Responding to Wii
Responding to the Wii Group Case Writeup
BUSMHR 4490
In the Harvard Business Review case Responding to the Wii, Kazuo Hirai was faced with an interesting dilemma. Hirai, the chief executive of Sony Computer Entertainment Inc. faced pressure due to Sony’s Playstation 3 video game console losing market share to the Nintendo Wii. Hirai faced a major business decision in deciding how Sony should respond to the cheaper, more interactive, family oriented Nintendo Wii.
The Video Game Industry at a Glance
From an industry analysis standpoint, the videogame console industry 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 (Figure B). Capital and fixed costs were very high for console developers and entry required third party software developers to build quality games to be sold with their platforms.
The big players like Sony (Playstation 3) and Microsoft (Xbox 360) were having difficulties selling their console even if their consoles were priced higher at $499 compared to $250 for Nintendo Wii, creating an environment of intense rivalry. Compared to the other two rivals, the 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 the Playstation 3 and Xbox 360 was the only competitor to actually make money on its console alone (Figure A). Sony sold its console at a loss to make the product more affordable while generating profit through games and accessories.
(Near) Impossible Entry
For a new entry, it would be very difficult to enter the industry and
BUSMHR 4490
In the Harvard Business Review case Responding to the Wii, Kazuo Hirai was faced with an interesting dilemma. Hirai, the chief executive of Sony Computer Entertainment Inc. faced pressure due to Sony’s Playstation 3 video game console losing market share to the Nintendo Wii. Hirai faced a major business decision in deciding how Sony should respond to the cheaper, more interactive, family oriented Nintendo Wii.
The Video Game Industry at a Glance
From an industry analysis standpoint, the videogame console industry 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 (Figure B). Capital and fixed costs were very high for console developers and entry required third party software developers to build quality games to be sold with their platforms.
The big players like Sony (Playstation 3) and Microsoft (Xbox 360) were having difficulties selling their console even if their consoles were priced higher at $499 compared to $250 for Nintendo Wii, creating an environment of intense rivalry. Compared to the other two rivals, the 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 the Playstation 3 and Xbox 360 was the only competitor to actually make money on its console alone (Figure A). Sony sold its console at a loss to make the product more affordable while generating profit through games and accessories.
(Near) Impossible Entry
For a new entry, it would be very difficult to enter the industry and