Electronic Arts (EA) has four primary divisions, namely EA games, EA Sports, EA Maxis and EA Al Play. EA Games, the label being analyzed in this paper is the biggest division with the most numerous studio and development teams. The label has action-adventure, role-playing, racing and fighting games in its portfolio (EA, 2015).
The primary business level strategy of EA Games is through a vertical complementary strategic alliance because it shares resources and capabilities with other firms through partnerships, licenses and joint ventures. The strategic alliances formed within the company’s value chain allows it to gain competitive advantage.
For instance, EA Games has an alliance with Nintendo wherein the company develops games that can run on Nintendo’s gaming console, the Wii. It has formed similar partnerships with other gaming consoles as well as mobile operating systems such as Apple iOS and Google Android (EA, 2015). These partnerships allow the EA to share technical resources as well as advertising and promotion expenditures with the other firms. Multiple gaming platforms also allow EA to reach a much wider consumer base.
Another example is that while Disney owns the Star Wars film franchise, EA develops the Star Wars video games. This alliance earns EA revenues from the games, while strengthening the Star Wars brand and tying it up with the movies. It’s a win for both companies. In fact as part of its growth strategy, in 2012 EA announced that it was giving “Star Wars: The Old Republic” as a free downloadable game. Removing the barrier of price was done to bring in more players with the hopes of conversion into a premium subscriber or a player who made in-game purchases (Boorstin, 2012).
As for firm capability, the development of video games is very resource intensive. Thus, it would be difficult for new entrants to immediately compete in this industry. Yes, the availability of mobile platforms has made it easier for game developers tested by the public but it will take years and massive investments to be able to compete with a giant like Electronic Arts, which had $1.43 billion in revenue last quarter (Thompson Reuters, 2015).
The products being offered by the different EA labels are hard to imitate, primarily because they hold exclusive licenses for the development of co-branded games. These include Star Wars, The Simpsons, Monopoly, Hasbro toys, FIFA Football, NBA Live, NHL Hockey and so much more. These exclusive partnerships allow the company to develop co-branded games that consumers are already familiar with. This is the company’s biggest source of competitive advantage. In its January 2015 earnings call, the company revealed that the outstanding quarter was the result of more than 6 million people playing FIFA games each week and the biggest day in franchise history on Christmas day for Madden NFL (Thomson Reuters, 2015).
This type of strategy is very sustainable, because co-branding is very important. People want to play games wherein they can be their favorite athlete, movie character or toy. And because the composition of sports teams changes every year, EA will continue to release annual versions of their game.
Furthermore, EA has been increasing its capabilities in digital platforms. This fits the insights revealed by the five forces analysis and the changing business environment where consumers want gaming on demand. Even console makers and smartphone makers are capitalizing on this trend. Building online gaming communities also retained loyalty and prevented switching to the competitors. This has paid off for EA, whose annual digital net revenue reached $2.18 billion, the first time more than 50% of the firm’s revenue was from digital. Further investments in cutting-edge digital services that will result in new gaming experience will only strengthen the company’s competitive advantage.
References:
Boorstin, J. (2012, August 01). Electronic Arts' Radical Strategy for Long-Term Growth. CNBC. http://www.cnbc.com/id/48442437 Date Accessed April 28, 2015.
Electronic Arts, EA. (2015). About EA. http://www.ea.com/about Date Accessed April 28, 2015.
Thompson Reuters. (2015). EA - Q3 2015 Electronic Arts Inc Earnings Call Edited Transcript. New York: Thompson Reuters Street Events.
