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What Should Sony Do Next?

By Scott D. Anthony, Clayton M. Christensen

You've been hit with a disruptive attack. A competitor you dismissed has successfully changed the game in your industry. Analysts and investors are clamoring for your response…or your head. What should you do?

Executives at Sony are trying to answer this question today as the video game leader struggles to figure out how to respond to recent disruptive moves by rival Nintendo. Early signs suggest that Sony is choosing the path of least resistance—and least potential. Competition in the video game console industry has been fairly straightforward over the past two decades. Companies succeeded by providing better quality graphics, more sophisticated game play, and a wider array of games. Over the past few years, historical industry leader Nintendo had drifted down to third in the industry league table as Sony and Microsoft's raw power and wide range of titles outpaced Nintendo's continually clever game play.

All of that changed last Christmas. While Sony's PlayStation 3 and Microsoft's Xbox 360 continued their steady march up market, Nintendo innovated in a different direction. It focused its effort on making game play significantly simpler and more intuitive. A chip made by Massachusetts-based Analog Devices called a "three-axis accelerometer" embedded in the controller for Nintendo's Wii system measures movement in three directions. The controller allows consumers to use natural motions to have characters swing a tennis racket, toss a bowling ball, cast a fishing pole, and so on.

Nintendo's strategy was a conscious attempt to reach the "non-gamer," the person who found existing video game systems too complicated and time consuming. The system is so easy to use that even video game novices can enjoy game play within minutes.

By all accounts, Nintendo's effort has been a massive success. Nintendo can't make its $250 Wii fast enough to meet demand. Nintendo's stock is up close to 50% this year, and its market capitalization has surged past Sony's market capitalization. Part of the reason? Sony's video game unit recently reported losses of close to $2 billion.

Sony needs to catch up quickly, too: in the month of June, the Wii outsold the Playstation 3 in Japan by a six to one margin. Nintendo's simple DS handheld system has similarly outpaced Sony's more sophisticated PlayStation Portable.

Microsoft is facing its own struggles, as well. It recently announced that it would take a $1 billion charge to correct flaws with its Xbox 360, and analysts are beginning to suggest that Microsoft should spin off its money-losing video game decision.

Read the full article on Forbes

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