MTI Electronic Arts in 2002

Management of Technology & Innovation
Case Analysis: Electronic Arts in 2002
Group III
DEVARAJAN K | SHALABH DHANKAR | SONAM BHARGAVA | AMARENDRA KR.GORAI | BHARATH BALAJI | AKSHATA V M | KARTHIKA S| NEELAM | VIGNESHWAR M | AMOY KUMAR DUTTA | KULBHUSHAN SINGH BAGHEL | MAHTAAB KAJLA
Flow of Presentation
Company Brief
Industry Opportunities, challenges and attractiveness
Current & Future Proposed Strategy
Q&A
Gaming industry and internet
Resources , Capabilities & Core Competency
Design & Implementation of Technology Strategy
Group III | Indian Institute of Management, Kozhikode | Management of Technology & Innovation
Electronic Arts
EA Third party game developer
Operates in Console, PC and online market
EA sports Most recognized sports brand of US
Invested considerably in both marketing and distribution functions
Electronic Arts in 2002

Assignment Question By 2002, how has the Internet affected the video game industry? How does it affect EAs corporate strategy?
Gaming industry
Value chain Console / PC
Console/ PC manufacturing
1. 2. 3. 4. Sony Nintendo Sega Microsoft
Game development
Distribution
1. 2. 3. 4.
EA Sega VUG Microsoft
Profit appropriation : Console manufacturers controlled the value chain

Gaming industry
Console Royalties reduced margins Transitions between generations were difficult
PC market Rapid technology change- every quarter Attractive segment for developers
Wireless High entry barriers
Console 32 bit 64 bit 128 bit
First mover Sega Nintendo Sega
Fast follower Sony Sony Sony
Market leader Sony Sony Sony
Gaming industry and internet
Brought in online gaming phenomenon Multiplayer online games Massive multi player online games Portal games
Modified value chain
Console/ PC manufacturing
Network infrastructure
Game development
Distribution
Profit appropriation : Power shift from console manufacturers to game developers

Industry Opportunities and challenges
Opportunities New revenue stream for game developers Ease of penetration into PC based
Challenges Higher upfront investment for game development More complex game engines
gaming market
Higher server infrastructure investment
Increase in number of players(114 million Required dedicated and creative support people by 2006) teams Less than required broadband penetration
Effect on business models

Sega Dreamcast- Huge investment in advanced technological features False start ahead of competitors in online gaming Resulted in huge losses Closed down console business and concentrated on software development
Sony and Nintendo

Sony provided adapter for its playstation to enable online gaming Both did not provide network infrastructure
Microsoft Developed and provided proprietary network infrastructure favoring closed network Controlled third party game developers
Change in industry attractiveness
Pre Internet Phase Bargaining Power of Customers Threat of new entrants Bargaining Power of Complementers Competitive Rivalry Within industry Low High No Change
Internet Phase
High Low Relatively Increases
Threat of Substitute Bargaining Power of Suppliers
NA NA
NA NA
Effect on EAs corporate strategy
Advent of internet pushed EA from a game developer to service provider
Adopted subscription based business model for an additional revenue stream
Complementary capabilities are required
Developed capability by acquiring substitute platforms like Pogo.com
Joined hands with AOL to exploit online marketing medium

Assignment Question What should EAs corporate strategy be for the next 5 years? Why? How should they execute the strategy?
Resources Capabilities
Talent Pool Organizational Culture Financial muscle to back development (Exhibit 11) Excellent Management Selecting Right Projects and resource allocation Clamped down on science projects during transition period Effective usage of shelf space Outstanding way of managing inventory levels Worldwide time to market < 2weeks Distribution Network
Ability to develop Superior Products
Operational Excellence
Access to Adjacent Business
Training and development Knowledge sharing
Aligned to technology advancement
Marketing Personnel and Skills Focus on Lesser SKUs with more investment per titles Better point of sales promotions
Effective Promotion of Products
Capability Rare Value contributed to end product High Difficulty in imitation/ substitution Moderate Competitive advantage in short run Yes Competitive advantage in long run Yes
Ability to develop Yes superior products
Operational Excellence Effective Promotion of Products
Yes
High
High
Yes
Yes
No
High
Low
Yes
Cant say
Access to No Adjacent Business Aligned to technology advancement Yes
Low High
Low High
No Yes
Cant say Yes
Core Competency
Ability to develop superior products

Aligned to technology advancement Operational Excellence
Growth Strategy
Product Existing Existing Market Penetration New Product Development
Markets
New
Market Development
Diversification
Online Gaming
Attractive: Constant reservoir of players, played indefinitely (no specific endings) Challenges:
Managing content: keep players interested by introducing new content on a regular basis Lifecycle of games extended beyond purchase and launch Reluctance to pay based online games (Initially attracted only hard core gamers); consumer education on pay-for-play gaming, justify the premium by offering attractive content Significant investment in server infrastructure
Rationale for online gaming

Current revenues (2002) = $1724 mn Assumption: growth rate of 25% pa Projected revenues by 2006: $1724*1.25^4 mn = $4208 mn Estimated total online subscribers in 2006: 114 mn Assumption:
Market share = 16 % Average revenue per customer per month = $15
Projected revenues from online gaming = 114 mn * 16% * $15/month *12 months = $3283 mn Other sources of revenues:
Advertising Less royalties as servers belong to them
Risk of giving competition to console manufactures which forms the major share of EAs revenue
Requirements for online gaming
Requirements
Resources
Availability
Infrastructure for e.g. servers

Managing content Maintain servers and customer service Educate customers; Justify the premium
capital required is already there

Separate creative team People & Capital Good games with exciting content

Possible
Corporate Strategy Action Plan

Set-up infrastructure for online gaming platform status: already done
Outsource the server maintenance + CRM
Come out with online versions of their most popular games like EA Sports
Create a new creative team managing team: need for training
Staggered subscription fees

Assignment Question What is the right technology strategy to support the business strategy? How should this change in view of environmental changes and technology changes?
Porters Generic Strategy
Competitive Advantage Low Cost Competitive Scope Broad Overall Cost Leadership Higher Cost Differentiation
Narrow
Cost Focus
Differentiation Focus
Business strategy
Differentiation New product and innovation Geographical distribution
Technology requirements
Significant investment in high-availability server infrastructure 24X7 CRM capabilities
Environmental Changes
Emergence of multi-player online, MMOG and portal games
Competitive advantage
Marriage between creative and technical skills
Top talent in the industry Significant effort in training and development Strong culture of knowledge sharing among studios
Marketing Strategy
Word-of-mouth Advertising
Publishing and distribution strategy
Design and Implementation of Technology Strategy: An Evolutionary Perspective
Technology Strategy Defining technology strategy for online gaming development

Outsource server maintenance and CRM support Co-creation to handle challenges faced by the developers due to higher upfront investment Providing platform for development Development plus publishing wherein the development is handled by third party studios and testing, marketing and distribution by EA Open innovation
Acquiring IP through licensing and acquisitions
Enactment of Technology Strategy
Y Y Y
NA
Thank You

MTI Electronic Arts in 2002

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Management of Technology & Innovation

Case Analysis: Electronic Arts in 2002

Industry Opportunities, challenges and attractiveness

Current & Future Proposed Strategy

Gaming industry and internet

Resources , Capabilities & Core Competency

Design & Implementation of Technology Strategy

EA Third party game developer

Operates in Console, PC and online market

EA sports Most recognized sports brand of US

Invested considerably in both marketing and distribution functions

Electronic Arts in 2002

Value chain Console / PC

EA Sega VUG Microsoft

Profit appropriation : Console manufacturers controlled the value chain

Console Royalties reduced margins Transitions between generations were difficult

Wireless High entry barriers

Console 32 bit 64 bit 128 bit

First mover Sega Nintendo Sega

Fast follower Sony Sony Sony

Market leader Sony Sony Sony

Gaming industry and internet

Modified value chain

Profit appropriation : Power shift from console manufacturers to game developers

Industry Opportunities and challenges

Higher server infrastructure investment

Effect on business models

Sony and Nintendo

Change in industry attractiveness

High Low Relatively Increases

Threat of Substitute Bargaining Power of Suppliers

Effect on EAs corporate strategy

Advent of internet pushed EA from a game developer to service provider

Adopted subscription based business model for an additional revenue stream

Complementary capabilities are required

Developed capability by acquiring substitute platforms like Pogo.com

Joined hands with AOL to exploit online marketing medium

Electronic Arts in 2002

Ability to develop Superior Products

Access to Adjacent Business

Aligned to technology advancement

Effective Promotion of Products

Ability to develop Yes superior products

Operational Excellence Effective Promotion of Products

Access to No Adjacent Business Aligned to technology advancement Yes

Cant say Yes

Ability to develop superior products

Product Existing Existing Market Penetration New Product Development

Rationale for online gaming

Requirements for online gaming

Infrastructure for e.g. servers

capital required is already there

Corporate Strategy Action Plan

Outsource the server maintenance + CRM

Create a new creative team managing team: need for training

Staggered subscription fees

Electronic Arts in 2002

Porters Generic Strategy

Publishing and distribution strategy

Design and Implementation of Technology Strategy: An Evolutionary Perspective

Technology Strategy Defining technology strategy for online gaming development

Enactment of Technology Strategy

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