Link to my post at The Huffington Post See it there…. Or here it is in full below…
When most people think of a market or an industry “disruption” they think of a single fundamental change in the business. Maybe the way products are distributed, or a significant reduction in the cost of a product, or a change in the way people buy the product (e.g. from a sale to a rental, or offline to online), or a variety of other issues that fundamentally change that market or industry. The point being is that they usually think of a single change that is disruptive….
But in the games business today, and over the last couple years, the changes that are occurring are happening on four fundamental pillars of the business; Distribution, Product, Marketing, and Pricing. And as if that was not challenging enough, because four elements of the business are changing at once it can be very hard to even decipher, let alone respond to, as the parts are so interconnected. So if a new strategy to react to the changing market only correctly addresses one or two parts that are changing in the business and doesn’t fully understand and address the others, the company will fail at navigating into the new era.
This is the underlying reason so many “traditional” game companies, those that sell packaged goods products at retail, are having so much trouble with this new era in the gaming business. And this is also the reason that success is more widely seen by startups and new entrants who can “start from scratch” and have no past history to be bound to or mislead by. The simple fact is that companies do not “adjust” well. Only truly great companies can adjust to one disruptive change in their market. Understanding and realigning the company to deal with four fundamental parts of the business changing simultaneously is close to impossible. The reasons are many and complex, but in general the odds are working against incumbents whenever there is change of complexity and magnitude, and multiple simultaneous changes just multiply those bad odds even worse.
Let’s walk thru the key and fundamental changes disrupting the game industry.
As is evident in the table above, this is really not a change to one part of the business; this is massive disruption to ALL parts of the business. Product, Distribution, Marketing, Business Model; what else is there? The challenge with dealing with so much change at once is twofold. First, it is that so many incumbents and industry participants’ incorrectly diagnose the situation as there is a single or at best two changes in the business. How many times have we heard or read, “The game industry is changing, it is going Online”. That sounds so simple. Just take your products and “put them on the Internet”, problem solved. Nothing could be a greater recipe for disaster. Obviously companies and executives are getting smarter and understand the problem is not so easily addressed. But getting four new strategies (and usually new teams with new people to the organization), and getting them all four to execute successfully on their newly figured out models and objectives, plus getting them to work together across their four domains, is non-trivial to say the least. As mentioned above, this is highly difficult to do in a single area of the business, but in four different fundamental parts of the business to change and adjust all at once, incredibly difficult and with low likelihood.
Two by products emerge from these realities. First, startups are even more likely to succeed, gain traction, and be successful (than normal) in a market with so many disruptions. With the incumbents not able to evolve to address the new market dynamics there is available market share in the industry the new entrants can lay claim to. And secondly, and related to the first, larger more established companies need to acquire successful “pure play” startup companies even more than normally rather than they should try and evolve internally to address these new business realities.
Startups have many advantages in this scenario; no past, no pre conditions, no internal politics (hopefully!), and with no existing market share of the old model to defend. They are started from zero with no other objective than to address the challenges they are focused on. They have the additional benefit of forming teams from scratch. If the startup is smart and focused, they are hiring people that exactly fit the task at hand and they should have no need to convert someone from one set of expertise to another. This latter fact is a big challenge that the existing incumbent companies of the old model are faced with. When you think about an industry that has four fundamental areas that have are dramatically changing it is a clear advantage to start by building teams with those four talents from scratch rather than using your existing talent and trying to retool them.
And lastly, how do existing incumbents deal with this massive, multi-vectored, interconnected, and simultaneous disruption? Clearly acquiring companies is always a potential strategy when dealing with emerging markets or disruption in your current market. But when you consider the risk and long odds of internally innovating on four fundamental foundations of the business (Product, Marketing, Distribution, and Business Model), and getting it right, and doing so soon enough to not miss the market shift, it becomes an even more likely path to success. Finding acquisition targets that have mastered these four areas of the new model realities and can scale into the future is truly a highly valuable opportunity.
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