Electronic Arts 1995
Elevator Pitch: This case illustrates the strategic challenges currently faced by one of the giants in the video game industry, Electronic Arts. It also surfaces the industry’s characteristics and explains us, that in this fast paced tech-savvy world, you have to keep running just to stay where you are. EA, in 1995 is looking for its next move that would maintain its leading position in the industry. The changes over the past 15 years had led the industry to a very converged sophisticated platform with tons of options (hardware platforms), and it seems hungrier for more innovative technology, creativity and originality than ever before.
EA, however, seems to have understood the ‘mantra’ for success and its strategies up till now have paid off. They have treated their developers as ‘artists’ and have replicated the hollywood movie studios concept successfully. They also learned the hard way in 1989, that working only for one platform (floppy disks in the PC market) never gets you too far, and that you have to shift strategies with the shifting times. The question today, seems to be the same as that in 1989. Should they completely change and adopt new platforms, or stick to what they are good at? 1) What are the key characteristics of the video game industry?
Compare and contrast with the movie industry. The ‘high-tech savvy’, fast paced video game industry where technology is money, is characterized by short product life spans (12-18 months), innovation, creativity and originality. First mover advantage is huge, and high quality experience rules the success. The movie industry, however, is characterized by ‘nobody knows anything’ rule, where there is no sure formula for a hit. This is different than the video game industry, where market research, trend analysis and incremental innovation can be seen as successful strategies. ) What has been the EA strategy up until 1995? How is EA’s technology strategy linked to its business strategy? What is the EA competitive advantage up until 1995? Up until 1995, EA’s strategy was based on Hollywood movie studios, and they believed that developers, like film producers, preferred to work individually and to be appreciated. The company wanted to strike a difference between administrative and entrepreneurial arrangements. They saw their game designers as individual producers, working ‘outside the tudio’, while the administrative department working ‘inside the studio’. EA invested highly in the leading edge computer hardware, so that their designers would have the privilege to test their software’s hardware compatibility and create across the existing many platforms. The biggest competitive advantage for EA is that it is one of the biggest ‘professional’ institute inside a pool of individual garage developers. They have created a brand image with high reputation known for producing high-quality games and were backed by clever marketing and good relations. ) What are the Pros/Cons of developing hardware and software as opposed to just software in this industry? Developing both gives you complete freedom and rights to all products. The company can plan and implement a single structure across the organization. Designing only software begs for high dependence upon a hardware company, and their restrictions and policies bites your margin. Complete ownership can never be achieved. On the other hand, software can be created by an idea, with no capital investment and can be done in one’s own garage.
The inventory loss is only associated with hardware, not software. 4) How should EA evaluate the platform development decisions it faces? What are the pros/cons of co-branding? EA should focus its attention towards platforms where its resources are most compatible. Technology road-mapping is the most crucial tool for EA. The ever growing need of this industry is superior gaming experience. The 32-bit platform seems ideal for EA at the moment, keeping their technological capabilities in mind. The future seems to be the CD-ROM technology, and pairing up with Sony seems the right way forward.
Co-branding creates larger market shares and makes use of the pairing companies brand image. It also guarantees product success due to large awareness, and gives you the opportunity to utilize each other’s resources. It gives you significant insights into the strategic management of the partner company, and provides a great learning experience. However, it can easily cut your profit margin, and the partner company’s image (negative) can hugely compromise one’s own brand image. ‘’It can enhance both partners – or put a dent in one’’. 1