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Unit 7: New Product Development and Product Life Cycle Strategies

the holiday shopping season. With more than 20 million PlayStation 2 sold worldwide, Notes
the GameCube as a new entry in the video game market would make the battle for market
share even more intense.
For almost a decade, the video game industry had only Sega, Nintendo, and Sony; just
three players. Because of strong brand loyalty and high product development costs,
newcomers faced a daunting task in entering this race and being competitive.
In November 2001, Microsoft began selling its new Xbox, just three days before the
GameCube made its debut. Some observers felt the Xbox was aimed to rival PlayStation
2, which has similar functions that rival Microsoft’s Web TV system and even some lower
level PCs.
Like the Sony’s PlayStation 2, Xbox was also built using a DVD platform, but it used an
Intel processor in its construction. This open design allowed Microsoft to develop the
Xbox in just two years, and gave developers the option of using standard PC tool for
creating compatible games. In addition, Microsoft also sought the advice of successful
game developers and even incorporated some of their feedback into the design of the
console and its controllers. As a result of developers’ efforts, Microsoft had about 20
games ready when the Xbox became available. By contrast, the GameCube had only eight
games available.
Microsoft online strategy was another feature that differentiated of the Xbox from the
GameCube. Whereas Nintendo had no immediate plans for Web-based play, the Xbox
came equipped with an Ethernet port for broadband access to Internet. Microsoft also
announced its own Web-based network on which gamers can come together for online
head-to-head play and for organised online matches and tournaments. Subscribers to this
service were to pay a small monthly fee and must have high-speed access to the Internet.
This is a potential drawback considering that a very low percentage of households world
over currently have broadband connections.

By contrast Sony promoted an open network, which allows software developers to manage
their own games, including associated fees charged to users. However, interested players
must purchase a network adapter for an additional $39.99. Although game companies are
not keen on the prospect of submitting to the control of a Microsoft-controlled network, it
would require a significant investment for them to manage their own service on the
Sony-based network.
Initially the price of Microsoft’s Xbox was $299. Prior to the introduction of Xbox, in a
competitive move Sony dropped the price of the PlayStation 2 to $299. Nintendo’s
GameCube already enjoyed a significant price advantage, as it was selling for $100 less
than either Microsoft or Sony products.
Gamers eagerly snapped up the new consoles and made 2001 the best year ever for video
game sales. For the first time, consumers spent $9.4 billion on video game equipment,
which was more than they did at the box office. By the end of 2001 holiday season, 6.6
million PlayStation 2 consoles had been sold in North America alone, followed by 1.5
million Xbox units and 1.2 million GameCubes.
What ensued was an all out price war. This started when Sony decided to put even more
pressure on the Microsoft’s Xbox by cutting the PlayStation 2 price to $199. Microsoft
quickly matched that price. Wanting to maintain its low-price status, Nintendo in turn
responded by reducing the price of its the GameCube by $50, to $149.
By mid 2002, Microsoft Xbox had sold between 3.5 and 4 million units worldwide. However,
Nintendo had surpassed Xbox sales by selling 4.5 million GameCubes. Sony had the
benefit of healthy head start, and had shipped 32 million PlayStation 2s. However, seven
Contd...

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