Analyzing an Industry s Structure. Game-1303 Intro to Game Dev Sara R. Farr

Transcription

1 Analyzing an Industry s Structure Game-1303 Intro to Game Dev Sara R. Farr

2 Game Industry Segments Some of the Game Industry Segments are: Console (Hardware or Software) PC Handheld Mobile Casual Online (Console or PC) MMO Education or Serious Games Social Networks Retail or Direct Distribution

3 The Objectives of Industry Analysis To understand how industry structure drives competition, which determines the level of industry profitability. To assess industry attractiveness To use evidence on changes in industry structure to forecast future profitability To identify opportunities to change industry structure to impose industry profitability To identify Key Success Factors

4 Porter s 5 Forces

5 3 key influences: The Determinants of Industry Profitability The value of the product to customers. The intensity of competition. Relative bargaining power at different levels within the value chain.

6 Porter s Five Forces of Competition Framework SUPPLIERS Bargaining power of suppliers INDUSTRY COMPETITORS POTENTIAL ENTRANTS Threat of new entrants Rivalry among existing firms Threat of substitutes SUBSTITUTES Bargaining power of buyers BUYERS

7 P5 Analyses For each factor in the five forces analysis, analysts should determine: The strength of each force! The effect on industry profitability! The possibility of change!

8 Porter s Five Forces of Competition Framework The extent to which industry profitability is depressed by aggressive price competition depends upon: Concentration (number and size distribution of firms) Diversity of competitors (differences in goals, cost structure, etc.) Product differentiation Excess capacity and exit barriers Cost conditions Extent of scale economies Ratio of fixed to variable costs INDUSTRY COMPETITORS Rivalry among existing firms

9 Competitive Rivalry Rivalry is more intense: Many or equal competitors Slow industry growth High fixed costs No differentiation No switching costs High exit barriers INDUSTRY COMPETITORS Rivalry among existing firms

10 Porter s Five Forces of Competition Framework Extent of competitive pressure from producers of substitutes depends upon: Buyers propensity to substitute The price-performance characteristics of substitutes. INDUSTRY COMPETITORS Rivalry among existing firms SUBSTITUTES Threat of substitutes

11 Threat of Substitutes Other Computer Games Other Games Other activities Other sources for entertainment Other sources for one s time Other things perceived more important INDUSTRY COMPETITORS Rivalry among existing firms SUBSTITUTES Threat of substitutes

12 Porter s Five Forces of Competition Framework Incumbents discourage entry by establishing barriers Barriers to entry (Bain) include: Brand loyalty (product differentiation) Cost advantages Production (knowledge, patents, processes, EOS) Resource control (raw materials, labor, equipment) Access to low-cost capital Distribution channel control Switching Costs Government regulations (policies, taxes, EPA) Retaliation Threat of new entrants POTENTIAL ENTRANTS INDUSTRY COMPETITORS Rivalry among existing firms

13 Threat of New Entrants Barriers to Entry in Games Economy of scale Development time Development cost Access to media titles Product differentiation Capital requirements Switching costs Access to marketing & distribution channels Threat of new entrants POTENTIAL ENTRANTS INDUSTRY COMPETITORS Rivalry among existing firms

14 Porter s Five Forces of Competition Framework SUPPLIERS Bargaining power of suppliers INDUSTRY COMPETITORS POTENTIAL ENTRANTS Threat of new entrants Rivalry among existing firms Threat of SUBSTITUTES substitutes Bargaining power of buyers BUYERS

15 Bargaining Power of Buyers Buyer s price sensitivity Cost of purchases as % of buyer s total costs. How differentiated is the purchased item? How intense is competition between buyers? How important is the item to quality of the buyers own output? Relative bargaining power Size and concentration of buyers relative to sellers. Buyer s information. Ability to backward integrate.

16 Bargaining Power of Buyers Buyers have more leverage when Purchase large volumes Significant portion of disposable income Products are undifferentiated Switching costs are low Backward integration Buyer has full information Game Buyers Purchase small volumes Insignificant portion of disposable income Products are differentiated by platform, marketing Switching costs high (games sold as-is ) Buyer has limited information

17 Bargaining Power of Suppliers Supplier s price sensitivity Few suppliers (Publishers) No competition from substitutes Industry sold to not important Supplier has important role Forward integration Buyer has full information Relative bargaining power of game developers Size and concentration of developer relative to publisher. Publisher has information. Little ability to forward integrate. Publisher license critical

18 The Spectrum of Industry Structures Perfect Competition Oligopoly Duopoly Monopoly Concentration Many firms A few firms Two firms One firm Entry and Exit Barriers No barriers Significant barriers High barriers Product Differentiation Homogeneous Product Potential for product differentiation Information Perfect Information flow Imperfect availability of information

19 6 th Force - Complimentors Companies that sell complements to the enterprises own products. i.e.: Sony PlayStation Game companies Beer Chips High complementor supply/quality = opportunity Low complementor supply/quality = threat

20 The Value Net CUSTOMERS COMPETITORS COMPANY COMPLEMENTORS SUPPLIERS

21 Applying Six - Forces Analysis Forecasting Industry Profitability Past profitability a poor indicator of future profitability. If we can forecast changes in industry structure we can predict likely impact on competition and profitability. Strategies to Improve Industry Profitability What structural variables are depressing profitability Which can be changed by individual or collective strategies?

22 Porter s Limitations Porter framework assumes (a) industry structure drives competitive behavior, (b) Industry structure is stable. But --- competition also changes industry structure Schumpeterian Competition: A perennial gale of creative destruction where innovation overthrows established market leaders. Hyper competition: intense and rapid competitive moves.creating disequilibrium through continuously creating new competitive advantages and destroying, obsolescing or neutralizing opponents competitive advantages.

23 Identifying Key Success Factors Pre-requisites for success Pre-requisites for success What do customers want? How does the firm survive competition Analysis of demand Who are our customers? What do they want? Analysis of competition What drives competition? What What drives are the competition? main What dimensions? are the main dimensions of competition? How How intense intense is competition? is How competition? can we obtain a superior competitive position? KEY SUCCESS FACTORS

24 SUMMARY Game Theory Valuable in analyzing competitive rivalry between small number of players. Analysis of cooperation & competition. Offers insights into the structure of the game; competitive interaction; use of specific strategic plays. Key Success Factors Starting point for the analysis of competitive advantage. Industry Analysis & The New Economy Porter 5 forces analysis less useful when industry structure unstable.