commercially (Professional Academy SWOT, 1).
Pursuing Markets Based on Current and Shifting Customer Demographics
Technological improvements and increased use of the Internet customers come from diverse geographical backgrounds, ages, and recently female participation has increased. A widespread misconception relates to the belief the primary market base is made up of the youth. PESTEL analysis recognizes these factors as fundamental to understanding the fluctuation of market trends. These socio-cultural factors can reflect the shared belief and attitudes of a population or, in this case, the gaming community and have a direct effect on the ability of marketers’ in understanding their customers and the motivations behind their purchases and trends (Professional Academy PESTEL, 1). According to Bainbridge (475) the mean age of gamers is 35, and the trend is similar around the globe for developed countries. However, this does not imply that the industry is no longer attractive to the young generation, but that it is retaining the previous generation of youth as well as attracting the new youth. The previous gap between players and non-players is closing rapidly, and as the world digitizes the marketplace is witnessing video games gaining appeal across generations (Burn, 48). The ratio of female to male players is rising, and companies seeking to exploit this growth potential should proactively position themselves ahead of time by focusing on offerings that are considered attractive to the female customers. Jagex represents these changes entirely within the Runescape platform; the game consists of a loyal fan base that works within the interests of both new and old users. The game has recently developed several servers that allow its newer players to select the new generation of the game whilst retaining the older generation for its older fan base if they so choose. In terms of gender, the game equally favors male or female characters with no significant differences in terms of gameplay, with only aesthetic differences featuring; players are free to select whichever gender within the game depending on their preference (Jagex). The company’s strengths in utilizing consumer feedback and implementing changes based on this allow them to continue developing their brand through networking whilst maintaining its foundations – this is seen through Runescape as suggested through the maintenance of older servers despite the developments of the newer generation server.
Taking Advantage of Shifting Industry Trends
Jagex is one company that reflects the shifting industry trends within the game industry through its significant online network strategies. Such technological developments can bring about two different types of change. Firstly, change that involves incremental offerings through enhancing products and services to increase customer value. Secondly, change that involves radical offerings characterized by new proposals or inventing additional features (Tschang, 992). The radical changes are expected to push a company towards achieving competitive advantage since they influence the emergence of new markets (Hartmann et al., 915). If the company in question embraces new technology, chances are that it will discover new markets. Runescape provides evidence of this as one of the first recognized online, interactive multiplayer games that operates on multiple servers across a global network; a concept very much in its infancy within the gaming sector in 2000. The concept of technological convergence comes into play since new business competition between previously unrelated enterprises initiate simultaneous competition on the converged market as a result of shrinking market entry barriers.
Focusing on Educational Gaming (Educainment)
Educational gaming has been around for a while and has characteristically relied on Personal Computers (PCs). Recent developments have witnessed educational gaming entering the realm of console gaming. Research highlights that console gaming has not had significant success in the educational gaming market, and enterprises focusing on this niche have a potential for experiencing sustained growth in the coming years (Brand et al. 67). The DVD/CD/Computer Games Company can undertake a market study and establish the viability of this strategy. The starting point should be trial offerings targeting smaller market segments, and then progressively undertaking to rollout dedicated product lines for the market. This market segment can potentially be divided into two, one featuring children educational offerings, and another dedicated to adult content educational offerings (Shankar et al., 379). Technological advancements have contributed to educational institutions seeking to establish online platforms for offering learning and information exchange. Pricing strategy can be employed in the introduction of educational entertainment offering. When examining the Jagex Company, it can be suggested that the trends towards developing educational gaming prove to be a weakness within the overall brand. Many of their online games such as Runescape and Herotopia cater to a young audience; yet do not primarily utilize an educational angle. As the SWOT analysis suggests however, weaknesses are not necessarily static, and whilst Jagex are yet to move into this area of development with education as the primary objective, the company has developed itself within the target market, creating possible future opportunities (Professional Academy SWOT, 1).
Conclusion
This assignment has illustrated that the video and computer games industry is vibrant and presents a number of offerings in the retail market. As it is characteristic of industries, there are threats including technological convergence and increasing piracy. However, the growth potential of the industry online, as evidenced through the case study of Jagex, and the forecasted performance in the foreseeable future make the industry attractive to the enterprises wishing to develop responsive growth strategies and are able to sustain a framework for the detection of industry dynamics. Technological advancements present unlimited opportunities for enterprises to explore innovative ways of delivering their offerings, and leveraging core competencies in attracting customers. The ever-changing market demographics paint a picture of widening market segments and the inclusion of new customer categories across ages and regions.
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