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Sunday, 26 May 2013

Video game history

Here is a great infographics from The Economist on the history of video game consoles. It shows the growth of the industry but also its interesting dynamics as its cadence is clearly defined by 'console generations'. Moreover, it is clear from the chart that each generation is strongly dominated by one company, generally a different one for each generation of consoles. The regular change of the 'leader' is an interesting phenomenon and it is not always the case for high-tech, R&D driven industries. A great counter-example is the microprocessor industry, which shows a similar growth pattern and also exhibits clear generations: remember the XT, AT, 286, 386, 486, Pentium sequence? However, the leader has always been the same, at least until recently: Intel. What is the difference between these markets? This is the puzzle that we tried to solve in a paper with Elie Ofek of Harvard Business School a few years ago. We argue that the answer lies in the nature of the advantage that 'being a leader' buys for the firm. When advantage means 'higher return on R&D spending' then a dominant firm tends to invest more and, as a result, likely remain the leader. However, if the advantage simply means a 'loyal set of locked-in customers', then the leader has an incentive to lay back, which generally makes it lose its dominant position. The Economist article correctly points out that the nice pattern on the infographics might be changing. The reason is that gaming increasingly moves to the Internet and is increasingly dominated by social gaming. Does this mean that hardcore action games, based on consoles will disappear? Probably not. But growth may slow down and this might also change the industry dynamics.

Thursday, 9 May 2013


This article by The Economist is a super summary of the musical business with a great video in it. It is surprising that in this world where people seem to favor `easy access, anywhere, anytime', live performances do so well. Given the data presented in the article, musicals are more valuable pieces of intellectual properties than any movie or TV show.

Thursday, 2 May 2013

Contradictions about Facebook

Lots of data and commentary came out about Facebook these past few days. One set concerns the membership base. Here, the worry is about peaking membership numbers and an aging user base. Not only seem older users be more interested in Facebook than before but younger ones appear to disengage with it. Other sources confirm the "youth problem" (see infographics on the right) but argue that members have simply shifted to mobile not well captured by current statistics (note also that younger users often do not have smartphones in equal numbers to adults).

Another set of news concerns advertising revenues. Here, the positive news is that revenues have increased 30+% compared to the first quarter last year. There have been a lot of new advertising products introduced and mobile advertising is substantially up. The more pessimistic view is that despite these changes, profits remained flat.

To me the real worry is that there has not been any game-changing move from Facebook in the past two years. Sure, there is a lot of incremental innovation: the move to mobile, some new products, etc. But the user experience is essentially the same for years now (mobile or not, in fact with more ads, somewhat less attractive). The revenue model is also identical even if somewhat better executed. But the $5-6 billion revenue simply does not justify the valuation.