In the Harvard Business Review case responding to the Wii Kazuo Hirai was faced with an interesting dilemma. Hirai, the chief executive of only computer entertainment Inc. faced pressure due to Sony's PlayStation 3 video game losing market share to the Nintendo Wii. Hirai faced a major decision in deciding how Sony should respond to the cheaper, more interactive, family oriented Nintendo Wii.
The Video Game Industry
From an industry analysis standpoint, the video game console in 2008 was not very attractive. The industry was and still is, structured as an oligopoly in which there are few large firms with differentiated product and high entry barriers. The three main competitors- Sony, Microsoft, and Nintendo- completely saturated the industry and held the majority of the market share. Capital and fixed costs were very high for console developers and entry required thirty party developers to build quality games to be sold on their platforms. The big players like Sony (PlayStation 3) and Microsoft (Xbox 360) were having difficulties selling their console priced at $499 and $299 compared to $250 for Nintendo Wii, creating an environment for an intense rivalry. Compared to the other two competitors Nintendo Wii was less advanced but it was priced significantly cheaper which was met with enthusiastic customer reception. Nintendo also targeted all ages with simplicity, usability, and interactivity. The Nintendo Wii console compared to PlayStation 3 and Xbox 360 was the only competitor to actually make money on its console alone. Sony sold its console at a loss to make the product more affordable while generating profit through games and accessories. It is hard for a new entrant to come into the gaming industry and grab the share of the leading names such as Microsoft, Sony, and Nintendo. It is not impossible, as the history has shown that little companies can make a big splash with bold innovation. If the product is not differentiated from the already existing products customers would not be drawn to it – innovation is key in the gaming industry.
The Next-Generation Dilemma For Sony
The innovation that Nintendo Wii had bought to the marketplace made it outrun all its competitors. The Wii’s enthusiastic audience ranged from preschool children to nursing home residents. Even Queen Elizabeth of England was reportedly a fan. In 2008, with the Wii outselling the PlayStation 3 by a ratio of 2:1 worldwide, Sony’s Hirai knew that his division faced vital questions. Sony had to come up with new strategic moves and ideas to move further within the video game industry and bring itself back on the map. Along with thinking about answers to questions such as should we capture the new target audience found by Wii? What should our goal be moving forward? Should it change course? If so, how? All these are subparts to the main question of how could Sony reclaim leadership of the video game industry?
Solution For Sony
The first option that Sony could implement...