Evaluate the attractiveness of the video games consoles industry prior to Microsoft’s entry. Is this an attractive, moderately attractive, or unattractive industry for Microsoft to diversify into? Explain why.

Microsoft Xbox Case
Q.1: Evaluate the attractiveness of the video games consoles industry prior to Microsoft’s entry. Is this an attractive, moderately attractive, or unattractive industry for Microsoft to diversify into? Explain why.
The video game console industry is an unattractive industry for Microsoft to venture. The buyers’ power in the industry was extremely high as without them; the industry would not survive. By the late 1990s, it had shown its capability to appeal to mass consumers, as it was estimated to attract one-third of all internet users aged 25-44 years old. Additionally, estimates that the industry would grow to forty billion dollars by 2003 and the subscription to online games remitting 4.6 billion dollars by 2005, online gaming buyers would grow exponentially. Despite these encouraging figures, studies showed that 89% of online gamers were unwilling to subscribe to online games. Hence, since the industry relied primarily on them, their unwillingness to pay subscriptions would dent the profit expectations for companies and cause the lowering of the subscription fee to make them subscribe.
The competitive rivalry of the industry is another reason it is unattractive for Microsoft. The entry of Microsoft into this industry was inevitably going to face stiff competition at every step. Several companies had ventured into the market, including Sears Roebuck & CO and Atari, the 8-bit Nintendo Entertainment System, the 16-bit Genesis, Sony’s PlayStation1 and 2 and the 128-bits Dreamcast console. Sony with PlayStation1 and 2 and Nintendo with N64 controlled 70% of the industry’s worldwide revenue. With 20 years in the sector and twenty million sales, Sony could go head to head with Microsoft, ensuring it did not get any advantage over them. For instance, when Microsoft introduced an Ethernet port for internet connection, Sony announced a broadband hand drive to be released the same year.
The suppliers’ power in the industry was prominent, reducing the attractiveness of the market. The online gaming industry was segmented into three. The hardware comprised of the consoles, the software featured the games, and accessories consisted of game controllers and other accessories. Since the software was the primary source of revenue at 70%, with console manufacturers such as Microsoft selling their hardware for negligible to negative margins, software suppliers had the upper hand in the industry capable of driving up the prices, rendering console manufacturers helpless.
Q.2: Evaluate Microsoft’s resources, capabilities, etc. and whether those will allow it to do “well” (i.e., whether it will win) once it enters the industry. You may use any of the internal analysis tools we have discussed in class (and in the textbook), such as the resources and capabilities framework (VRIN), its strengths and weaknesses pertaining to its resources and capabilities in this new industry, or a value chain analysis (or all three).
Microsoft’s resources and capabilities would allow it to perform well in the online gaming industry for various reasons. Microsoft brand’s recognition is one of the primary sources of its competitive advantage. The brand is a leading playe...