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Class 8

Review &

Summary

611407 Strategic Management

King Mongkut’s University of Technology North Bangkok

Dr. Pard Teekasap

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Outline

Ü Strategy Talk

Ü Term project presentation

Ü Xbox case study

Ü Discuss on Apple case

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Strategy Talk

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 Term Project Presentation

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Xbox case

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Q1: How structurally attractive

is the videogame consolebusiness in 1999?

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Pricing

ÜWhy does the price of the console is so low?How can console producers make profit?

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What is the logic of the razor-blades pricingstrategy

ÜWho else use razor-blades pricing strategy?

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Game developers

ÜWhere does game developers fit in the 5-forcemodel?

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Why are complementors so important in thevideogame industry?

ÜWhy can’t console makers provide all thenecessary games themselves?

ÜWhat attracts game developers to develop fora particular console?

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Indirect network effects

ÜWhat industries have indirect network effects?

ÜWhat industries have direct network effects?

Ü Indirect network effects suggest that gameconsole needs to attract lots of gamedevelopers to your console in order tosucceed, is it sufficient?

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Game

Ü In late 1980s – early 1990s, why did Nintendorestrict each game developer to 5 games ayear?

Ü Playstation don’t limit the number of game foreach developer. Why could they afford to doso without fearing a market crash like theAtari case?

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Q2: How do the five forces and

industry attractiveness changeover the course of a consolegeneration?

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Competition

ÜWinner of every generation has always beendifferent from the previous round. Why?

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Does it make sense to delay the launch of thenew generation?

Ü How important is first mover advantage inreleasing the next generation console?

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Q3: What should Xbox do?

2 main options

1. Conventional videogame industry approach: a) self-

supply of consoles; b) consoles priced belowcost; c) Microsoft screens game developers anddevelopers pay Microsoft a $7 per unit royalty

2. PC model: a) box makers pay Microsoft a licensingfee for the right to make boxes running on

Microsoft gaming “operating system”; b)consoles priced as the hardware makers see fit;c) game developers pay no royalties and norestriction to become a developer

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Apple Case

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 The Fall of an American Icon

“The year was 1984. Apple Computer Inc. was theMagic Kingdom. It was the hip, young heart of SiliconValley – the place where America was showing theworld how the combination of technology and

entrepreneurship could make a revolution. Applecreated the legend of two kids in a garage inventing acomputer – and then building a New Age companywhere the old corporate rules were scrapped….Today,that Apple – the very icon of a post-industrial, high-

tech America – is barely recognizable in the troubled$11 billion company that bears the name. Years of overlooked opportunities, flip-flop strategies, and amind-boggling disregard for market realities havecaught up with Apple.” (BusinessWeek, 1996)

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Apple Computer

ÜWhat are the Apple’s competitive advantages?

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Competitive environment

Ü Buyer

Ü Supplier

Ü Substitute

Ü Barrier to entry

Ü Complements

Ü Rivalry within industry

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Buyer

ÜWho were the buyers 15 years ago?

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Ü How have the buyers changed?

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ÜWhy did the buyers change so dramatically?

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Rivalry within the industry

Ü How was the competition in this industry?

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ÜWhy is it so vicious, despite high growthindustry-wide?

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Ü How bad is price rivalry in this business?

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Barriers to entry

Ü How hard is it to get into the PC business?

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Ü How hard is it to assembly the PCs?

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Ü How hard is it to sell and distribute the PCs?

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Substitutes

Ü Are there any products that could replace PCsin the future?

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Ü Are these products and technologies asignificant longer-term threat?

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Complements

ÜWhat are the key complements for the PCindustry?

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Ü How have they influenced the industry’sprofitability over the last 10 years?

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Suppliers

ÜWho are the suppliers of the PCs industry?

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ÜWhere does the balance of power betweenmanufacturers and suppliers lie?

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Why Windows lead the market?