How Lack of Competitive Analysis, Nintendo Caused Blu-Ray's Victory

Rob Enderle

As we exited 2007, there was no definitive leader in the fight for the next high-definition optical standard. The HD-DVD camp had sold a lot of players, but they were offset by PlayStation 3 sales, which ramped strongly through the quarter. Blu-Ray maintained its slight lead in media sales, but total sales were still a fraction of potential.


Past Coverage on HD Optical


A while back, I did a series using Blu-Ray as an example of a bad decision. A lot of folks reading this thought I was recommending HD-DVD or even saying it would win.What I was trying to point out was that the cost of the battle was too high for Sony and the company should not have entered it. The concluding piece in the set argued that the market had grown tired of the battle and if it didn't end soon, that market would move to something else. I recommended that the two sides sit down to prevent this.


At CES, the buzz was on set-top boxes and either streamed or downloaded content, suggesting that Sony's hard win was a Pyrrhic victory, at best. I have both HD-DVD and Blu-Ray players, and the last player I purchased (and wrote about) was the Addonics Zebra HD-DVD/Blu-Ray dual-mode drive, but I still use my Oppo up-converting DVD player more than any other HD product I have. I've also consistently recommended that player over either format (so much so that Oppo has quoted me doing it).


Time Warner Weighs In


Time Warner weighed in in favor of Blu-Ray Friday with what may be the definitive advantage, once it makes the shift and depending on the HD-DVD response, to eliminate one of the two standards.


In looking back at the sequence of events, the HD-DVD camp made several mistakes. One of them was failing to realize how much Nintendo would have to do with this outcome. This goes to strategic thinking. While the technology industry generally lacks it, other industries make use of a competitive analysis function. The HD-DVD camp could have used such analysis to prevent this outcome.


Let's start with what competitive analysis is, and then move to what it likely would have suggested for the HD-DVD camp.


Competitive Analysis


Competitive analysis, used heavily in industries such as automobiles and pharmaceuticals, is typically executed by a small group of well-educated strategic thinkers who game out future events to anticipate problems and define strategies that can then be immediately used if those problems result, to avoid those problems, or to take advantage of competitors' weaknesses. They even profile executives from competing firms, assess manufacturing capabilities, anticipate competitive entries, define future competing products and what it would take to beat them, and forecast regulatory changes.


Most technology companies are run tactically. While they have long-term plans, executives spend most of their time dealing with short-term decisions; they often are blindsided by events that may have been a long time coming but, because they weren't obvious, come as an avoidable surprise -- like the ones we are discussing here.


Much like the corporate version of government intelligence-gathering organizations, the competitive analysis group's mission is to spotlight the strategic and ensure the company's long-term survival and success.


The move by Time Warner was signaled months ago, but seemed to come as a complete surprise to Toshiba and the HD-DVD consortium. So what happened?


What Was Missed


Sony had put itself in a position where it couldn't lose. I don't mean the odds were in its favor; I mean the cost of losing would be catastrophic for the company. For Toshiba, while a loss would be painful, it could easily survive. In a heads-up fight, Sony would be willing to go farther than Toshiba, so Toshiba needed to make sure Sony never felt cornered until it was too late for Sony to react.


When Toshiba got Paramount and Dreamworks to go exclusively HD-DVD, it cornered Sony and put a spotlight on Time Warner. It gave Sony time to ensure Time Warner would not move to the HD-DVD camp. Now people are speculating that Paramount will switch back to Blu-Ray, and few seem to believe it when it says it won't.


A critical element, the PS3 game system, initially should have assured an early victory for Sony. Instead, the Blu-Ray technology made the PS3 too expensive for the market, moving Sony from first to a distant third in that segment. Even so, Sony was selling PS3s at a much higher rate than the combined sales of HD-DVD and Blu-Ray standalone players.


Toshiba needed to cripple PS3 sales, and the weapons were the Xbox 360, which had an HD-DVD option selling in comparatively low volumes, and the Nintendo Wii, which had dominated the market since launch.


There was no apparent focus on moving more Xbox 360 HD-DVD accessories, and Nintendo was manufacturing-constrained, shifting sales over mostly to the PS3, which was seen as newer than the Xbox 360. Toshiba had a significant price advantage on its HD-DVD player, but it allowed prices to creep up during the buying period. This market is incredibly price-sensitive; once prices crept over the critical break point of $200, they slowed sharply because people had set their value point at the earlier prices.


So as the year ended, Blu-Ray had maintained its lead and Time Warner realized it had to pick one. Based on disk sales, it clearly was leaning toward Blu-Ray. Sony would have been more than willing to provide substantial financial incentives to make this move.


What Toshiba Should Have Done


Three tactical moves likely could have ensured this decision went the other way. Time Warner had been a huge advocate for HD-DVD at the start and even while supporting both standards, seemed to favor HD-DVD, with its more on-disk options and dual-mode disks (with regular DVDs on one side), which is why Toshiba likely believed it wouldn't go Blu.


Toshiba should have embraced these dual-mode drives (this was generally the case, but without visible support for this format the related benefits were not widely known). Sony would not have been threatened by this, as its format was supported as well, and likely would not have moved more aggressively against these dual-mode drives. Because they were network-connected, these drives actually would have been able to provide better updates for the Blu-Ray side.


Second, Toshiba should have worked with Nintendo to ensure it could fulfill Wii demand, holding down PS3 sales. To offset upsetting Microsoft, it should have offered additional incentives and advertising connected to the Xbox 360 HD-DVD drive to ensure higher attach rates and better ramp that product while enhancing the value of the Xbox 360.


Third, Toshiba should have ensured that prices for its HD-DVD players went down, not up, as the holiday season progressed, and managed prices to clear inventories by year end. I'd add that since the current free media rebate programs surrounding both Blu-Ray and HD-DVD don't get counted by most industry monitors, the HD-DVD program should have been changed to a rebate program where you are refunded what you paid for any five HD-DVDs. Folks often forget to turn in the rebate forms, and the sales would have allowed HD-DVD numbers to spike, mitigating or reversing the Blu-Ray advantage at year end.


Unless Sony saw this coming -- which is possible, suggesting this would need to be gamed out at least one more move -- these tactical moves should have been incentive for Time Warner to go with HD-DVD and not Blu-Ray.


Wrapping Up


Competitive battles are like chess games, with moves and countermoves. Successful masters think many moves ahead. The inability to strategically think through the moves needed to ensure victory put Toshiba and its supporters at a major disadvantage. Sony took advantage of it, and the result favored the company with more to lose (which is often the case in many kinds of battles). By persuading several small studios to go exclusively with HD-DVD, Toshiba put Sony in fear of failure, but didn't assure that failure. Sony stepped up and now has a decisive lead. There's a good lesson here for anyone who wants to learn it and win in his or her chosen market.


By the way, Toshiba isn't dead yet, and while it will be incredibly hard to come back from this, it isn't impossible (some have already started talking about how). We'll chat later about what it might be able to do to turn this around.

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Add Comment      Leave a comment on this blog post
Jan 10, 2008 10:11 AM CraigW CraigW  says:
Leon,In true MSFT fashion, the 720 will feature a MSFT designed drive. 33% will self destruct :D Reply
Jan 10, 2008 10:19 AM Nate Nate  says:
Rob, I have to say you really are reaching to get your conclusion. I fail to see how you can still have a job in IT when ALL of your predictions have been wrong (last time I checked Apple is still in business and is growing). Please take the money you got from Microsoft and leave. Reply
Jan 10, 2008 10:23 AM rigpig rigpig  says:
Rob, what sort of ridiculous 'analysis' is this? How is it even possible for you to continually get the facts wrong? May i suggest you put the laptop aside & grab a mop and a bucket& leave the business commentary for those that can put a couple sentences together that aren't an insult to people's intelligence.. Reply
Jan 10, 2008 10:36 AM L.Gilmore II L.Gilmore II  says:
If you are indeed the president and principal analyst for your own company, I fully expect that your client base is about to drop considerably. That article quite possibly could be the most industry ignorant stringing together of words I have ever read. You CANNOT truly sit there and say that Blu-Ray won this so-called "format war" because the Nintendo Wii was not available in stores. I suppose the fact that Blu-Ray has more studio support than HD DVD had anything to do with it, or that Sony had the foresight to put a Blu-Ray drive in the PS3? I also suppose that 52 weeks of Blu-Ray outselling HD DVD (even on "Transformers" week) didn't have anything to do with WB deciding to become Blu-Ray exclusive? You are an idiot sir, worse than that you're a Fear, Uncertainty, and Doubt spreading idiot, and you should have used your analytical mind to look at both formats and judge which one is best for consumers instead of using your personal feelings (or are you a paid shill by Toshiba?) to pick your favorite and inferior format. A wise man said it best..."Content Is King." and HD DVD didn't have, doesn't have, and never will have content. Reply
Jan 10, 2008 10:41 AM Paden Paden  says:
LOL! At least Enderle has the stones to leave these posts up there. I figured he'd chicken out and prevent comments. Robby - you're a really dumb guy. Either post an article saying "I was wrong" or shut up about this. Nobody is buying your BS anymore.Peace, Reply
Jan 10, 2008 10:57 AM Rapper Don Rapper Don  says:
What is this? Sound like a HD-DVD/360 fanboy and wii lover wannabe here talking smack about PS3 with Blu.. Why should Sony make a PS3 without Blu-ray when they made PS1 with CD and PS2 with DVD? This is why PS3 with Blu-ray was an new idea way for gaming it just that it was a time for SONY to shine cause they knows what best. Dont be hating on blu-ray cause it outselling the HD-DVD while u got one, if u already got Blu with HD-DVD combo then whats the point or why u complaining? This is calling being idiot, it not about you, its about the people. It doesnt depends on what you want, it depends on what we really want the most for the future and there it is, Blu is the future but Wii had nothing to do it and it cant play DVD so what a kiddie kind of console for a grown ass man to buy? Dumb... Lets face this...Wii for Kids360 for HD-DVD fanboysPS3 for Everyone who loves Blu-rayDont worry about the PS3 if u love Xbox or Wii. Lets the Wii sale, Let the Xbox sells while the PS3 is sellings and Blu-ray is getting better and better. If HD-DVD fail then its fails. No question to ask period. Reply
Jan 10, 2008 10:59 AM Dave Dave  says:
Enderle, You are obviously a washed up hack that's lost complete touch with reality. I have no idea how in the world you are paid to give your "insight" when you have been wrong on every single prediction that you've made. It's apparent to everyone that if you had any foresight to begin with, you lost all of it when you started cashing those cheques from Microsoft. I'd tell you to quit while you still had a reputation, but I can't even do that because yours was lost so long ago. Reply
Jan 10, 2008 11:02 AM Seth Seth  says:
Vince I get your point about my double standard last night. I just got kind of fed up with the comments about Wii being for kids. Sure the PS3 will have some good games like Gran Turismo. I was trying to say I have yet to see Sony make a fighting game that can compare to smash bros. I realize each system has its own good games. I just can't let myself to ever buy a sony product again ever since I bought a first generation ps1 which started overheating weeks after the 6th month warranty wore out. Pretty much all first generation ps1 were plagued with overheating problems. Just like a lot of first generation ps2 had dvd problems maybe not as much as the ps1 problems but they still existed. The ps3 was delayed so maybe they avoided rushing out a system that has problems but I have heard of some OS problems with the ps3. To say sony has the best quality products is just not true. Sure they may have some good products but there are plenty of competitors that offer just as good or better. Anyways, I am happy to see that they at least fixed the scratching problems with br. I have a HDTV but I see no need to go out and buy one of these formats yet. It is always best to wait for the price drop. DVDs offer enough quality for me for the moment and since I had all my originals stolen from me I am just trying to replace what I have lost. I don't see this format war ending anytime soon till maybe br players are $99-$150. Reply
Jan 10, 2008 11:32 AM Ari Ari  says:
Rob, when have ytou ever been right about anything? Every single prediction you've made concerning Apple, Sony and the Format war has been wrong. I suspect that you will be on the receiving end of some lawsuits from former customers for your consistently wrong analysis.My advce would be for you to retire right now. Reply
Jan 10, 2008 11:55 AM Hudson Hudson  says:
Wow, this article is just so wrong on so many levels its not even funny. Only a village fool like yourself would blame Nintendo for the HD DVD failure. [deleted by editor] 0/10 Reply
Jan 10, 2008 12:58 PM Seth Seth  says:
Rapper Don, you sound like a pathetic sony fan boy. Wii is for kids are you an idiot? I can think of plenty of games that are 1000 times better than anything sony can [deleted by editor]. Smash bros and Metroid are just a few games that millions of people that aren't kids will buy. [deleted by editor] Some one wake me up when a hard format comes out that doesn't include [deleted by editor] disc that scratch. Until then I will just rent or borrow dvds and make copies. Reply
Jan 10, 2008 1:15 PM Darin Darin  says:
You say, "Successful masters think many moves ahead", yet anybody who has read your articles throughout this war can tell that you didn't do a good job of thinking ahead and often weren't even up to current events. All you have done here is look for excuses after the fact. Why didn't you post these things before the fact? You point to an article from 2 months ago saying this could have been seen. Why did you have to point to somebody else's article? If it had been clear to you 2 months ago you could have written an article saying what would happen. Instead we get article from you like the one in early December 2006 saying Blu-ray couldn't get ahead and would be behind by some multiple for players in use by the end of December, when 3-4 weeks later they started leading for software sales and have led ever since. If you ever get really good at analyzing things you will be able to make reasonable predictions, instead of just coming up with whatever reasons you can think of that might have been related, after the fact. Anybody can do that because the reasons don't have to be true. If they were true and were dominant, you could have made a prediction based off them instead of making inaccurate predictions. You knew the Wii was going to be in short supply this holiday season even before we got into the holiday season, didn't you? Reply
Jan 10, 2008 1:48 PM ljbanner ljbanner  says:
seems a lot of bluboys are throwing wobblies on here!i think the point rob is making is a valid one.toshiba took there eye off the ball on many occasion,with there lower costs and the headstart they had they should have flooded the market with players and advertising.the nintendo senario is valid as toshiba underestimated that if sonys console were to lose in the games console race then sony would be backed into a corner and have to fight that much harder to gain ground in its other venture(blu ray)toshiba should have used xbox earlier or even persuaded wii to carry an internal hd dvd player thus capping the ps3 selling point,as i also stated toshiba have been lacking in the advertising department too.i have not seen 1 advert on tv for hd dvd in the uk even with the numerous adverts of shreck it has said nothing about it being out on hd dvd!its sad really that so many people are to lose out if hd dvd goes under because at least hd dvd was a finished spec. Reply
Jan 10, 2008 4:25 PM Simon Simon  says:
You guys are all really rude. You should be very very ashamed of yourselfs shouting down people because you don't agree. I like blu ray alot better then HDDVD and i own a ps3 and will never own a 360. but for [deleted by editor] sake just because your in the saftey of your own home doesnt mean you can bag anyone who has an opinion.none of you know anything about the industry as much as youd like to think you do..you dont! Firstly get that through your thick heads.you dont own sony. you dont build hardware for their companies. You read blogs and make disgusting comments.Get a life.Or atleast a good one. Reply
Jan 10, 2008 7:30 PM Don Don  says:
Let me give you a real run down of what happened. Toshiba chose to go it alone with there player. The chose a format that would pay dividends to a company (Microsoft) that had a real interest in seeing physical media fail. Case in point even microsoft did not bother to intergrate the add on HD-DVD player into it's console, only simply allowing it to play movies. Sony had the backing of the people involved in the entertainment business. Toshiba having an interest in the cell processor market decided it could have it's cake and eat it too. The smart consumer after being burned to many times by microsoft aligned itself with the companies that had its interest in mind. While Sony has pushed Hi-Def entertainment with physical products Microsoft has been pushing downloads through computers and game systems. Only a fool would follow Bill down this path. As far as Toshiba not helping out Nintendo. Hello they build the cell processor, most of the royalties to HD-DVD go to microsoft, why the heck wouldn't they want people buying PS3's over Wii's. See Toshiba can still join the Blu-ray group and still make a blu-ray player. The can't affrod to see the cell processor fail, they can't afford to see movies streamed across the net when they, build Consumer Electronics. It was only going to be so long before they people realized that HD-DVD is the same price to the consumer as Blu-Ray. $399 1080p HD-DVD player, same $34.99 movies same rental prices. Reply
Jan 10, 2008 8:29 PM Mike Mike  says:
Sales figures do not backup the assumption that wii owners went to ps3 when they couldnt find one Reply
Jan 10, 2008 8:36 PM Vince II Vince II  says:
Not sure exactly how parents "fall back" from a cheaper system to a console twice as expensive. That seems like quite a leap and is not substantiated by any data... this is Rob's pet idea, which he desperately needs to cling to so that he doesn't have to admit that blu-ray won on the merits. Reply
Jan 10, 2008 8:43 PM BM BM  says:
Rob,Your "expert opinion" persuaded many people to buy into an inferior technology. I'm sure they're now thanking you for it.Things come and go, but one thing's for sure... you'll never admit you were misleading them, or at the least, that you were wrong. Good luck and keep on hiding behind your computer screen. Reply
Jan 10, 2008 8:51 PM Vince II Vince II  says:
To Seth:You call another poster names when it is clear that you are a hater. First of all, just post about Enderle's article... your comemnt has nothing to do with the article.Secondly, blu-ray discs do not scratch; That's one of the features. You say you'll stick with DVDs, but those do scratch very easily. Educate yourself.Wii is a great system, so Don perhaps should not have characterized it so narrowly, but clearly it is a different demographic than the PS3. Your claim that Nintendo has games at least "1,000 times better" than anything on PS3 is just lame and is the exact kind of fanboyism that you were calling Don out for.Welcome to hypocrisy. Reply
Jan 11, 2008 9:09 AM Millennium Watcher Millennium Watcher  says:
This was a funny article to read. Nintendo does NOT having anything to do with the HD format war. Simple as that. Rob, it's not a lack of competitive analysis as you say, it's more of a lack of a real analysis from yourself! Reply
Jan 11, 2008 12:04 PM James James  says:
Ahh, Enderle. The greatest comic in the blogosphere.Oh...you were serious? Reply
Jan 11, 2008 12:20 PM Gilligan Gilligan  says:
You gotta love the suckers that bought into HD-Dead. Now it's Nintendo's fault huh? Blu-Ray is the superior optical disc format, period. The clear-thinking movie studios and electronics manufacturers could see that, that's why they signed on with Blu-Ray. You irrational, kool-aid drinking Sony haters are going to have to accept that Blu-Ray is the future and kiss HD-Dead goodbye. Always leave it to Rob to write a biased, fabricated article. Reply
Jan 11, 2008 3:11 PM Dennis Dennis  says:
The most LOL-worthy article. Nintendo caused Blu-ray's victory? Sure.Nintendo is not interested in making its console a multimedia solution like Sony or Microsoft so they tend to go for the basic gaming solution. This has always been the case. And there's no reason for them to support either format because they don't know who's going to win. Why should they be partial to one or the other? Reply
Feb 12, 2008 7:36 PM Abu Khalique Abu Khalique  says:
Blue-Ray is good for me, it supports Java. Keeps me employed. Reply
Jul 10, 2008 1:25 PM bryan catmull bryan catmull  says:

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