Sunday, 28 January 2007

Mario, Luigi and the Global Economy - Part II

The second part of my essay on what we can learn from the interactive entertainment industry - the three lessons.

Lesson 1:
Knowledge is Power

Although it is typical to stereotype gamers as smelly and socially inept individuals in need of more physical exercise, the video game industry basically caters to the most wired and technologically savvy community on earth (and incidentally also the community with the most free time). Information within this community literally travels at the speed of light, via the Internet. If a game is bad, virtually every gamer will know about it days after it is launched. Reviews and games guides, written in multiple languages will appear globally, mostly free of cost, almost immediately after official releases. This leads to extreme success cases for games: either they sell like hotcakes because everyone knows they are good, or not sell at all because everyone knows they are bad. Information makes or breaks a game.

And this is the first lesson one can learn from the video game industry. In the future, consumers will be highly wired - information will be transmitted quickly, globally, and at minimal or no cost. Information asymmetry will diminish; producers would no longer be able to capitalise on the ignorance of consumers. Any attempt to be dishonest will be severely punished, as everyone will know. Firms must understand and cater to consumers’ needs. And firms successfully doing so will be rewarded favourably. In the future economy, knowledge is power.

Lesson 2:
It’s a Game, a Serious Game

As alluded to in the boxing analogy, the video game industry is a game, a serious game. Your every decision matters, your competitors’ every decision matters. When Microsoft makes a move, expect Sony and Nintendo to react. There is also no time for losers in this game. Mistakes and complacency are not tolerated. Want to have a good example? Just google “Atari” (once an undisputed video game market leader and monopoly) and “bankruptcy” together.

This is the second lesson – in the future, every market participant is interdependent, and decisions cannot be made in isolation of others. To be successful, firms will need to always be ready and be able to anticipate the market, and this can be achieved by understanding the interdependencies between all parties. Markets and economies are networks, leaving very little room for the ‘ceteris paribus’ mentality common to traditionally trained economists. In the future economy, market acumen will be crucially more valuable than a fancy Economics degree from Cambridge.

Lesson 3:
Think Big, Think Smart

The industry will be entering the next generation console war soon; and it will be a massively intense three-way battle between Microsoft, Sony and the supposed underdog, Nintendo. Microsoft and Sony are the undisputed goliaths of the battle, competing directly in almost all dimensions to win the increasingly large pool of dedicated gamers. Microsoft has the financial wherewithal to rival that of a small nation, and Sony’s has the technological advantage, market leadership and a deep creative pool from its ownership of a major media conglomerate. But the unlikely winner in this battle could be Nintendo. Having neither the financial and marketing muscle of Microsoft nor the super-computer processing power of the Blu-Ray compatible PlayStation 3, Nintendo decided to aim bigger, and smarter.

Instead of competing directly for the pool of dedicated gamers, Nintendo has decided to aim for a much bigger and untapped market of non-gamers. And it does this with its smart new console: Wii. Wii is highly innovative and unconventional, with a motion sensitive game controller that looks more like a pair of nunchucks rather than a video game joypad. Its just-released trailer shows the most unlikely people – a grandfather and grandson fishing, an entire family orchestrating a classical piece, a middle-age couple golfing, a healthy looking bunch of ‘twenty-something’s playing tennis – all using the unique Wii’s controller. Video gaming has never looked so accessible.

And this is the last lesson. In the future economy, you have to think big, and smart. Major economic forces will be working their ways, shaping the global economic landscape. We have to adapt, and smartly so, or risk being marginalised. Can’t find your own niche? Create it.

… to be continued…

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