SCHOOL OF ECONOMICS AND MANAGEMENT Lund University Department of Business Administration SEVEN GENERATIONS OF GAMING Erik Persson & Jonas Medin BUSM36 (ECTS 15) Advisor Master Thesis Christer Kedström Abstract Title: Seven generations of gaming Seminar date: 2009-06-04 Course: BUSM36 Authors: Jonas Medin, Erik Persson Advisor: Christer Kedström Key words: Console, Key factors, Game, Installed base, Lockout, Lock-in, Strategic Management, Strategy, Success, System, Videogame Purpose: The purpose is to identify the key factors of success during the history of home video games. Once these factors have been identified, they are analyzed to see whether differences between generations can be established. Methodology: The research of this thesis is based on a qualitative methodology. The empirical foundation and theoretical framework has been used in an inductive course of action. Theoretical frame of reference: In order to capture the full nature of the home video game industry the following theories are used: Technological lockout, Dominant design and increasing returns of adoption, Core capabilities, Absorptive capacity, Installed base, Complementary goods, Competitor patents, Timing of entry, Switching costs, Blue Ocean Strategy, the Product Lifecycle and the Marketing Mix. Empirical foundation: The data is mainly of secondary nature and collected though the Internet, scientific articles and literature covering the subject. Conclusions: A table presents the key factors of success during the history of home video game consoles, which is followed by a concluding discussion. 2 1. INTRODUCTION................................................................................7 1.1 Background....................................................................................................................7 1.2 The home video game industry ....................................................................................8 1.3 Prior research ..............................................................................................................10 1.4 Problem discussion......................................................................................................11 1.5 Purpose.........................................................................................................................12 1.6 Delimitations ................................................................................................................12 2. CHOSEN METHODOLOGY...........................................................13 2.1 Method and approach.................................................................................................13 2.2 Collection of data.........................................................................................................13 2.3 Categorization of generations.....................................................................................15 2.4 Sieving of information.................................................................................................15 2.5 Reliability and Validity ...............................................................................................15 3. EMPIRICAL FOUNDATION ..........................................................17 3.1 First generation of home videogames (1972-1977) ...................................................17 3.1.1 The Odyssey (1972)...............................................................................................17 3.1.2 PONG (1976) .........................................................................................................18 3.1.3 PONG Clones.........................................................................................................18 3.1.4 Summary of the first generation.............................................................................19 3.2 Second generation of home videogames (1976-1984) ...............................................19 3.2.1 Channel F (1976) ...................................................................................................20 3.2.2 Atari 2600 (1977)...................................................................................................21 3.2.3 The Odyssey² (1978)..............................................................................................22 3.2.4 Intellivision (1980).................................................................................................23 3.2.5 Atari 5200 (1982)...................................................................................................23 3.2.6 ColecoVision (1982)..............................................................................................24 3.2.7 Vectrex (1982) .......................................................................................................25 3.2.8 Summary of the second generation........................................................................25 3.3 The Video Game Crash of 1984 .................................................................................27 3.3.1 The game glut.........................................................................................................27 3.3.2 Computer price wars ..............................................................................................27 3.3.3 Consumer apathy....................................................................................................28 3.4 Third generation of home videogames (1983-1992)..................................................28 3.4.1 Nintendo Entertainment System (1985).................................................................29 3.4.2 Sega Master System (1985) ...................................................................................31 3.4.3 Atari 7800 (1986)...................................................................................................31 3.4.4 Summary of the third generation............................................................................32 3.5 Fourth generation of home videogames (1987-1996)................................................33 3.5.1 TurboGrafx-16 (1989)............................................................................................33 3.5.2 Sega Mega Drive / Genesis (1989) ........................................................................34 3.5.3 Neo Geo (1989)......................................................................................................35 3.5.4 Super Nintendo Entertainment System (1989).......................................................36 3.5.5 Summary of the fourth generation .........................................................................37 3.6 Fifth generation of home videogames (1993-2002) ...................................................37 3.6.1 3DO (1993) ............................................................................................................38 3.6.2 Atari Jaguar (1993) ................................................................................................38 3.6.3 Sega Saturn (1994).................................................................................................39 3.6.4 Sony PlayStation (1995) ........................................................................................41 3.6.5 Nintendo 64 (1996) ................................................................................................42 3.6.6 Summary of the fifth generation ............................................................................43 3.7 Sixth generation of home videogames (1998-PRESENT) ........................................44 3.7.1 Sega Dreamcast (1999) ..........................................................................................45 3 3.7.2 Sony PlayStation 2 (2000) .....................................................................................45 3.7.3 Nintendo GameCube (2001) ..................................................................................46 3.7.4 Microsoft Xbox (2002) ..........................................................................................47 3.7.5 Summary of the sixth generation ...........................................................................49 3.8 Seventh generation of home videogames (2005-PRESENT)....................................50 3.8.1 Microsoft Xbox 360 (2005) ...................................................................................50 3.8.2 Nintendo Wii (2006) ..............................................................................................52 3.8.3 Sony PlayStation 3 (2006) .....................................................................................54 3.8.4 Summary of the seventh generation.......................................................................55 4. THEORETICAL FRAME OF REFERENCE................................57 4.1 Introduction and motivation of chosen theories .......................................................57 4.2 Network markets .........................................................................................................58 4.2.1 Technological lockout............................................................................................58 4.2.2 Dominant design and increasing returns of adoption.............................................60 4.2.3 Core capabilities.....................................................................................................62 4.2.4 Absorptive capacity................................................................................................62 4.2.5 Installed