A COMPARATIVE ANALYSIS OF DIGITAL TECHNOLOGY USE AND POTENTIAL AT NINTENDO AND ZYNGA

Nintendo Co., Ltd. is a transnational video game and consumer electronics corporation founded in Japan. It is among the biggest video game firms in the world regarding market capitalization (Forbes, 2013). The video game company began running in the 1970s and later turned into one of the leading players in the gaming industry. With more than $85 billion in market value, Nintendo is on the third position in Japan with this respect (GameCentral, 2016). Zynga, on the other hand, is a U.S. developer of video games running social video gaming services. It began its operations in July 2007. It has its headquarters in San Francisco, California. It develops social games that run on mobile platforms as Windows Phone, Android, and Apple iOS. Users can also play on the company’s website, Zynga.com, as well as social media sites such as Google+, Tencent, and Facebook (TechCrunch, 2016). Over the past decade, the company endeavored to reduce expenses and grow its business to include spheres like Zynga.com, which is its gaming platform, mobile game apps, online gambling, and licensed board games. This paper compares and analyzes the use and potential of digital technology by Nintendo and Zynga.

SWOT Analysis of Zynga and Nintendo

SWOT is an evaluation of the internal factors that determine the existence and performance of the company (Fleisher & Bensoussan, 2015). Nintendo has several shortcomings. First, inventory shortages imply that customers have a few products from which to choose. The reason for it is that while the company is a large maker and supplier, it predominately relies on its supply chain. Suppliers particularly those based overseas present a difficulty in managing the supply chain. A small margin per unit implies financial and marketing pressure.

Nintendo has several opportunities that may help it. First, there is a rise in the demand for the company’s software and products. There is continued growth in the U.S. games software market (IBIS World, 2017). The market for online gaming has grown tremendously which is good for the company. There is a notable increase in the demographics of the people who play video games either online, using mobile platforms, or video consoles, and otherwise. In fact, there is a rise in the number of younger and older gamers. The gaming industry is growing at a pace more than that of the film industry (Masnick, 2012), and this only increases the prospects of Nintendo. The expansion of the online gaming platform is a great opportunity for the company particularly because many people are increasingly accessing and using the cyberspace.

Several threats face Nintendo, the first one being a short product life cycle, which denotes the phases a product undergoes from the time of its conception to its removal from the market (Easwaran & Singh, 2006). Many upcoming games and gaming products make old ones obsolete within a short period. Another threat is the slowdown in the U.S., European, and Japanese economies. There is a possibility of the coming of a new entertainment industry and other technologies which may take the place of the gaming industry. There is also a threat of stiff competition since consumers may switch from Nintendo to using the Xbox, Sony PlayStation, and others. Besides, there is a possibility of changing consumer choices in the future. Consumers’ tastes and preferences might change with time, and games keep varying in popularity. Finally, new entrants are coming up particularly in China because its economy is more consumerist than before (Ad Age, 2016).

Nintendo has several strengths, first of them is that the company has a significant global recognition (Nintendo, 2016). The company has operations in virtually all the corners of the globe. While the company does most of its manufacturing in Japan, it has distribution networks throughout the world. Since it is a global business, the company does not overly rely on particular markets. It has customers across the globe. Many people across the world recognize the Nintendo logo and gaming brand. The company supplies many products including the Wii, Nintendo 64, Nintendo DS, and the GameCube, which contribute to the company’s high cash flow.

Zynga has suchstrengths as it enjoys an active user base of approximately 298 million users (Zynga, 2013). The company has a premium business model that attracts and retains more consumers and increases the brand value. The other strength is the increased brand recognition mainly because users can play on various social media sites. Until 2015, the company collaborated with one of the leading gaming companies in the world, Bwin (Zynga, 2012). Such partnerships increase the company’s brand recognition. The company mostly unveils its game offerings online, which reaches many consumers who may download their favorite games. The growth in mobile usage implies more growth for the business.

One of the weaknesses of Zynga is its inability to predict the number of daily online users, which fell from 72 million to 56 million a few years ago (Shih, 2013). The number of active social gaming users decreased mainly because of the end of the partnership between Facebook and Zynga. Facebook was responsible for Zynga’s increase in customer base and the growth in revenue (Rosoff, 2011). The point that many gamers do not purchase social games recurrently implies a significant loss of income for the company.

The company has opportunities such as the fact that the real gaming market in the U.S. and the world is growing. It is possible for Zynga to adopt a market expansion strategy to enter different markets. It is not late for the company to boost its advertisements on various social media platforms using many brand advertisers who make an enormous impact on business. The company can use its popular games like Farmville to increase its brand awareness. The company faces some threats as well. For example, many of the online gaming users are casual in nature (Shields, 2010). It is not possible to establish the dedication of the users to the brand.

Porters Five Forces Analysis of Zynga and Nintendo

According to Trefis (2015), Zynga’s business underachieved in 2014 because its user base dropped. The company made losses the same year and had no major game launch. Its results in the fourth quarter were disappointing, and sales dropped significantly. Porter’s Five Forces assesses the development of business strategy and the degree of competition within the industry (Ahlstrom & Bruton, 2009). Jain (2015) writes that Zynga performed poorly in 2014 because of unfavorable industry dynamics that increased threat. There were low barriers to entry and high competition. The gaming business has many competitors even though new companies may enter the industry quickly.

The competitive nature of the gaming industry implies that Zynga’s Customers have high bargaining power because their expectations keep growing. In fact, customers have a great ability shift to companies that offer the best gaming services. Suppliers in the gaming industry have massive power as seen in the decline in Zynga’s business due to the end of the partnership with Facebook. Other important suppliers of Zynga are Apple and Google. The level of rivalry in the gaming industry is intense particularly with the development of many mobile gaming apps. The power of suppliers to bargain is high, and the substitutes’ threat high (Jain, 2015).

Nintendo’s buyer power is high because of the competitive nature of the gaming industry. The threat of new entrants is high as well. In the gaming sector, there is a high level of competitive rivalry. The suppliers’ power to bargain is rather high, and the threat of substitutes is high too. Nintendo has numerous vendors to select from including Electronic Arts, Disney, Ubisoft, and others. Customers have high bargaining power because they can shift to using other gaming products and services in the market. In Japan, established brands and government regulation make it difficult for other entrants into the industry. There is a relatively high competitive rivalry, with big players like Microsoft and Sony having a significant market. In Japan, Nintendo has limited substitutes, implying that the alternative power is low.

Digital/E-Business Background, Digital Strategy, And Business Model Analysis

Business Model of Zynga and Nintendo

Zynga has the issues to which Orthodox Investor refers as a subscription business model (2016) Nevertheless, the company ought to monetize its business model. It has many gaming users, but paying users are not as many. In fact, according to Orthodox Investor (2016), 98% of the active users do not pay for the games. Only 0.8 million of about 68 million monthly users pay for the games they play which has serious implications on the cash flows of Zynga. To encourage more people to play games, Zynga provides bonuses to active players to keep them coming back. The games are also social in nature meaning that they are very interactive and addictive.

A business model canvas is a visual representation that helps develop new or document existent business models. It depicts a company’s infrastructure, value proposition, finances, and customers (Osterwalder & Pigneur, 2013 ). Zynga has several ways of making money that constitute its business model. It sells virtual gaming goods to individuals as they play either online or otherwise. The company makes money through advertising within the games. It also has banner advertising in its game portals that give it money. Zynga customers consist of internet users and mobile device users (Shaul, 2014). The revenue streams of Zynga include advertising income and game subscription fees. Zynga partners and suppliers include Facebook.com and other online platforms, as well as Mobile phone and tablet sellers.

Nintendo’s business model consists of various production, development, and sales partners. The company deals in several main activities including selling products, conducting development and research, and generating community revenue. The company focuses on software and hardware to facilitate gaming with more social experience. It enhances customer relationships and minimizes cost using the outsourcing approach. Its revenue streams include selling computer games, mobile game applications, and gaming equipment. The main partners of the company are iTunes and Google Play. The company targets mobile and tablet users, school and university students, women, children, and the aging population.

Web Design, Mobile Commerce, and Business-To-Business Analysis

Web Design

Zynga’s web design has created the opportunities for people to play games on zynga.com which implies the company dedicates much of its resources on online gaming. For every game previewed on the site, there is a “Play Now” button. On the other hand, Nintendo has a website whose design does not allow online gaming. Instead, customers can see the available games and buy the ones they like. Zynga’s website design does not appear like one that is selling the available games until one clicks on a game after which a new gaming page opens. Zynga works in partnership with different platforms and suppliers to make online gaming and mobile app gaming possible. Nintendo, on the other hand, places the prices of its gaming products on its site.

Figure 1: A screenshot of Zynga’s Website

Figure 2: A screenshot of Nintendo’s Website

Mobile Commerce and Business-to-Business Analysis

Both Nintendo and Zynga engage in business-to-business deals and participate in mobile commerce especially when it comes to mobile apps. For example, Nintendo has an Android app that makes the gaming experience easier for mobile users. Zynga, on the other hand, still offers the Facebook app that gamers use.

Digital Marketing and Social Media analysis

Both Nintendo and Zynga apply different digital strategies in marketing their services which include Internet sites, mobile applications, and social media. To some extent, both Nintendo and Zynga market themselves on various social media platforms. Zynga enables gamers to play on social media platforms, unlike Nintendo. Zynga offers a leading gaming platform on social sites. It is a top provider of online-based social game services in the world. Both companies use social media sites to promote their gaming products and services. They have a huge following on social networking sites. Overall, Zynga and Nintendo endeavor to serve their customers using social media applications.

Conclusion and Recommendations

Both Nintendo and Zynga employ digital technologies in their operations albeit to different extents. Zynga enables gaming on its website while Nintendo does not. Rather, Nintendo offers offline and online gaming experiences through its products or its partners. While the two companies have strengths, opportunities, threats, and weaknesses, they differ in several aspects particularly in the use of digital technologies. Nintendo predominately relies on its supply chain while Zynga offers gaming services through its website and partners. Nintendo has no much threat of competition compared to Zynga. Zynga appears to perform poorer than Nintendo in monetizing the digital technology use. Zynga’s business model implies that the company has many gaming users, but those who pay for these services are few. Nintendo’s model allows the playing games upon paying for them. The Porter’s Five Force Model reveals that the level of rivalry in the Japanese gaming industry favors Nintendo, but it affects Zynga negatively in the United States. Regarding the business model, the revenue streams of Zynga include advertising income and game subscription fees while those of Nintendo are the sale of software and hardware to facilitate gaming. Both companies work with different partners and target particular categories of customers. Overall, Zynga appears to use digital technologies more than Nintendo, but Nintendo reaps more than Zynga from its digital technology use.

References

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Appendices

SWOT

Porters Five Forces Analysis of Zynga and Nintendo