Ask an Expert: Should Gaming Companies Release Their Latest, Greatest Platform Updates Early?
Late last year, Emory Business published an excellent article featuring research by Emory’s Ramnath K. Chellappa. An excerpt is included below and an attachment to the full article is attached as well.
In June 2016, Xbox executive Phil Spencer told technology blog The Verge that it might be “crazy to announce something this early” as he unveiled the release of Xbox One X. It was a full year before the gaming console was set to hit the market. But Spencer, executive vice president of gaming at Microsoft, did so to arm customers with “as much information as possible.” He also wanted to communicate to developers what tools they’d have at their disposal.
However, new research by Ramnath K. Chellappa, professor of Information Systems & Operations Management; associate dean and academic director for the MS in Business Analytics at Goizueta Business School, and Rajiv Mukherjee, assistant professor of information and operations management, Texas A&M University Mays Business School, shows that these types of preannouncements, no matter how informative, may not always be in a company’s best interests.
According to Chellappa and Mukherjee, the value of preannouncing the latest and greatest features of a gaming console isn’t nearly as straightforward as the value gained by alerting customers to a new version of a Ford F150. While it may sound counterintuitive, as Chellappa and Mukherjee explain in their recent paper, “Platform Preannouncement Strategies: The Strategic Role of Information in Two-Sided Markets Competition,” sometimes the best way to announce new features in a platform-based world is by saying nothing at all.
“We’re dealing with an ecosystem when we buy platforms,” Chellappa explains. “There’s a big difference between how products provide utility to an end-user versus how platforms provide utility to two sides of a market, one of which might be end-users.”
When a company unveils a new version of a bicycle or television, there isn’t an ecosystem associated with those products.
“But when you buy a gaming console, the value of you owning that console goes up as more of your friends play the same console,” Chellappa says.
In their paper, the authors refer to this type of value as “same-side network effects.” In the platform world, Chellappa adds, there are also “cross-side network effects” in play—that the value of the gaming console goes up as more games are developed for that console.
While many studies in marketing have focused on product preannouncements, the pair’s paper, published in Management Science earlier this year, is the first to study the use of preannouncements as a strategic lever for platforms rather than products. To conduct their research, the authors used game theoretic analysis to study three specific preannouncement strategies: formal (advertising, participating in tradeshows, developer training programs); informal (releasing information on a user or developer forum); and no announcement at all.
The authors use Microsoft’s Xbox and Sony’s PlayStation gaming consoles as the primary setup in their paper (although their findings are generalizable to similar platforms). What Chellappa and Mukherjee found was that there were scenarios where it made sense to preannounce, but other scenarios where companies would be better off making either a lackluster preannouncement or none at all.
“You would think that if I’m going to put out a new platform that has a lot of new features, I should inform the market about all those things,” explains Chellappa. “But what we find is that sometimes the competitive effects can force you not to announce much about the products you’re releasing because it might create a kind of a price competition.”
For instance, a headline in an August 2020 blog in tomsguide.com comparing Xbox One X to Sony’s PlayStation 4 Pro, stated: “The Xbox One has more power than the PlayStation 4 Pro, but Sony fights back with an incredible game lineup and a lower price.”
The article also includes insight including:
Agents and Developers Create Business Model for Two-Sided Markets and Strategic Preannouncements Push Prices and Licensing Fees Higher
The article is attached here – it’s well worth reading the entire piece.
Gaming is a billion-dollar business – and if you are looking to know more about this subject – then let our experts help.
Dr. Ramnath K. Chellappa is Associate Dean and Academic Director of the Master of Science in Business Analytics program. He is also the Goizueta Foundation Term Professor of Information Systems & Operations Management at the Goizueta Business School, Emory University. Ramnath is available to speak with media regarding this topic – simply click on his icon now to arrange an interview today.