Victor BOURGOUIN

Victor DESPONS
Mark HADJ HAMOU
14/09/2016
Case 2 : Electronic Arts
1. In 1995, what are the key characteristics of the video game industry?
In which ways is it similar/different from the movie industry?
1995 was a turning point in the gaming industry, with a number of platforms
building stronger and stronger positions in the market, such a Sega and Nintendo,
as well as newcomers on the market such as Sony which released its Playstation
1, and the fall of a number of other companies that werent able to keep up with
the market such as Atari.
One of the key characteristics of the gaming industry is the short lifespan of the
video games and consoles. Regular technological advancements and innovation
in the hardware sector, such as moving from 8-bit to 16-bit, mean that all
companies have to constantly strive to keep up to date if they dont want to be
left behind.
2. Until 1995, how successful has EA been? Why? What is the basis of
their competitive advantage?
By 1995, EA has been very successful. Between 1990 and 1995, revenue has
increased to $420 million and gross profit has increased to $195 million, each
growing 500 percent in the period. Net profit has increased to $45 million
between 1990 and 1994, or 800 percent.
In 1994, EA sold over $400m :

53%
22%
3%
5%
8%

Sega
Nintendo
3DO
PC
Affiliated Labels

EA had 85 titles in 1994, and 100 titles in 1995 ($120 million in development
costs.)

EA grew to four divisions:

EA Sports
Simulation and Interactive Movies
EA Entertainment
EA Kids

EA developed a distinct competence at building a culture that is good at dealing

with technical and market uncertainties. Key assets include:

Product development,

Marketing,

Integrating creative, technical and

management,

Navigational competence,

Salesforce for market competence,

business

people

into

project

Victor BOURGOUIN
Victor DESPONS
Mark HADJ HAMOU
14/09/2016

Top management that is knowledgeable about technology.

Instructors who also use Electronic Arts in can ask students to recall the evolution
of EA. Instructors can elicit salient points in EAs history. For example, until 1989,
the companys strategy had been to develop games for the PC platform.
However, by 1989 cartridge-based home video games had emerged as the
dominant game platform. At that time, four million IBM PCs and compatibles had
been sold creating a market of $230 million for PC-based games. This contrasted
with as many as 22 million US households with 8-bit consoles, which generated a
games market of $1.6 billion. Of course, the costs of developing games for the
PC were very different from the costs involved in developing games for the then
dominant Nintendo platform. That company demanded large up-front royalty
payments and manufacturing fees as well as advance commitment to cartridge
number. All of which raised the risks associated with developing for the Nintendo
platform. These risks were similar to those EA faced when it bet on Sega during
the transition to the 16-bit platform.
By mid 1995, EA faced four key strategic challenges. The company had to
prepare for another platform transition, with the industry going to 32-bit
processors, while at the same time maintaining leadership in the 16-bit platform.
EA was also developing and leveraging intellectual property new intellectual
property by co-branding with organizations such as the National Football League
(NFL) and National Hockey League (NHL). By 1995, EA has also set its sights on
international expansion. As before, the company also faced the usual strategic
challenge of attracting and retaining key creative and engineering talent.
3. Until 1995, what has been EA's technology strategy? How is it linked
to their business strategy?
EAs strategy was to become the first third party developer for Sega because
Sega needed high quality software developer fr its platform to stimulate
hardware sales and they knew the fact Nintendo and Sega were already
competing with each other on both hardware and software innovations and also
that Nintendo would refuse EA to produce games for its system if they are
producing for Sega. This was companys main strategy and its MWG to attain the
position where they can be the business leaders for software provider. The
competitive advantage of the company was its ability to produce the games for
multiple platforms with its Artist Workstation that had the capability of cost
effective development, easier portability and ability to maximize the full
capabilities.
4. In 1995, how should EA top management think about the platform
development decisions it faces?
Platform transitions are very risky periods for EA. The industrys share of market
goes up for grabs with each transition. For example, Nintendo dominated the 8bit platform, while Sega dominated the 16-bit platform. By 2002, EA is facing a
128-bit platform transition. A transition requires EA to make a big bet on the
company it thinks will win the transition. Instructors can highlight this point to

Victor BOURGOUIN
Victor DESPONS
Mark HADJ HAMOU
14/09/2016
asking students how much cash the company has and discussing the other cash
needs the company must balance with transitions.
Anything EA can do to help mitigate the risks associated with transitions will fall
directly to the companys top and bottom lines. How does EA manage and
mitigate risk? The company has developed a capacity to predict technology and
market direction through intelligence derived from development teams and the
direct sales force. It has also developed the ability to move fast (make quick
decisions), which confers 1st mover advantage critical in this industry. In
addition, EA developed the ability to port to different platforms, including
proprietary hardware such as Artists Workstation.
Instructors should discuss with students the concrete measures EA uses to
evaluate which titles it chooses to produce. The most important metrics are:

Contribution margin
Tie ratio
Share of market

5. 1. By 2002, how has the Internet affected the video game industry?
How does it affect EAs corporate strategy?
Online gaming represented a compelling opportunity for EA. The company could
reach more game players through the Internet than it ever could through
dedicated consoles. Online gaming also represented a unique opportunity to
derive a regular stream of revenue through subscriptions paid by players for
access to premium online gaming sites.
In 1999, EA sources believed that the total subscriber base of persistent-world
games would grow to 5 million players by 2005. The company planned to release
1-2 games per year over the next 3 years for this online subset. Persistent-world
games cost about $5 M each to develop, but gave contribution margin of 50% to
operate. In addition, the lifetime per game/community was estimated to be as
long as 3 years.
Most of the data used in this type of gaming resided on the game CD and the
players local PC, with comparatively little data transferred to the player from the
server. EA planned to charge around $50 for the CD and first month subscription,
and charge subscribers $10 per month thereafter.
EA offered a service in the server-based subset.
The company featured
multiplayer match-up for about half of its PC games through its website. By the
end of 1999, usage of EAs service was very low, hosting an order of magnitude
fewer sessions than the most popular rivals.
The third online subset, game communities, were websites that that discuss,
trade, customize and promote elements of popular games. About half of all PC
gamers in the US (20 million) and around 10% of PC gamers in the rest of the
world visit one of these sites per month. Game publishers attract only a minority
of this traffic, with independent sites drawing most of the traffic. EAs most

Victor BOURGOUIN
Victor DESPONS
Mark HADJ HAMOU
14/09/2016
popular community site was Simcity.com, which attracted 1 million users per
month for its first 6 months. Traffic thereafter settled to 200,000 monthly visits.
5. 2. What should EAs corporate strategy be for the next 5 years? Why?
How execute the strategy?
Discussion of EAs strategy going forward should take into consideration its
current strengths and the forces that will shape the company in the future. By
2002, EAs scale allowed the company to leverage its intellectual properties
across multiple platforms and geographies. The companys prominence in its
industry gave EA other benefits. EA had the potential to influence the success of
a platform by its decisions to publish titles for it. Since the success of a platform
was tightly linked to the number and quality of games available on them, EA was
regularly consulted by hardware manufacturers concerning technical
specifications. This enabled EA to develop titles faster and better prepare for
transitions in the platform cycles.
Online gaming will likely become more important to the company. But for this to
happen, several forces exogenous to EA must come into place. These include
greater ubiquity of broadband Internet connections in homes and continued
development of Internet capabilities in consoles. Forces that EA can influence
with respect to online gaming include the development of compelling content for
multiplayer and massively multiplayer games that are particularly well suited to
the online channel and creation of an online business model that will generate
sufficient revenue to the company.