Video Games and the Shaping of Industrial Transformation

Center on Japanese Economy and Business, Columbia Business School
Tuesday, February 21, 2012
Uris 301, Columbia Business School

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So the story began, and then this happened. It’s been tough! (C)
And all the other companies are in the same position. As for why it's gotten so tough now... that's because the game industry is in a transition period where the fundamentals are transforming completely.

And with that, I'm going to turn now toward the game industry and discuss the nature of this transformation.

To understand this transformation, we need to understand what’s driving it. Because games are incredibly complex applications, playing games requires special devices. Thus, the driver of growth for the game industry has been the device.

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If we look here we can see that the game industry has developed in 3 stages. We're now approaching the 4th Stage.

The 1st Stage is the arcade era. Arcade machines were so expensive that ordinary consumers could not purchase them. Thus, arcade owners purchased game machines and made a profit by customers inserting coins. This business method gave birth to the game industry.
The 2nd Stage began with Nintendo. That is the era of the home game console. Selling a console specialized for games at a low price provided the foundation for individuals, rather than arcade owners, to buy the machines. Hereafter there was an upward progression, and from the Playstation2, the game console gradually increased its capabilities, including features such as DVD players.From the customer's perspective, the overall investment needed just to play games was decreased.

Next, we reach the 3rd Stage. While game consoles began to become more like general purpose devices, the capabilities of other general purpose devices increased, and you could start to play games on many more devices than before. In Japan, it started with regular cell phones, and from there you could enjoy games on iPhones, Android, etc. The environmental investment a customer needed to play games became zero, and thus the device stopped being the driver of growth.

As a result, the 4th stage is discontinuous, and the industry is currently in turmoil.. This stage, and the reason we are in a fundamental transformation, is the start of the network era.

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