Chuo University Speech(Nov 25th, 2011)
"The Structural Transformation of the Game Industry"

(Continued from previous page.)*

The second point, which was also very innovative, was the unbundling of the console and the game software. The arcade games can only offer one game per machine, like one machine is used for Space Invaders, and another one for TEKKEN. Unbundling the device and the game created the network externality, which I mentioned just a few moments ago. When network externality kicks in, the market scales up tremendously. Amusement business wasn't bad at all, because the ones that are still in business are making reasonable profits. But they are not growing. This isn't because the amusement facilities are unpopular. Some claim that people no longer play games outside of their homes or there's no space for game arcades. That is not true. There are plenty of spaces. When I was a student, I was playing the Space Invaders at coffee shops. I've heard stories that even the geisha houses owned these games. So you would see Space Invaders game sitting on a tatami mat, right next to a geisha. What I'm trying to get here is that you can find spaces if you have the will, so that is not the issue in essence. In a nutshell, the amusement industry could not scale up by leveraging on the network externality. On the other hand, the home video game market achieved an eye opening leap, as the ecosystem I explained earlier started to drive fiercely by the unbundling of the device and the game, and the effect of network externality.

And the controller was also something. You probably see it like a given commodity, but this was a huge invention. At the arcade, game devices were specifically made for particular games, so the operability was completely different from one game to another, but the controller was made with versatility. The conventional PC based input method would not have expressed the complex dimensions of the games. The paradox of enabling very complex inputs but making the device applicable for general purpose use, was achieved by the game controller. This is part of the network externality infrastructure. Game software cannot be programmed if the physical user interface were all different. The players were also trained by a repeated use of the same controller, so it was effective in that way too.

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