The thing about new technology is that there is always the risk of failure. No matter how good an idea may seem to inventors and investors, the public may have a completely different idea when something is exposed to the cold light of day. Hence, over the years, we have seen a myriad of new products fail the final test of market acceptance. So it is interesting that Fortune is having a look at some of the current failures as we go into the gift buying season.
In this blog I have mentioned the universal pocket device. Game machine, phone, MP3 player, camera and more wrapped up in a sexy small package that goes everywhere with you. A market area that will be immense and one where the Apple iPhone has a massive lead. Competition comes from Microsoft Zune, Nokia nGage and the new Google Android. All of which have gaming as a cornerstone.
The Fortune article has two of these as failures, despite being excellent devices. The new Zune fails because it still isn’t a phone. And the Android T Mobile G1 fails because it has a couple of small niggles and just isn’t sexy enough. A pity as some reviews I have read say it is one of the best phones ever.
Even bigger news for gaming is that Fortune have Blu-ray as a failure. Basically Sony won the battle and lost the war. The world is very rapidly moving on from using cardboard and plastic for content delivery. So there goes the biggest USP for the Playstation 3. Sony really do seem to have been afflicted with the opposite of the Midas touch recently. A pity when you look at all the fantastic technology they have bought us over the years.
Fortune also have the game Spore as one of their failures. I think this is a bit harsh. It has sold well over a million but suffers from the broken model that is PC gaming so has become one of the most stolen games in history. The game is a success in the way that it moves the art of gaming on, but it has had mixed reviews because of the way some of the difficulty levels have been tuned. So overall I think that Fortune have got this one wrong.
Other failures in the article include Visa, which has been a disaster for Microsoft. And the MacBook Air, which proves that Apple still have the capacity to get it very wrong. Nobody is immune when it come to bringing new technology to market.
Overall an interesting and incisive article. Most striking is how important gaming has been revealed to be to modern technology. Our industry is becoming all pervasive in ways that continue to surprise.
Electronic Arts infuriate me. In John Riccitiello they have one of the most perceptive, incisive and lucid managers in the whole of video gaming. Yet as a company they continue to underperform. The value of shares in a company is decided by just one factor, sentiment. So it is instructive to look at the share price of Electronic Arts over the last five years. Basically it has been going nowhere, fluctuating between around 40 dollars and around sixty dollars then collapsing to 22 dollars in the recent turmoil. So for five years investors have seen no improvement in the value of Electronic Arts at a time when the gaming industry has been booming like crazy.
Other big global publishers, like Activision and Ubisoft, have performed much better.
There are two things, and only two things, that have value for a gaming publisher and which build profits and growth. The first is having the right people and the second is having the right IP. If you have these then everything else follows. Yet many times EA have spent fortunes buying companies only to squander the IP and lose the key staff. The new mix and match, user chooser, approach to corporate acquisitions should serve them better. But where is the organic growth? By making the best of what you already have and know well you can generate far more profits from a given investment.
I also wonder about the nature of much of EAs IP. Madden, Tiger, NHL and FIFA may well be cash cows but they are going nowhere and EA doesn’t even own the rights, they just rent them. Even with Warhammer they are borrowing someone else’s IP. But times have changed, we live in the age of Wii Fit. The market is now everyone, not just the narrow niches that gaming historically served. EA have moved with the likes of Rock Band and Spore. But they could move a whole lot further.
One thing EA are doing better than anyone else is gearing for the future. They got into casual gaming big and early. They are pushing microtransactions and subscription business models. And they lead the direct to consumer charge.
Over the last year they have been trying to buy Take Two primarily in order to get the IP of GTA and also to get a virtual monopoly on sports games. This involved billions of dollars. Instead they could have done a Saint’s Row making their own game to compete with GTA and could have grown their existing sports business organically.
And if they really wanted to take someone over then they would have done better buying the huge storehouses of IP that are EIDOS/Sci, Atari/Infogrames and Sega. All three of whom were available very cheaply.
Now EA have announced further disastrous results. Last year they lost $454 million, so far this year the losses are $310 million. You would wonder how they manage this on such strong sales. Their response is a 6% in their workforce. This seems strange to me. In an efficient organisation their surely isn’t that much dead wood. So aren’t they limiting their potential for future organic growth. Surely they would be better knocking the $50 million saving off the marketing budget and forcing the marketeers to make up the difference by being creative. That’s what they are paid for.
If staff really have to go I hope that means every executive assistant, secretary and PA before a single development person goes. And I presume that every executive is handing their frequent flyer rewards back to the company.
I still think that EA are a good long term proposition. But more than that, with a market capitalisation of under $9 billion, they are a ripe takeover target.
