BMGT495 Wii Encore Case

BMGT495

Wii Encore Case

1. What are some possible factors that could explain why the leader in one generation did not become the leader in the next generation? Why Sony was an exception?

Failure to innovate

• Companies are hesitant to pivot from their current product if the current one is producing profits.
• Waiting too long to begin development of new technology causes the current incumbent to fall to the other competitors that innovated.

Releasing products too late

• Sega was able to overtake Nintendo in 1998 because Nintendo delayed the release of their 16-bit SNES due to not wanting to take profits away from their 8-bit NES.
  • The Genesis was thus released 2 years befores the NES, giving Sega the lead in the 16-bit generation.

Sony was able to maintain its industry leadership due to some unfortunate circumstances to Sega and their new 128-bit Dreamcast. After hoping to take market control by releasing the first 128-bit console, Sega ran into supplier issues with their graphics chips, leading to only four games being available at launch. Third party developers were thus hesitant to use resources for the Dreamcast and instead opted to focus on the Playstation 2 which was released just months later. Because of Sony’s dominance in the market due to the original Playstation and Sega’s mishaps, they were able to maintain their status as incumbent for the 128-bit generation.

2. Do you think the launch strategy of Wii was adequate? During the product life cycle, what would you have done to minimize the effects of potential responses from competitors?  Given the current pressures from competitors and substitutes, what should Nintendo do?

The initial launch strategy of the Nintendo Wii was adequate. It turned out to be a major hit leading to a shortage of supply, which in turn led to more exclusivity and more demand. Nintendo was very successful in the marketing of the motion sensor product, breaking down barriers between gamers and non-gamers, introducing the Wii as a family-friendly toy that everyone could enjoy. The issue Nintendo faced was other industry leaders Microsoft and Sony breaking into the motion sensor market while also incorporating DVD use and advanced software. Nintendo did not put nearly as much effort into their software and graphics as competitors did, leading to the downfall of the Wii. It may be too late for Nintendo to follow in the traditional gamer focus of the Xbox and Playstation, but if they could find another niche for their alternative gameplay to flourish as it did with the motion sensor, they could see another few years of success.

3. Compare the operating margins of Sega, Nintendo, Sony, and Microsoft (Exhibit 2). Given consistent negative margins why are Sony and Microsoft still in the game?

Sega initially enjoyed a high operating margin, but it quickly fell until their exit from the market in 2001. Nintendo has always had a high operating margin, although it fluctuates greatly. Sony began with a moderately high operating margin, but saw a steep decline in 2006 and has been negative ever since. Microsoft entered the market with a huge operating loss, but has managed to increase their margin in the years since to now be positive. Although both Microsoft and Sony experienced many years of a negative operating margin, they have still seen product success and have gained customer loyalty. Because of this, the margins of both companies have trended upward, with Microsoft enjoying positive margins in 2008 for the first time ever. Sony had an operating margin of -22.8% in 2006 with the release of the Playstation 3, but have seen their margin increase each year since and by 2009 only had -5.6%. The upward trend for these two companies allows these companies to operate at a loss for years while still maintaining investors and believing that they will have consistent positive margins in the future.