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Porter's 5 Forces Analysis - Microsoft/Xbox

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Christina Weng

on 11 December 2012

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Transcript of Porter's 5 Forces Analysis - Microsoft/Xbox

Porter's 5 Forces Model Who Supplies The Materials
Needed To Create The
Xbox 360? Threat of New Entrants Economies of Scale and Capital Requirements Microsoft is an American multinational corporation headquartered in Redmond, Washington that develops, manufactures, licenses, and supports a wide range of products and services related to computing. Bargaining Power of the Purchasers Access to Distribution Channels "The game industry happens to be one thing they know nothing about." said Nintendo CEO, Hiroshi Yamauchi "Microsoft does not understand the entertainment business. The next game platform belongs to Sony and Nintendo." said Ken Kutaragi, president of Sony Computer Entertainment. "The future of gaming starts today, and it starts with Xbox." - Bill Gates, November 15, 2001 at the Xbox launch As of September 30, 2012, 70 million Xbox 360 consoles have been sold worldwide. Bargaining Power of the Buyers Competitive Retaliation Industry Profitability and Growth Not a standardized industry product WEAK It has been accepted that in the video game console industry, the hardware has generally been a loss for every company. LOW Microsoft loses approx $126 for each Xbox sold.
In 2005 they sold approximately 22 million Xboxes in total which means that they have suffered over $2.7 billion in losses.
Economies of scale is required and to enter the industry. one must prepare to suffer at least BILLIONS in losses for the first 5 years as Sony and Xbox in addition to Nintendo have done. These third party retailers (excluding the Microsoft store) will only carry the hardware if the software for these consoles has to have a big game library.
These libraries have a specific amount of shelf space that is given to them.
Video game consoles are dependent on the video games because that is where the most money is made in royalties. Purchases are made in small volumes by a large number of buyers High threat of backward integration Switching costs are high Buyers are not informed of the seller's costs The technology industry changes with each generation of consoles and since it is a hyperactive market, each time a console is revealed, it sets a new bar. "The console gaming experience is about delivering something that's way out past the bleeding edge and subsidising it through thesoftware royalty model - just like Apple does with the phones. It's not that much different." -Mark Rein, Vice President of Epic Suppliers for Xbox 360 The potential for making money in the video game industry is high.
The video game industry has a worth of over $67 billion with an expected projection of $82 billion by 2017.
The release of new console systems by Nintendo, Microsoft, and Sony are expected to help the console segment regain some momentum in the 2014 to 2015 time frame since the steadiest area of growth is on the PC and mobile side. What other and how many suppliers are available? Many distributors.
Any company that can
make and assemble
hardware is a
potential customer Inside
the Xbox DVD: Toshiba, Samsung, Lg Power Supply: Corsair, Seasonic
PC Power & Cooling GPU: nVidia Hard Drives: Hitachi, Fujitsu
Western Digital Is the threat
of forward integration high? Bargaining power of suppliers LOW-MEDIUM Inter-firm Rivalry HIGH How many competitors are equally balanced? Xbox constantly hold top sales in current generation console PS3 announced 70million sales, 35 days after Xbox hit the same milestone Wii topped sales only once Exit barriers Millions of dollars invested into developing hardware and games Xbox is currently in the MATURITY Stage Consumers vs. Retailers Threat of New Entrants Threat of New Entrants Threat of New Entrants Threat of New Entrants - Microsoft and IBM makes
designs + specifications for
CPU + motherboard.
- ATI makes custom GPU
- Samsung supplies
memory + DVD-R
- Foxconn makes small hardware
+ assembles the XBox
- Hardware depends on the
model of the Xbox
- Delta Electronics supplies power 1.)Central Processing Unit
2.)Graphical Processing Unit
5.)Power Supply
6.)Hard Drive
7.)DVD-ROM Constant "Console Wars" between today's generation of consoles. HIGH Threat of Substitutes MID - HIGH Personal Computers
Mobile Phones
Tablets Is the product unique and non-standard? Thanks for listening!
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