Five Forces Analysis of the Video Game Industry
The five forces that drive industry competition, a model established by Michael Porter, are; threat of substitution, threat of new entrants, bargaining power of suppliers, bargaining power of buyers, and intensity of rivalry. The video game industry must deal with all five of these forces. The analysis of the strength of these five forces within the video game industry will help to draw a conclusion as to whether or not it is an attractive industry for Sony to be in.
The threat of substitutes in the video game industry is relatively low. Most customers are looking for a console that they can play games on and there really isn’t much else to choose from. One could say that computer gaming, although still technically video games, is a potential substitute. Almost every household in America at least has one computer, so it is much easier for customers to just purchase games for their computer rather than buy a new console altogether. Computer gaming is not much of a threat to the video game industry because customers seek the different type of gaming experience that the consoles offer that a computer cannot, such as motion control for the Wii, and special controllers for the Xbox and the PlayStation 2. Clearly the threat of substitutes is not very large in the video game industry.
The threat of new entrants in the video game industry is moderate. The three key players in the video game industry are Microsoft, Sony, and Nintendo. These three companies have a well-established customer base and it would be difficult for a new entrant to entice these loyal customers to switch. Another road block for new entrants is the customer’s switching costs. Most of the video game consoles only support games made for that specific console, although Sony has an edge in this because their PlayStation 1 and 2 games are compatible with...