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.