As much fun as it is to jab game journalists, we should remember that game journalists do not get paid much, they have to endure TONS of marketing spiel, they get attacked even if they do a good job, and their jobs consist of game reviews and news reports. Game journalists are not business guys.
And that is all fine and dandy. The problem is the business guys, meaning analysts and specific writers on the business of gaming. They get paid very well (especially the analysts. Pachter is on his fifth Porsche). What is wrong with these guys?
I try to imagine if I was an analyst or business writer on the business of gaming (like these guys), and a sudden change occurred in the market. A company, who no one suspected to do much, completely takes over the market with their once seen invincible competitors suddenly looking extremely poor. The competitors, after deriding and dismissing the success of this company, then begin to openly copy it. This company remains the most profitable, and the most consistently profitable, compared to all the other companies.
When this company explains the ‘business reasons’ behind itself, if I were an analyst or ‘business writer’, I would BE LISTENING. Kutaragi might have been crazy, but the PlayStation being the market leader was reason enough to listen and take seriously what he said. Yet, for some bizarre and unknown reason, this has not been done with Nintendo. To make it simple, Nintendo listed two business books that outlined their approach: “The Blue Ocean Strategy” and “Innovator’s Dilemma”. I’ve seen some guys mention it like N’gai Croal, but they are the exception.
I actually believed that after the Wii explosion, the business bodies would scratch their heads and investigate as to how Nintendo did what they did. There is no way they could miss ‘Blue Ocean Strategy’ or ‘disruption’ as Nintendo execs are like broken records mentioning them over and over again.
The ONLY way they could miss it is if they are not looking at all.
Let us take Fahey’s latest column, “A Tale of Two Publishers” to illustrate this. Fahey makes a good observation on the differences between EA and Activision-Blizzard. EA has most of its sales on the PC and Wii. Activision-Blizzard has most of its sales on Xbox 360 with very little on PC and Wii. EA is like a gigantic ship slowly turning away from Next Generation and toward New Generation. It will take losses in this transition. Activision-Blizzard appears to be ignoring New Generation. (It should be noted that Blizzard’s games, like Word of Warcraft, would be part of New Generation. When WoW came out, it was complained that it was a ‘casualized MMORPG experience’. Note how WoW’s users tinker endlessly with interfaces but no one cares about its graphics.)
Fahey does not ask the killer question: “Why did EA change its path?” After all, EA’s path is similiar to where Activision-Blizzard is going now. If Activision-Blizzard’s path was so grand, why change the direction of the company? Fahey doesn’t seem interested at all in why the former biggest third party company totally changed its direction.
I suspect EA’s change came in part to beginning to see the gaming market in how Nintendo views it. In order to do this, they would have to ignore all current analysts and game busieness writers. This would have been easy for EA to do since they got so burned by listening to analysts this generation. They were so invested in Next Generation and didn’t bother to do hardly anything with the Wii. When the Wii exploded, they realized they backed the wrong horse. I suspect they probably re-examined the market, began to understand what Nintendo was doing, and are shifting the company accordingly.
Unlike analysts, businesses do not have the luxury of being wrong. If a business is wrong too much, there will be no more business. If an analyst is wrong too much, it apparently is a resume enhancement as he is quoted even more.
It isn’t so bad that these writers do not know disruption or Blue Ocean. What is bad is that they take its language and terms and apply them in ways that are entirely incorrect.
Of course, remaining focused on the core market is by no means a bad idea.
This quote should be entered into the ‘Contest of Worse Quotes of the Seventh Generation’.
It’s a common fallacy to assume that the expansion of the market into new areas somehow diminishes the value of what came before – the reality is that there are still tens, if not hundreds, of millions of consumers who want core market games of some kind.
This guy doesn’t know what he is talking about. The premise behind what Nintendo is doing, and disruption in general, is that the Core Market is in trouble anyway. Trying to win in the Core Market is ultimately a losing strategy if it is shrinking on its own.
Iwata said: “If we can’t expand the market, all we can do is wait for the market to die”, and Nintendo formulated a strategy to help the company deal with this perceived problem. This strategy consists of three main strands – to re-engage people who have stopped playing, to actually attract new gamers, and to create new products that appeal to everyone, even though many people feel that games are too difficult, but novice-only products won’t satisfy the core gaming fanbase. Note that the three main strands are the three pillars of the Blue Ocean Strategy. But it is clear that Iwata and all felt that the Core Market has no future.
I don’t know about you, but if the only surviving and highest profitable console company says something like ‘core market is in trouble’, then I would listen. Amazingly, even with the Wii explosion and the market turning not just upside down but inside out, no one cares to listen! I believe EA began to listen and are turning their company toward the Expanded Market because they don’t wish to end up on the rocks.
Core Market and Expanded Market are terms from disruption. They have absolutely nothing to do with demographics, young males or otherwise. They have everything to do with values. Core values are different from Expanded values.
What is extremely scary in Innovator’s Dilemma, and why it is called a ‘dilemma’, is that because of the product evolving faster than consumers can digest the upgrades, the product begins to overshoot the consumer with things they do not value. This is what begins the Core Market’s slow collapse. The Expanded Market offers new values for the consumer. Instead of upgrading the sight of games, it is the upgrading of the feel of games.
The reason why it is scary is that the fall of the Core Market can come suddenly and without warning. Even if a company is smart enough to transition to the Expanded Market, if it does not do so quickly enough, it finds itself in ruin. Newspapers are a Core Market with Internet as an Expanded Market. Every newspaper knew they had to transition to the Internet or to somewhere else sooner or later. They ALL knew it. Many began to shift over. But they didn’t shift over fast enough. Especially when advertising dried up, the newspapers all began to suddenly fall. The losses on their core side outweighed the pluses on their expanded side. A company must not just transition over but have most of its weight over before the rapid decline begins. The decline would have occurred even without an Expanded Market. Newspapers would have still died without the Internet. The root of the newspaper decline is many years prior to even Windows 95 coming out.
Should the Core be serviced? Of course it should. Even Nintendo is still servicing the Core Market. But it is a managed decline. No company can immediately jump into the Expanded Market. The shift must be slow.
Disruption is not about disrupting the customers. Core market customers will eventually like the Expanded Market’s offering because it is getting better and more interesting. Core gamers who hated Wii Sports will likely love motion controls in Zelda Wii. (And the small minority who hate any type of motion controls, no matter what, would be appropriately described as the ‘hardcore’)
Their tastes may be diversifying, just as the market itself is diversifying, but the 16-30 male demographic shows no signs of evaporating overnight.
Fahey thinks the Core Market is the 16-30 male demographic. Core Market is the value of visual upgrades. With Sony and Microsoft’s motion control shift, this clearly shows that the ‘Core Market’ is not in their future.
Also, the 16-30 male demographic is a more recent trend. In the past, in arcades, in Atari 2600s, in NES systems, gaming covered all demographics.
In this regard, the fascinating part of this chapter in the EA / Activision story is not that Activision is maintaining its lead – it’s that both companies are successful (even despite a dip in EA’s figures), and are achieving that success in markedly different ways. Five years ago, it seemed that there was only one path to becoming a top-flight publisher – achieved largely through dominance of the licensed, boxed game market on consoles. Today, it’s clear that multiple different models for success exist, and as revenues from sectors like mobile and web games continue to grow, those models will diversify even further.
No curiosity from Fahey as to why EA changed its direction.
The fabled “mass-market”, I’ve argued before, is nothing more than a collection of niches – address enough niches and you’re suddenly a mass-market company. As a result, the “my dad’s bigger than your dad” battle for publisher supremacy is becoming obsolete.
Why on Earth is Fahey promoting “The Long Tail” as if it his own idea?
Fahey should ask business execs and all if they believe in the “The Long Tail”. By their actions, they certainly don’t. No one takes “The Long Tail” seriously except journalists on the Internet.
Instead, both Activision and EA are demonstrating that the real challenge is achieving success in a diversifying market – which means taking the lead in the market sectors you’re good at rather than trying to find some unifying strategy that will allow you to lead the entire industry. Rather than concerning ourselves with the bottom line, it will be much more interesting, in the coming months and years, to watch which niches these two giant companies choose to focus on. We may even reach a point where companies like EA and Activision can co-exist in the games industry – without directly competing with one another at all.
I will replace five nouns in the above paragraph to illustrate a point. EA will be replaced with Jimmy. Activision will be replaced with Johnny. Market will be replaced with classroom. Companies will be replaced with kids. And the games industry will be replaced with playground.
Instead, both Jimmy and Johnny are demonstrating that the real challenge is achieving success in a diversifying classroom – which means taking the lead in the classroom sectors you’re good at rather than trying to find some unifying strategy that will allow you to lead the entire playground. Rather than concerning ourselves with the bottom line, it will be much more interesting, in the coming months and years, to watch which niches these two giant kids choose to focus on. We may even reach a point where kids like Jimmy and Johnny can co-exist in the playground – without directly competing with one another at all.
We’re in kindergarten folks!