After your second video in a response to Pachter today, I really sort of kind of lost what the definition of a market is. It sure did get thrown around a lot in that second video.
It sure isn’t demographics, or different types of people, because you said before that it’s wrong to define the customers as demographics.
On Wikipedia’s page, it’s almost astounding how many different terms are thrown around. What I do get is that the ‘market’ includes both the customers and the companies. What defines a new market that differs from an older one? That is another thing that was mentioned in the video.
I understand this should be in the most basic of business terms, but apparently it isn’t, because the definition of the term itself is packed with so many other terms, I can’t understand it. Could you help and offer something simpler? In particular, something that I can tie more easily to Nintendo’s current strategy, because “the casuals are the market” doesn’t quite work for me in the context of the video or the Wikipedia definition.
This is the best question I have ever been asked. What is a market? It is thrown around all the time, but it never hurts to re-examine our premises (often the tower’s size is limited not by its material but by an overlooked faulty foundation). And we cannot define ‘market’ without defining what a business is.
What is a business? To know that we must know its purpose and that must lie outside of the business itself. The purpose must lie in society since the business enterprise is an organ of society. So there can be only one valid definition of business purpose: to create a customer.
Markets are not things that grow in the wild like mushrooms or bluebonnets. Markets do not ‘form’ like algae in a pool due to geography or demographics. The want a business satisfies may have been felt by the customer before he was offered the means of satisfying it. This want may have been a potential want until the action of the businessman converted it into effective demand, or the want could have dominated the customer’s mind like food in a famine. Only with that is there a customer and a market. There may have even been no want at all until the business action created it- by innovation, by credit, by advertising, or by salesmanship. In all cases, it is the business action that creates the customer.
However, it is the customer, not the CEO or developers or investors, who determines what a business is. It is the customer, alone, whose willingness to pay for a good or service converts things into goods, economic resources into wealth. What the business thinks it produces is of no importance. It is what the customer thinks that is of absolute importance. What the customer thinks is so decisive that it determines what a business is, what it produces, and whether it will prosper.
Ironically, what the customer buys and considers value is never a product. It is, instead, utility. It is the job. It is what the product does for him.
In other words, Nolan Bushnell could not study the video game market because it did not yet exist. Once “Pong” was made, it satisfied a want in people that they did not know they had. It was the customers’ desires that defined the market of ‘video games’. To these customers, there were ‘games’ and they were on ‘TV’ so the customers defined the ‘video game business’. This is why we give the nod to Bushnell, instead of Baer, for starting the video game industry. Atari created customers.
How could Bushnell create customers of a ‘video game market’ that did not exist yet? Bushnell was a manager of an amusement park and understood that business. He was trying to amuse people. It was the customers who defined the business as ‘video games’. The customer might think of video games as products, but the utility is for amusement.
With customers, it is not what they say that matters but really what they do. Customers are unable to fully articulate how they will react. A good entrepreneur has an incredible eye for understanding human behavior. The true definition of a market is never really fully realized by the customers.
Let me use some real examples. Western Union turned down Alexander Graham Bell’s invention of the telephone. While this may be seen as stupid today, it was a very rational decision. The telephone, at that time, could only be used among wealthy people who lived near one another. Western Union did not see how this would help, at all, in their business of telegrams. The telephone would go somewhere else and get better to eventually disrupt telegrams altogether. The problem was that Western Union defined the market as the telegram market. It was actually the communication market.
In the 19th century, railroads were seen as the safest investment and everyone, including kings, invested heavily in the railroads. In the 20th century, the railroads were pulverized in the business climate and were asking for government subsidies. What happened? Railroads defined their market in a product orientated way instead of a jobs-to-be-done way. Railroads saw their market as ‘railroads’ instead of the jobs-to-be-done as ‘transportation’. Railroads ignored automobiles or planes flying over their heads because they weren’t in the railroad market, were they? But both would end up disrupting railroads because they defined their market incorrectly.
If someone asked me, “What is the future of the video game market?” I would say that there is no such thing as the video game market. There is, instead, an entertainment market. Customers purchase video games for the job of entertainment. Video games are not just competing against other video games. They are competing against movies, music, amusement parks, free flash games, and generally anything that entertains. Blu-Ray movie playback on the PlayStation 3 ended up not boosting the success of that platform but by hurting it as PlayStation 3 games were competing with Blu-Ray movies. It is not uncommon to hear someone who owns a PlayStation 3 and only uses it to watch Blu-Ray movies. This is not what Sony intended since they need software sales. A similar dilemma occurred on the PSP.
Saying the customers are the market (instead of the jobs the product does), which is what the talk of demographics is all about, ends up constructing walls and prevents growth. What were the demographics of video-games? They were mostly young men. By defining the market as demographics, publishers ended up attempting to pander to this ‘group’. So we see more violence in games, women with breasts that have their own physics engine, warrior women whose “armor” oddly is nothing more than a tiny bikini, World War 2 themes, sci-fi clichés, online multiplayer being defined purely as competitive, and on and on. This pandering began to alienate non-traditional gamers who might want to play (for example, the violence would turn off women). But by defining the market as a type of demographic, the games stopped refining their job of entertainment. Gamers are getting tired of playing the same games over and over again. The customers saw the definition of ‘games’ differently than publishers did. So not only did the video game industry create walls between the gamer and non-gamer, they began to slowly commit the market on the course of slow death by not focusing on the job that games are supposed to do.
Let me use this entertainment example. Have you ever seen a science fiction television show and were going, “Yeah! I like that!” But then, all of a sudden in a new season, the show starts having gratuitous alien sex scenes with, incredibly, well endowed alien women who look exactly like Humans all in the middle of ‘massive war’ scenes as it all comes from right field? Then we discover that soap opera elements are introduced. The show ceases to be interesting to the consumer, and they stop watching.
If you are a sci-fi fan, you know this happens all the time with sci-fi TV shows. The TV executive looks at the demographic charts and says, “Ooohhhh, young men are watching this show. You know what will improve the ratings? Seductive alien women! Villains invading the show’s universe! Why are these characters talking about ideas? THAT is boring! Shut them up and let’s have them start shooting something! Explosions! BIG explosions! That is the ticket to BIG RATINGS, oh yeah!” Never, once, do these TV executives ask the precise entertainment job the show is doing. In truth, these TV executives aren’t that bright anyway. They end up killing the show they were trying to improve and never, ever admit it is their fault. The fault is always the customer. “Those stupid sci-fi customers! Worthless and unpredictable! I say we make no more sci-fi shows because they are just too unreliable!” The reality is that they are just savvy and smart, much savvier and smarter than the TV executive.
I think the problem with third parties and the Wii is that they are looking at it from a demographic view. “Of course our Wii game is a ‘core’ title. It is rated M!” That has nothing to do with the ‘job’ the game is supposed to do! “Our game is a rail shooter. Of course, it will do well!” When the game bombs, they just blame the Wii customers, or Nintendo, and silently despise the investors who demand that they make games for the Wii.
The ‘Birdman’ syndrome occurs on the Wii with the Expanded Market games. They look at the demographic charts and go, “Ooohhh! Housewives! This is a retarded customer so I will make a retarded game! Ooops, I meant casual game, tee hee.” Then they make a game full of mini-games aimed at the housewife. When it fails, while Wii Sports succeed, the publisher shakes his fist as Nintendo and says, “Only Nintendo games sell on Nintendo platforms.” That is a direct attack on the customers. It is saying that customers only buy Nintendo games, for whatever reason, and ignore the bountiful gifts from the generous third party. They never stop to ask what the job that Wii Sports is doing. Or, they do but only in the shallowest sense. “Oohhh, party games! If I place ‘party’ in all of my software titles, I will sell very well to these retarded, I mean casual, gamers.”
Wii Fit is a fantastic example of a jobs-to-be-done product. If someone green lit games purely on demographics, Wii Fit could never be made. “Young men want World War 2, violence and gore, big high resolution explosions, and scantily clad women with HUGE weapons. They don’t want to do Yoga!” If such a company made Wii Fit, it would be set in World War 2. The player would use the Balance Board to kill people in the most gruesome ways. Then the player would use the Balance Board to ‘jump’ over high resolution explosions in a clichéd plot to stop alien invaders.
Nintendo looked at market expansion not as targeting specific demographics but in performing the job the customer wants done. There have been fitness games before, but Wii Fit took them to stratosphere because performed the job better than anyone had ever seen. Gaming performing the job of fitness not only attracted many young men, it also attracted women and other untraditional gamers. By focusing on the job of the product did untraditional customers come.
Third parties are succeeding so well with Wii fitness games precisely because they understand it is about the job the product needs to do, not about pandering to demographic groups or appealing to ‘customers’. Fitness is easily understood, so easy that Wii third party companies even know the reason why people buy a fitness game is because of the job of fitness. They don’t put pink flowers in the game to try to ‘get that female demographic’. By focusing on the job, the product sells enormously well. Why third parties can’t realize that with other expanded market areas or with core games, I do not know.
Markets are primarily about performing jobs for the customer. Wii did not become the best selling console because it was cheap or innovative. It became the best selling console because it performed the job of entertainment better than its competitors. The Wii intentionally chiseled down the walls that the ‘game industry’ has built around gaming such as the complicated controller. But removing barriers wouldn’t matter unless there was some sort of entertainment being offered.
By looking at markets as ‘customers’ or ‘demographics’, like the Mushroom Kingdom, the flesh and blood customer turns into a ‘block’ or a ‘pie-chart’. When products become ‘job-less’, the products become ‘soul-less’.
There is much talk about ‘passion’. When game makers design games for themselves, they, of course, get the young male and 30 year old crowd. The ‘passion’ really is making the game perform its job (of which these game makers see for themselves) so they end up attracting customers like themselves. But when it comes to forty year old housewives, these game makers are baffled. “Maybe if we put in kittens, they will buy our game,” they wonder. They don’t know how to get into the minds of these people who are not like them. But if they focused on the ‘jobs’ that the forty year old housewife wanted, like Wii Fit performing the job of ‘losing weight’, they would become more successful.