Posted by: seanmalstrom | January 8, 2013

Email: Kotaku Disruption Articles

There are apparently three of these.  I just spotted them because GoNintendo posted a link to the third one:

Looks like they’re written by a game industry member.  In other words, not trustworthy.

Disruption was an actually old business term even when the Game Industry first discovered it in 2006 and 2007.  Innovator’s Dilemma was published in 1997. ‘Disruption’ was the rallying cry of the Dot Com era where all these Dot Coms would be ‘disruptive’. Christensen has annoyingly remarked that people misapply disruption to any market change. But disruption can occur even with no market change.

Disruption has a definition. It is about disruptive technology (as opposed to sustaining technology) that targets ‘crappy users’. Companies write off disruptive innovation because they do not want the ‘crappy users’. They want their big margin users. Who cares if Apple makes a PC, what would a normal person want with a personal computer? That’s what IBM once said. Since business management schools like Harvard Business School teaches students to target the high margin users, the Harvard Business School was inadvertently responsible for creating businesses that would implode. Oh, and a big defining element of disruption is PROFITABILITY. (I have put it in bold so the reader will not miss it.)

From the first ‘post’:

It seems like only a while back, we were stuck in a situation where, as gamers, our options were limited and frankly, boring. Pretty much the only games of note were big-budget console-based sequels created by large publishers and bought from stores. Game design was conservative, graphics were photorealistic and every game was full price.

Fast forward to 2012, and things have changed a huge amount.

I suppose the DS and Wii phenomenons weren’t anything to note? According to the author, they never existed! And last I checked, the DS and Wii did not embrace ‘big graphics’ and the games on both systems were cheaper than the competitors. Those systems cleaned the Game Industry’s clock.

‘Disruption’ (in this context), describes a powerful, seismic impact that hits an old industry, when new products enter that space that aren’t necessarily ‘better’ than the status-quo, but that often offer a cheaper, more convenient or just a different solution.

Disruption is not “change” or a difference in the “status quo”. The author doesn’t quote Christensen because of laziness and Christensen’s actual definition contradicts this.

Disruptive innovation is focusing on a different set of values than sustaining innovation. In other words, there is less competition for this different set of values. This is how a disruptive innovation also can end up being a Blue Ocean product. But the author describes disruption as a type of ‘bomb’ or ‘weapon’ that explodes on industries. Nothing could be further from the truth.

Why do values of a product change? The key part of disruption is to understand the concept of ‘good enough’. When something is ‘good enough’, people don’t want more of it. An example is that the latest version of Microsoft Word is “better” than the version years ago. But that version years ago was ‘good enough’. Getting ‘better’ isn’t creating more value of the product.

Nintendo’s disruption was betting that graphic quality was ‘good enough’ for most people. So Nintendo focused more on the value of the interface. The DS and Wii had fantastic success as a result. Heck, the iterations of the Gameboy were disruptive because sustaining innovations kept failing by competitors. Atari Lynx and Game Gear were to ‘destroy’ the Gameboy because they were in color and in color meant better graphics. Yet, the Gameboy won because graphics weren’t the highest value of a portable gaming machine (portability and game library were). That’s an example of disruptions within a status quo market.

Disruption has nothing to do with ‘market change’ or even ‘industry change’. Disruption is about a value.

A recent interview including Christensen can be found here where journalists talk about themselves (because they think they are the only thing that matters) and how their industry has declined. But as Christensen says, it is actually a growth industry but their thinking is wrong. Read it.

Well, what media has the biggest file-sizes? Games.

The snowball of internet speed and (more recently) mobile internet availability and quality is fueling this rapid and exciting disruption of the games industry.

Yeah, because we have never had new game companies with new games before the Internet? Remember shareware? Of course you don’t. Most gamers don’t remember Epic’s early games or id Software’s Wolfenstein 3d. They bypassed retail by using mail. I know what this guy is going to say before he says it, and I am saying that there is nothing new going on here.

What I find more interesting are game companies that have used the Internet to grow. All Blizzard’s growth can be credited to the Internet value of their games. Blizzard sticking in Kali onto the Warcraft 2 CD which enabled LAN over the Internet began a revolution. From Kali came Battle.Net. Blizzard’s expertise in online multiplayer was especially useful when it came to World of Warcraft. Now, I think Blizzard is at the point where the value of Internet gaming has reached ‘good enough’. Do we need Bnet 2.0? Isn’t it online capability good enough that we don’t need ‘better’? A new value has emerged and that is one of consumer ownership and feeling like they are in control. More online now is a negative.

In the second article, he starts:

There are three main gaming platforms. The PC, the mobile or ‘smart’ device, and the dedicated games console.

But there is no difference between the PC and the smartphone. The smartphone IS a PC. The tablet IS a PC. If the author is going to differentiate between the PC and a mobile PC, then he needs to differentiate the home game console and the mobile game console. He doesn’t do this. He just lumps all game consoles together but differentiates PCs.

Casual PC games now mostly take place in the browser, and the free-to-play model (in which starting the game is free but users may pay for cosmetic and/or gameplay-affecting add-ons) dominates there, with the vast majority of the world now playing casual browser games on Facebook.

There is nothing new here. This has been going on for a decade. In “Birdman and the Casual Fallacy” which came out in 2007, I wrote about the small Internet games.

So, why is free-to-play becoming so dominant?

Because it isn’t. Last I checked, the nearly 9 year old World of Warcraft had 10 million subscribers. It is the failing MMORPGs that went free-to-play.

The real question is why are major retail games being sold at $5 for the Steam sale?

In the third article, he talks about how the console will ‘die out’. What I don’t understand is what he defines as a console. But he doesn’t stop to define what a console is. He just goes on.

Data point—Consoles like Xboxes, PlayStations & the Wii U are sold at a loss. It costs more to manufacture and distribute the device than it is sold for. Console manufacturers do this because they hope to make back the money from the license fee they charge for every game sold on the system. In order to offset the huge cost of hardware production, distribution, R&D and marketing, a hardware platform holder must sell vast quantities of hardware, and even bigger quantities of software. So much needs to be sold, in fact, that the data points to PS3 and Xbox 360 having made huge losses, despite having sold 70+ million units of hardware each.

PS3 and Xbox 360 had huge losses but the Wii didn’t. Wii was profitable from day one. He doesn’t mention the Wii because the Wii was a disruptive product and upsets his argument.

The Wii U is sold at a loss because of currency exchanges. The United States lost around 65% of its wealth from 2008 to today. The dollar is not worth as much as it was. Currency exchanges do not equate into his shill talk either because it upsets the argument.

Data point—Of those 70 million Xbox 360s sold, a large proportion (approx. 40%) were bought after the most recent price cut of August 2009. Of the 70 million PS3s sold, a large proportion (approx. 42%) were bought since the introduction of the PS3 Slim.

What about the Wii? What about the Wii? The Wii apparently doesn’t exist to him. What a joke.

Assumption—The large proportion of sales of these consoles coming so late in the cycle, and at low prices, indicates a large proportion of the console user base that isn’t looking for the most advanced system (indeed, a custom gaming PC is the most advanced in terms of CPU and GPU this late in the cycle). This mainstream sector of the market bought a console because it offered them the best balance of price/performance/convenience. Let’s call these people “mainstream console gamers.” They are the types of people who buy hits only—Madden, FIFA, Call of Duty, Halo only, i.e. not Kotaku readers. In fact, they probably don’t visit any gaming websites.

Why is the Wii not being mentioned? Why!?

Data point—Eighteen months ago our research, at my mobile gaming company, told us that 50% of console owners also owned a smartphone or tablet and that this number was growing fast.

Thirty years ago, the data was that more and more console owners were purchasing a personal computer and this number was growing fast.

Data point—Mobile developers and publishers are starting to target these “mainstream console gamers” aggressively. I work for a mobile publisher just slightly smaller than EA, and we are targeting them aggressively.

There’s no data here. So you are targeting a demographic aggressively. So what? You know something? Disruption has nothing to do with ‘target groups’. It is about jobs to be done. Of course, the author decided to stop talking about disruption suddenly.

Given those data points and assumptions, what I think will probably happen is that, as smartphones and tablets continue to get more and more powerful (and they are increasing in power faster than any other class of device), and as more and more publishers start to actively target those “mainstream console gamers” with mobile games, more and more of those people will gradually move their gaming hours and dollars away from console gaming to their mobile devices. Without this huge group of people buying consoles or console games, the console platform holders will no longer be able to make enough money to justify developing, marketing and manufacturing the devices.

Trip Hawkins from 1983 called and wants its argument for PC domination over consoles back.

Mobile devices like smartphones and tablets will serve the biggest market—covering kids, casual gamers and the mainstream console people.

Which is cannibalizing the old PC market. It isn’t cannibalizing game consoles. A tablet a PC after all. The same person who played free Internet games on the PC is now playing those free Internet games on the tablet. I see this as status quo. There is not even any disruption going on here in terms of gaming.

The core and ultra-core gamers would be served by PC gaming, which will be smaller than mobile, but that will continue to grow. Many of the old-school PC gamers I know that moved to playing games on Xbox over the last 10 years are coming back to PC because of free-to-play and indie games, controller and TV support, as well as incredible digital distribution on platforms like Steam.

And since Xbox games are nothing but ported PC games, this is more status quo continuing itself. Can someone wake me up when the author says something we haven’t heard of before?

The reason I moved to mobile a year and a half ago is precisely because I came to the conclusion the consoles were on their way out. I bet my career on it. That’s how much I believe in it…

So you’re telling us you’re an idiot? That’s not very convincing.



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