Reference no: EM133025275

Bargaining Power of Buyers

• The threat of the bargaining power of buyers is high. The biggest buyers are Microsoft (28%), Sony (21%). This buyer group is concentrated and accounts for nearly 50% of Activision Blizzard's business. These buyers are powerful due to the amount of product they purchase from Activision however the products are not standardized and the buyers demand a high quality of the product. The high quality of Activision's products allows them to sell at a higher price and generate a significant profit, however, these products are tailored to perform on the gaming consoles of its buyers and could cause some threat. It is not known if these buyers perform backward integration and this could become a future threat.  Activision also provides its product to the end consumers via personal computer utilization. The end consumer seeks the same quality as Microsoft and Sony.  Platform providers (Sony, Microsoft, Google, Apple) and retailers (Walmart, Google, Microsoft) are also powerful buyers. The sheer significant volume of the high-quality product sold to these buyers is a significant threat however all other areas of threat: alternative suppliers, switching costs, low profits, and buyers possessing product knowledge, are low. Activision's significant focus and commitment to a high-quality product specific to the buyer's platforms and consoles, again causes this threat to be high. 

Bargaining Power of Suppliers

• The threat of the bargaining power of suppliers is low as while there is reliance on third-party platforms (personal computers), and hardware manufacturers (gaming consoles), there is no history of significant interruption to these supplies. The only threat that is more common, is the delay in product releases or disruptions in product distribution. There are multiple companies providing the supplies, the suppliers provide their product for several other purposes and not only video gaming purposes. There is similarity amongst the personal computers and gaming consoles allowing Activision's product to not be so siloed as to not adjust the games to their specific operating systems. For these reasons, the threat of the bargaining power of suppliers is low. 

Threat of New Entrants

• The threat of new entrants is medium.  Several third-party vendors help new entrants to the market ensure their products will stand up to the Sony and Microsoft requirements which used to be a significant barrier to the industry. The new feature of video games performing in the cloud environment also allows new entrants to not have to standardize their product to only Sony or Microsoft. There are no significant barriers to switching costs, governmental regulations, or access to distribution channels. The end-user consumer, while loyalty and identification to Activision's product are high, usually plays a multitude of video games and is quick to test new products. The significant number of end-users would not seem to be a challenge in addressing a new entry to the industry to achieve economy of scale however in order for the end-user to purchase the product at a large scale that the new entrant would require would almost force the product cost to below. This causes this threat to be medium. For a brand new company, the capital requirement may be high however the amount of new products being introduced in the industry is frequent and common. Industry growth is high.

Threat of Substitute Products

• The threat of substitutes is high when rivals offer more attractive products and/or products at a lower price/cost. There is a high level of substitutes in this industry and in order to remain competitive you must keep up with the demand and trends. Activision Blizzard is doing a great job competing with the high level of substitutes. Offering free-to-play games as well as mobile games has been part of the reason Activision Blizzard has stayed on top. While Take-Two Interactive (a rival company) has been slow to adapt to the ever-increasing demand for free games, Activision Blizzard is keeping up with the trend and releasing games such as Call of Duty Warzone, one of the fastest-growing free-to-play games in history. Continuously paying attention to the trends and being quick to react to what the consumers want is why Activision Blizzard continues to stay on top even with the intense threat of substitutes in the market.

Interfirm Rivalry

• When the rivalry amongst competitors is high in an industry it can drive down prices as well as decrease overall profitability. In the video gaming industry, there is a high level of rivalry amongst the competitors. Some of Activision Blizzard's top rivalries are Zynga, Electronic Arts, Nintendo, and Take-Two Interactive. In order for Activision Blizzard to stay competitive against rivalry, it's important to maintain sustainable differentiation as well as collaborating with competitors. Companies such as Nintendo/Microsoft/Sony all develop hardware/consoles that Activision Blizzard develops products for, without those companies and their products Activision Blizzard wouldn't survive. For Activision Blizzard's top games such as Call of Duty and World of Warcraft, there is a similar game competing from its rival. For Call of Duty, EA has the Battlefield franchise and for World of Warcraft, NCSoft has several games such as Guild Wars and Lineage II. With inter-firm rivalry being so high it's necessary that Activision Blizzard respond and act accordingly in order to compete and survive in this industry.

Clearly state your conclusions regarding industry attractiveness according to untapped profit potential (this directly relates to your assessment of each industry force). (This should be no more than one page).