Competitive Strategy Group Assignment

Evaluate Microsoft’s decision to enter the video

games/console business in 2001 : was it a good
decision or not, and why?
 Microsoft Xbox – Microsoft’s decision to enter the video games/console business

Decision It was a good decision to enter the video game market given the
high industry attractiveness but the execution was strategically Strategy
challenged
Execution

Industry Attractiveness Assessment – Porter’s Five Forces

Threat of new entrants

 High capital requirement (~$2.0 billion Competitive Rivalry
in R&D) to enter console market (–)  Software market is highly
 High marketing costs (~$500 – 750 fragmented (–)
million) (–)  Significant organic growth in
 Economies of scale enjoyed by the industry (–)
incumbent players (–)  Suppliers are also competitors (–)
 High brand loyalty among end customers  Console market consolidated with
(–) 70% catered by Sony and Nintendo,
 Rapidly growing market expected to worldwide (+)
reach $40.0 billion by 2003 from 18.7
billion in 2001 (+) High

Competition
Low New
Entrants
Buyers

Substitutes Bargaining Power of Buyer

End-customers
Threat of Substitutes
 High switching costs: Customers
 Others forms of entertainment – have to pay a high purchase price and
such as movies, TV and sports – Video Game cross compatibility between
command lower preference (–) Industry – platforms was low (–)
 PC games pose a serious threat Attractiveness  End gamers had primarily 3 console
to console games – 89% gamers Assessment makers to choose from (–)
prefer to pay nothing; online  Strong alternatives to console games,
gaming primarily on PCs (+) enabling customers to play free – 9
of 10 customers did not want to pay
Medium (+)

Suppliers
Retailers
Bargaining Power of Supplier1  Highly consolidated console supply
market (–)
 Multiple software vendors in the market  No threat of backward integration (–)
(–)
 Major retailers were growing
 Console manufacturers also developed influence and demanded higher
games for own brand consoles (–) margins (+)
 Some console manufacturers entered into
exclusive contracts (+) End users – Low
Retailers - Low
Low 1

1) No comments have been made regarding bargaining power of hardware suppliers, as information was not available in the case