Lecture 4

Technology & Strategy

Feb 7, 2016
Contents
ARTICLES:
• Burgleman & Siegel, “Defining the Minimum Winning Game in Hi-
Tech Ventures”
• Modesto et al. “The Art of Hi-Tech Management”

CASE:
• Electronic Arts in 1995 vs 2005
DEFINING THE MINIMUM WINNING GAME IN
HI-TECH VENTURES
 INTRODUCTION

Dilemma
1. Markets change too quickly and that by the time any strategic analysis is completed it will have
taken too long to yield a beneficial answer
2. Customers don’t know what they want with a new technology, and a visionary entrepreneur must
somehow divine customers’ unknown and unmet needs.

MINIMUM WINNING GAME (MWG)

• The 1st major market opportunity, i.e.
• limited enough to provide a clear target for technology and product development efforts in the
short-to-medium term, and
• sufficiently large that successfully pursuing it provides a foundation for long-term corporate
development
 HIGH-TECHNOLOGY VENTURES (OFTEN) START WITH TECHNOLOGY

1. Creating Technological Breakthrough (Matrix & Pixim)

2. Following Up on Market Need Insight (Weave Innovations & StubHub)

3. Clearly Identifying Business Opportunity – MWG

4. Moving Beyond the First Minimum Winning Game

KEY DRIVERS OF STRATEGIC ACTION

• Technology Development
• Product Development
• Strategy Development
IMPLICATIONS AND RECOMMENDATIONS

Creating a Disciplined Strategic Planning Process

• Strategic Long Range Planning Process
• Product Line Business Plan

Product Development Tools

• Market Requirement Document (MRD)
• Product Requirement Document (PRD)
The Art of Hi-Tech Management
Six Themes of Success
• Business Focus • Entrepreneurial Culture
• Closely Related Products • Entrepreneurial Characteristics
• Focused R&D • Small Divisions
• Variety of Funding Channels
• Consistent Priorities
• Tolerance of Failure
• Adaptability (organizational • Opportunity to Pursue Outside
flexibility) Projects

• Organizational Cohesion • Sense of Integrity

• Good Communication • “Hands-on” Top management
• Job Rotation
• Integration of Roles
• Long-term Employment
Electronic Arts in 1995 vs 2005
CASE 1-6 : ELECTRONIC ARTS IN 1995
 We want EA to be the best place in the
industry for producers to work. We have
created an environment that is much like
the movie business in the 1930s.
- Bing Gordon,Executive Vice President
Entertainment Production
 Introduction
 EA had become the largest U.S. provider of entertainment software, with 1994 revenues
of over $400 million
 CEO Probst was concerned about imminent changes in the video game industry
 Probst wondered whether EA would be able to afford the development costs required to
support all of the new platforms, and which standards be should back.
 Probst worried that EA might miss out on the new markets if it did not act quickly.
History of the video game industry
Phase 1 : The rise and fall of Atari
 The home video game industry developed in the early 1970s.
 Atari Corporation-a Warner Communications subsidiary-introduced in 1975 a home
version of its popular arcade game, Pong.
 Systems allowed user to play a single game.
 Atari had generated more than $200 million in retail sales by 1976.
 History of the video game industry
Phase 1 : The rise and fall of Atari
 Introducing in 1976 the Atari 2600, a programmable video game console with a
removable cartridge.
 Allowed a user to play several different games on a single platform by switching
cartridges.
 By 1977, had captured almost 40 percent of the market and industry retail sales
increased to $420 million.
 History of the video game industry
Phase 1 : The rise and fall of Atari
 Industry’s rapid growth between 1975 and 1977 led a number of companies to
introduce new platforms.
 Wholesale revenue dropped and most new entrants abandoned the market.
 Atari, which had adopted a “razor and blades” strategy to help its 2600 platform
into as many homes as possible, successfully defended itself against two major
platform, Mattel and Coleco.
 History of the video game industry
Phase 1 : The rise and fall of Atari
 Atari’s success was short-lived.
 There were more than 20 companies manufacturing video game software.
 In 1982, consumer deferred hardware purchased, manufacturers were left with swollen
inventories.
 Several developers, most hardware manufacturers pulled out of the market, and Atari,
teetering on bankruptcy, was divested by Warner.
History of the video game industry
Phase 2 : Nintendo Emerges
 Nintendo, a Japanese toy manufacturer, decided to enter the U.S. market in 1985.
 U.S. industry had failed to realize that it was not the number, but the quality, of
software applications that led consumer to adopt one hardware systems over
another.
 Nintendo felt that U.S. companies had limited the potential market by positioning
the products too much.
 History of the video game industry
Phase 2 : Nintendo Emerges
 Nintendo entered the market with the 8-bit Nintendo Entertainment system (NES)
 Followed the “razors and blades” strategy.
 Maintained tight control over the number of games produced for its system.
 Used both in-house software programmers and independent licensees to develop games
for the NES program.
 Included in each cartridge a lockout chip that prevented non-Nintendo applications from
working on the NES.
 History of the video game industry
Phase 2 : Nintendo Emerges
 Nintendo aimed to have a wide selection of the most original, creative, and exciting
games on the market.
 A smash hit product on its hands is Super Mario Bros.
 Established a customer service “hotline” staffed by “game counselors”, a “Nintendo
Power” magazine.
 By 1990, one-third of American homes had the Nintendo system, made Nintendo
the largest toy company in the world.
History of the video game industry
Phase 3 : Say It, Say It, Sega!
 Nintendo failed to realized several key factors.
 In 1989, Sega Enterprises, a Japanese arcade manufacturer
introduced a 16-bit system called the Genesis.
 Its own hit title is “Sonic the Hedgehog”, billed as the fastest
game in the market.
 Sega revenues were second only to Nintendo.
History of the video game industry
Phase 4 : Convergence
 By 1993, a number of platform manufacturers had launched next generation
machines based on 32 and 64-bit processors.
 Consumer electronics companies searched for the next big product, powerful
companies in other industries – had begun to form alliances to build multimedia
systems.
 Company Founding
 EA was formed in 1982 by Trip Hawkins and also recruited Bing Gordon to form
Amazing software.
 Inspired the name of movie studio United Artists, he renamed the company
“Electronics Arts”
 Original Business Plan
 Hawkins believed that video game development was similar to movie development
and that a professional run organization could add a great deal of value to the
software development process.
 EA’s business model was based on the Hollywood movie studios.
 EA would strive to nurture its software designers through intrinsic and extrinsic
 EA built a unique culture that attracted, developed and retained the best production
talent in the industry.
 Original Business Plan
 EA would design software only for PC market
 EA would produce applications for a number of PC systems
 EA would outsource all manufacturing and assembly of its software, producing in-
house only the set of master diskettes, documentation, and packaging
 Company Evolution
 EA first year brought creative success but sales were slow.
 Hawkins hired an experienced sales executive, Larry Probst, established a direct
sales force.
 EA developed a proprietary tool, the Artist Workstation.
 Hawkins recruited celebrities to help design and market EA studio products.
The 1980s : Company Growth and
Products
 EA had developed a sound reputation for innovative, high-quality games.
 In 1989, EA was marketing over 100 studio titles and distributing and additional 250
through Affiliated Products.
 Sales of EA studios products and Affiliated Label Products produced gross margin
of about 70% and 25%
 Crisis in 1989
 By 1989, cartridges-based home video game systems had emerged as a dominant
game platform
 Generated sales more than a floppy disk game
 Hawkins shifted EA’s focus to the stand alone video game market.
 Electronic Arts in the Early 1990s
Backing Sega

 EA decided to back a Nintendo competitor, Sega Enterprises, and its 16-bit

Genesis machine.
 EA’s earnings increased rapidly.
 By 1992, EA had become a clear leder in 16-bit entertainment software.
 Electronic Arts in the Early 1990s
Founding 3DO

 In 1991, EA spun off the venture as an independent

company, later named 3DO
 3DO is an advanced home entertainment machine that would
leapfrog existing machines
 By January 1995, Hawkins estimated that the worldwide
installed base of 3DO systems had reached 500,000
 Pursuing Educational and Reference Software

 In the 1990s, EA decided to broaden its product line, another important market
segment that EA was weaker in.
 In 1994, EA announced that it would acquire Broderbund Software, made EA
shares fell over 20%
 Industry Trends
Capital Requirements
 Development costs for a 16-bit product ranged from $200,000 to $600,000 per
product
 Marketing and distribution costs were also expected to rise in the future.
 Industry Trends
The PC Market
 The strong growth in PC-based CD-ROM players was estimated to have siphoned
off.
 Over 5 million American households were expected to own “multimedia capable”
PCs by the end of 1994.
 Personal computers were still expensive relative ti the Playstations.
 Sega and Nintendo applications are not available on PC
 Industry Trends
Interactive Media and Online
 In the mid-1990s, many companies jostled for position in a world where the PC, the
telephone, and the television set linked into a full service interactive network
 The exploding growth in the online services industry presented new challenged to
the home video game industry.
 Case I-8
Electronic Arts in 2005 : The Next Generation of Convergence
Major Points
• The Online Challenge for EA
• The Video Game Industry in 2005 ($22 billion industry)
• Electronic Arts in 2005 (Nintendo vs XBOX and PS)
• The Battle for Portable Gaming
• Convergence with Traditional Media (James Bond)
• The Online Space (EA.com, Pogo.com, Yahoo, MSN, AOL)
• The Mobile Space (The Sim 2 Mobile, Madden NFL 2006 , Tiger
Woods PGA Tour 2006, Need for Speed)
• The Film Space (James Bond, Harry Potter, Lord of the Ring, The Sim)
Conclusion
• The EA may be achieved in several ways as it anticipated. Leads to the
question whether EA will have the opportunity to expand the ground
war in the form of advertising to the air war in other areas or not.
• EA content that can lead to the negotiation table with the other
entertainment that EA will have enough capacity to meet their own
efforts or not, all by themselves.
• Or rely on partnerships with strategic convergence, which is based on
real time. And gamers who are new in the world of gaming forward.
Suggestion
• EA must adapt to different markets and unfamiliar. This requires
Special partner Strategic partner or to enter an unfamiliar market.
And each channel business.
• Resource management in the budget should be able to secure the
future of EA in a competition for the games market will continue to
intensify in the future of the industry for the next game.
Electronic Arts in 1995
• Discusses the strategic challenges facing Electronic Arts in 1995 as
they try to maintain their leading position in the video game industry.
Addresses the evolution, competitive environment, and key trends in
the industry, as well as the position and strategy of Electronic Arts.
Electronic Arts in 2002
• Electronic Arts is a highly successful creator of video games for
consoles and PCs. The company also creates content for online
gaming. EA occupies a unique place in the information processing
industry. The company must have the skills of a Hollywood studio in
order to create compelling content while at the same time
negotiating technological change and uncertainty associated with the
platforms (e.g., consoles, PC, Internet) used to operate and distribute
the games. The case gives students the opportunity to evaluate the
strategic challenges associated with operating at the nexus of
information processing and entertainment industries.
Electronic Arts in 2005: The Next Generation of
Convergence
• This case looks at the challenges and opportunities faced by
Electronic Arts as it seeks to reinforce its leadership position in
gaming making and digital entertainment. While a leader in PC and
console games, EA is also interested in creating content that derived
from traditional media companies such as film studios as well as
distributing its digital content through new channels such as cell
phones.