Part 1: Who is more successful?
The video game industry generates 28.5BN in revenue and $2.2BN in profit annually, and is predicted to grow 10.4% every year for the next 5 years. At the top of this industry are two companies, Electronic Arts (EA) with 15.9% market share in 2020 and Activision Blizzard (ATVI) at 15.5% market share. Both companies are considered video game publishers and have a collection of developer studios working underneath them. Typically, each developer studio works independently on a title. A single brand, such as Call of Duty or Star Wars might have multiple studios working on different titles, which allows the publisher to release titles for popular brands at a much faster rate than the overall title development cycle.
In general, video game purchases are split into two categories, premium titles, which can be thought of as a traditional product, and in-game purchases, which can be thought of as complimentary products. A successful brand may offer many premium titles over time, capitalizing on player investment in the brand, much like Marvel engages its viewers with successive movie titles and TV series. There are a few different types of in-game purchases, the primary ones being cosmetic items, add-on services, and additional content. Cosmetic items tend not to affect gameplay or mechanics but allow users to customize their appearance based on their tastes and preferences. Add-on services vary, with some providing a boost to in-game progress, granting players an advantage over others, or simple subscription fees for access to the game. Additional content may include more storyline content for single player games or more play spaces (maps) in multiplayer games.
Comparing the market share trend between the two companies and by looking at their revenues and profits, we can say that EA currently holds the title as industry leader, but ATVI is in a good position to overtake with a wide margin in 2021.
Comment by Henry Yen: @sssadegh
Can you make the 2021 Market Share graph a pie chart instead? Maybe include the next two companies to show the difference? Try to make it compact so it can fit nicely next to the Annual Revenues table, maybe abbreviate the company e.g. EA, ATVI
Additionally, we can see by looking at return on R&D for the last 3 years,
We can see that both EA and ATVI have a “cash cow” brand, where the majority of their revenues and profits come from. For EA, this is the FIFA brand, which is based around real world soccer players and teams. For ATVI, this is Call of Duty, an action shooter with gritty, mature themes. Both cash cows rely heavily on in-game purchases, with FIFA offering Premium Players and Call of Duty offering the Battle Pass, both add-on services.
While the data is not very complete, we can see that overall sales of Call of Duty are dwarfed by FIFA, with Call of Duty revenues at best 25% of FIFA in recent years. This is likely due to the worldwide, massive popularity of soccer. However, ATVI’s recent growth comes from a player focused, customer driven approach and investments with Call of Duty, whereas EA is resting on its laurels with FIFA, adopting a “make it and they will buy it” sort of attitude.
Where ATVI and EA have an opportunity to grow seems to be where they are willing to shift from traditional development focused strategies over to more customer driven strategies. To narrow the focus on this case, we will be looking at two brands, Apex Legends from EA and Overwatch from ATVI. As such, ATVI seems to have a leg up since they can apply the lessons from Call of Duty to other brands that they own, such as Overwatch and Diablo. EA on the other hand only seems to have considered a customer oriented approach with Apex Legends,
Part 2: Why is one more successful than the other?
To get a broad understanding of the market, first we surveyed several gamers to see how they make decisions when purchasing premium titles and in-game purchases as well as their preferred gaming style.
We identified 4 general types of purchasing behavior: promotion driven, publisher agnostic, developer loyalist, and brand loyalist and causes for them to switch brands. One notable switching risk comes from the developer loyalist segment. They are sensitive to changes in gameplay mechanics and overall aesthetics. If a brand employs multiple developers to release under a single brand, some players are likely to notice the differences between the games. Players fond of Modern Warfare reported not liking the Cold War gameplay due to notable differences in mechanics and overall feel of the game, and as such, refused to purchase the newer title. Also notable is that brand loyalists are not affected by these changes. For example, FIFA and Call of Duty loyalists we interviewed enjoy the changes, see them as a set of challenges to learn about and overcome, and are thus not deterred from buying every premium title release.
Likelihood of Behavior Driven Switching (1-10 rating)
Trends, Reviews, Social media influencers
Discernible changes to gameplay between brand titles
Further questions geared towards product and service features give us more insight into how consumers are segmented by gaming style. There are four segments we identified: single player focused gamers, social gamers, casual gamers, and competitive gamers. It is important to note that the segments are not mutually exclusive.
Rating Purchasing Decisions By Gameplay Style
Rating Desirable Features by Gameplay Style
Cross Analysis of Segmentation by Behavior
It is interesting to see that social gamers and competitive gamers are likely to make purchases in-game but for different reasons. Social gamers want cosmetics to be creative and unique, whereas competitive gamers do not see value there. However, where social gamers want add-on items or added content if they impact the group, competitive gamers are interested primarily in the gameplay benefits. Also, noteworthy is the casual gamer, who is not likely to make any sort of purchases on a frequent basis. Player base is everything to multiplayer games, so attracting casual gamers is essentially attracting content for the paying customers.
Apex Legends vs Overwatch
An additional survey specific to Apex Legends and Overwatch and individual interviews with players of these games reveal some telling unmet needs. Players of Apex Legends really like that the game is free to play. There is no barrier to entry so people readily try the game, especially if they are social gamers. Additionally, the character design is appealing, with each character having a different feel not only in gameplay but in aesthetic. However, Apex Legends players complain about the fact that the game offers only one map and one game mode. Also, players do not like the matchmaking, as the game prioritizes filling a 60 player map over selecting players by skill. This means that many players’ experiences are tainted with underskilled teammates or overskilled opponents.
Players of Overwatch like that the competitive gameplay mechanics are well polished and that Blizzard (the developer under ATVI) listens to player suggestions for changes and additions to the game. Also, many players of Overwatch are attracted to the game because of the rich lore, backstory, and character development that Blizzard is known for. However, this is also one of the major complaints of Overwatch players, especially ones that have stopped playing the game. Those who keep playing are competitive gamers, but single player focused gamers tend to stop playing because they had expected some gameplay elements to cater to their wants. While there are co-operative events that do bring these players back, the events are seasonal and lack the quality and polish that single player focused gamers desire. Another major complaint is that matchmaking is based around skill rather than teamplay. Social gamers are more interested in the social elements of the game than competing. However, when mixed into games with competitive gamers, who may turn to trash talking opponents or criticising teammates’ skill or performance, social gamers feel that the community is toxic and unwelcoming. Similarly, competitive gamers lament the lack of a structured competitive system and dislike being teamed up with social or casual gamers who “don’t take the game seriously.”
Overall, customers of ATVI view EA favorably when it comes to brand power. EA licensed brands, such as Star Wars and FIFA are big draws and customers of ATVI are likely to switch if there is a brand they associate with and can’t get elsewhere. However, ATVI customers view EA poorly in terms of its customer service and player feedback. ATVI customers tend to shy away from EA titles because they feel like player feedback is ignored and gameplay issues are not addressed.
Customers of EA view ATVI favorably when it comes to customer service and player feedback. Many players have switched from EA’s Battlefield to ATVI’s Call of Duty, both direct competitors in the tactical shooter genre. These players switched because they felt that Call of Duty developers listen to player complaints and suggestions and pay attention to player demands when making gameplay changes.
Overwatch players’ view Apex Legends favorably when it comes to pricing, as it is free to play. They also like that the team sizes are smaller so it is easier for friends to group up and they also like the simplicity of the game objective (eliminate all opposing players), which makes coordinating with random teammates much easier. However, they do not like that it is very difficult to win matches, as out of 60 players, only 3 can win. Additionally, they do not like that some of the strategies revolve around luck, since a primary mechanic of most Battle Royale type games is finding randomly generated core items, such as guns and shields. Bad luck might mean a game is over before you get to really play and selfish teammates might mean that you don’t get a share of these important items. Overwatch players also do not like that Apex Legends does not have very many maps or objective modes. In essence, the simplicity is a double edged sword, wherein Overwatch players might get bored playing Apex Legends.
Apex Legends players view Overwatch favorably in that the game mechanics are well polished. However, what Apex Legends like about Overwatch seems to stop there. The biggest complaint is the $40 price tag. One interviewee claimed that his friend group had all bought Overwatch save for one person. The $40 price was enough for the entire group to choose not to play Overwatch. Apex Legends players also dislike Overwatch’s role selection system and long queue times. Because each team requires a certain number of roles to be filled, the players that queue into more popular roles have much longer queue times between matches. In order to mitigate wait times, the game might mismatch less popular roles with higher ranked popular roles, causing some games to have a skill gap. On top of that, team composition and playing role expectations is important in Overwatch, as the game is designed around teamplay mechanics. Imagine playing volleyball but everyone wants to spike and no one wants to set or pass, or playing football where the quarterback only wants to run the ball himself. Each role has a job but players try to dodge the wait time by queuing into roles that are less popular, but playing the role incorrectly, this negatively impacts the team dynamics. Conversely, Apex players have complained that Overwatch feels too rigid and the competitive oriented gameplay does not allow for creative team compositions or freedom of play. Some players want to play a game of volleyball with all spikers or a team full of quarterbacks because less functional compositions can still be fun or entertaining.
Casual and mobile gaming are both on the rise. Casual gaming is by far the largest segment by game genre, at 22% market share, dominating even the next largest genres, with action games at 13%, role playing games at , and shooters at 11%. Both EA and ATVI provide titles in all four of these genres. However, the bulk of EA’s revenue and profits come from the smallest segment, sports games, which comes in at 5%. Both companies have also made forays into the mobile gaming sector but ATVI seems more invested in creating in-brand mobile content, such as Diablo Immortal being promised with an upcoming Diablo premium title.
While the barrier to entry for the industry used to be very high, with a limited pool of talent, the industry is more robust these days and as such, we are seeing smaller competitors enter. EA and ATVI are considered AAA publishers, with revenues and budgets rivaling Hollywood movies. Smaller indie and AA companies are finding niches in gaming, such as a demand for retro gaming and cooperative gaming.
A theme popular for the gaming industry these days is “heroes.” The video game industry is not insulated from the appeal of the comic book hero to consumers or the successes seen in the film and television industries. Traditional, single player titles put the player in the shoes of the protagonist, fulfilling the desire to “play hero” and developers have been looking for ways to expand this effect to other types of games, including multiplayer ones. This demand has led to the continued growth of the “hero shooter” genre, ensuring a future for games like Apex Legends and Overwatch, but also a bevy of competitors.
A recent criticism of the video game industry is the use of “loot boxes” as an in-game purchase mechanic. Loot boxes are random and can contain cosmetics, gameplay items, in-game currency, to name a few prizes. However, since there is an element of chance and highly desirable prizes have a low chance of dropping, the purchase of loot boxes has been compared to gambling. Additionally, parents of children players are also part of the decision making unit and can be negatively influenced by purchasing decisions made without them. In some instances, such as with FIFA, children playing the game may end up charging loot box purchases to their parents’ credit card without permission, racking up hundreds of dollars of expenses in an attempt to unlock rare prizes. This presents a challenge for publishers, as it is a popular monetization mechanic but offers little in the way of protection for those with gambling addictions or for children who may not know better.
Part of the reason there is a lower cost to entry to the industry is the ever lowering price of technology. Network and server speeds are faster and cheaper and continue to get faster and cheaper as time goes on. Newer technologies can be focused more on the social elements of gaming, such as building brand awareness through social media integration in games or in improving the matchmaking and ranking capabilities for competitive multiplayer games.
Mobile gaming is on the rise simply because mobile devices are becoming more and more powerful. A flagship phone is able to perform on par with a gaming console from 2 generations back. Wireless network speeds are also fast enough to allow gamers to play multiplayer games without interruption or game breaking latency issues. Paired with the fact that the populace of many developing nations may not have the disposable income to purchase a gaming console or PC but generally have access to a smartphone, mobile gaming is a big growth market, not just for casual games, but for many other more computational and graphically intense games.
Development in game engines is also changing. Traditionally, a developer would create or customize a purchased engine that would run the game’s graphics and physics. This led to long development cycles to create unique game experiences per premium title. Additional content could be generated using that engine, but typically, this content would not be sold at the premium price and would be lesser in terms of hours of entertainment. If a premium title offered 40 hours of gameplay at $60, the additional content would typically only add 5-10 more hours and be priced around $20. A newer model of engine development has become popular in the AAA publisher realm, where an engine is developed internally and then reused for many different titles. For publisher Ubisoft, the Assassin’s Creed and Tom Clancy brands have been running on the AnvilNext2.0 engine created in 2014. ATVI has a similar model with variants of the IW engine being used for each successive release of titles in the Call of Duty brand. EA is a bit more pervasive with the use of their Frostbite engine, with it spanning across most of their premium brands, including Battlefield, Star Wars, FIFA, Madden, and Need for Speed. This engine reuse cuts down on R&D per title, allowing for the development teams to focus on content, art assets, and gameplay mechanics.
Managerial SWOT analysis of EA
Offers highly diverse titles and genres
Variety of platforms
Effective digital presence of titles
Strong global presence
Investment in R&D
Strong market position and growth of company
High cost of production
Limited and specified release dates
Heavy reliance on sports genre (4% market share)
Poor strategy for social and competition
Lack of mobile titles
Online gaming portal with full online
Training games for the military
Further leverage partnerships with console giants
Branded products related to gaming
Piracy of games
Rise of mobile games
Managerial SWOT Analysis of ATVI
Higher reach and broader distribution network
Strategic acquisition and partnership
Higher profit margins with strong digital revenue streams
Very effective portfolio of products
Heavy dependency on limited # of brands
Third party platform dependency
Integration of latest technology
Expanding the franchise to other areas
Increased activity of users during the pandemic
Free to play alternatives
Alternative and niche publishers
Piracy of games
Customer SWOT Analysis of EA
Large library of brands and titles
Subscription for older games
Brand power – sports games and Star Wars licenses
Does not listen to customer feedback
Games can lack polish and have poor user experience
Increased engagement with customers
Improved game polish
Switching to other publishers and brands that pay attention to customer needs.
Customer SWOT Analysis of ATVI
High polish in existing games
Dedication to lore and storytelling
Small brand library
Overly focused on competitive scene
Slow releases of popular titles
Brands fractured by developers sharing
Community building and gatekeeping tools
Indie developers copying ideas
Big competitor titles releasing at same time
Overwatch Unmet Needs
Apex Legends Unmet Needs
The mission of advertising for Overwatch is to increase awareness and engagement in order to grow in sales. The general message of the advertisement campaigns is to entice players to experience heroic, world impacting action, with slogans such as “the world could always use more heroes.” The characters in the game are all unique in aesthetic and in personality, and the advertisements serve to convey the feeling of being special and being able to take heroic action. The ad media format includes television ads, social media posts, and developer updates, but Overwatch is notably known for its YouTube cinematic video shorts: high quality, story and character driven video content. Additionally, short stories and comics have been published and offered for free download on the brand’s website. The cost of advertising can be as much as hundreds of millions of dollars per short, needing to budget for tasks including but not limited to animation, voice acting, writing, and storyboarding. Essentially, the style of Overwatch advertisement is extremely appealing, likely being the primary cause for the consumer attention and lasting power of the brand. Engagement with the brand can be measured in the number of social media posts and active players. Social media engagement is high, especially when story driven advertisement is released. However, the number of concurrent active users averages just under 200k, which is nowhere near the purported sales number of 50 million units. Even for a 6 year old game, which is bound to see some player base shrinkage, that’s a 0.4% active player rate. This is likely due to the advertising being highly misleading for consumers. There are zero opportunities for players to play the high polish, single player experiences that the advertisements might lead consumers to desire or expect. Though there is great opportunity for ATVI in this advertising style, there is no desirable product to sell to the consumers who would be attracted. Additionally, the player experience is competitive, meaning top skilled players get to feel like heroes whereas less skilled players get to experience continuous defeat. Also, the competitive environment engenders toxic interactions: instead of being thanked for their efforts as a hero would be, players can be berated and insulted and even made to feel like the villain.
The mission for advertising in Apex Legends is to drive awareness and engagement. The message is for players to enjoy fast paced, high energy, action oriented gameplay. The media Apex Legends uses are social media and some television ads, with the bulk of its focus on video ads on YouTube. There are three types of YouTube ads, the first being developer videos, which contain messages to the community regarding the game and upcoming content. Next are informational videos that instruct players on new characters or game changes. Last are cinematic shorts that appeal to players via character development and backstory. Apex Legends spends less per advertisement than Overwatch, as the production quality of its cinematic shorts is lower, but they aim more for quantity over quality. Apex Legends measures engagement through social media metrics and concurrent active players. Both metrics are doing well, with concurrent active players hovering around 820k. This is likely due to the advertising matching well with the title, as the ad style promotes a sense of individual agency mixed with faced paced action, which is what the core product and additional content offers. However it is notable that the higher quality Valkyrie character’s cinematic short did spark attention and sales to Titanfall 2, the game from which the character derives inspiration.
Distribution / Sales Force Analysis
Distribution for video games has increasingly moved towards digital delivery platforms. For PC titles, especially with games like Overwatch and Apex Legends, which are multiplayer only, the bulk of sales occur online through a publisher portal. For ATVI and EA, this also means that the majority of their games are available online through their respective portals. ATVI sells their titles on Battle.net, which also acts as a messenger application, allowing its players to see if friends are online and what game they’re currently playing. This essentially puts the player to work as part of the distribution system, especially social gamers. EA similarly has Origin, which serves much the same purpose.
Both companies also license their games out to partners on their respective digital delivery platforms. On PC, older games also end up on competing platforms, such as Steam. Since Apex Legends is free to play, the title is also published on Steam. This doesn’t present a conflict for EA, since the Steam title points to the same servers and still directs them to the same shop for in-game purchases. For console, both companies license their titles for the Microsoft Store, Playstation Store, and Nintendo eShop. Since the console delivery platforms are exclusive to their respective console, there is no conflict or competition with the publisher platform. And since only older titles are licensed to competing PC platforms, there is less conflict since they are products declining in their life cycles. As such, additional sales are more important than managing distribution channel expectations.
Additionally, ATVI and EA both publish and sell physical copies of their games to retailers. The retailers have some power in the relationship, since they get to dictate how much shelf space to allocate to each publisher. However, for ATVI and EA, the brand power commands more sales, so they are able to secure more shelf space and highly visible placement in stores.
Overwatch is an older game than Apex, and as such, has adopted promotions such as free to play periods where the game may be free for a couple weeks, which may encourage players to purchase the full game. While this does bolster the player count and may be part of the cause of a resurgence in player count from a low of 4.95MM monthly players in December 2020 to 6.92MM in April 2021, it is nowhere near the level of monthly players at Overwatch’s peak, which was about 40MM. Overwatch also has put the game on sale frequently, typically during holidays, in an attempt to bolster sales and similarly boost player counts. Outside of the premium title price, Overwatch also monetizes with loot boxes. Promotions for loot boxes typically come in the form of limited time events and per loot box discounts for the purchase of larger quantities, and coincide with the release of new cosmetics. Players are enticed to purchase due to a fear of missing out on an appealing cosmetic feature. However, the appeal is not universal and since loot boxes are earned through playing the game, their sales likely do not contribute very much to ATVI’s overall sales or profits. According to ATVI’s financial reports from the last few years, overall net bookings for Overwatch are on the decline and any gains in sales and profits from the developer, Blizzard, have been coming from World of Warcraft. These promotional strategies make sense if viewing Overwatch as a traditional product.
While the free to play model is not a new concept, Apex Legends is among one of many titles offered by a AAA publisher that is taking advantage of this model. While they do not earn money on a premium title price, they do run promotions on the in-game purchases on limited time events, similar to Overwatch. Apex Legends takes the fear of missing out to a new level by combining their cosmetics as collectibles. If a player can assemble all the cosmetics in a collection before the end of the event, they receive a limited edition cosmetic. This can drive sales in conjunction with a quantity accelerated promotion for loot boxes. While the cosmetics of the event may not appeal to all players, events are frequent enough and the player base is large enough to generate consistent sales over time.
Part 3: What each company can do to do better
Both companies can improve drastically by changing the way in which they view video games. Single player games can be measured by hours of entertainment due to the finite nature of content, so the value proposition can essentially be seen as dollars per hour of entertainment. Competitive multiplayer games, like Overwatch and Apex Legends, should be treated as a service instead of a product, since the hours of entertainment are indefinite and the cost of development and opportunities to monetize are recurring.
Moving away from the traditional premium pricing model and more towards a hybrid model would be the major recommendation for Overwatch. A free to play mode with crossplay should be established, targeting social gamers. This removes barriers to entry for friends on different gaming platforms as well as the cost element for price sensitive friend groups.
Also, a subscription model targeting competitive gamers, who see value in paying for a gaming as a service as this segment is more likely to see the value behind the costs for patches and fixes. While subscription fees act as a barrier to entry, this is actually desirable for this segment and other segments. Competitive gamers lament the “casuals” being in their games and social gamers complain about “try-hards” in theirs. Creating a silo for competitive gamers and allowing them to maintain separate cultures based on differing expectations for the gameplay is a highly recommended move. Additionally, by siloing these players, a true “path to pro” can be established by officially tying in competitive organizations and the Overwatch League. Teams and organizations can recruit from in the game rather than having to organize outside the game.
The last major recommendation would be to address the elephant in the room: the massive number of players who desire high quality single player content. Overwatch purportedly sold over 50 million copies but the concurrent player count is nowhere near that. We can only assume that people attracted to the lore, hoping for high quality content were turned off by the highly competitive nature of the game. Aiming the premium model towards this segment would be a surefire way to capitalize not only on existing cinematic shorts and story based ad content, but also fund future cinematic advertising campaigns.
Apex Legends can also be improved by paying attention to customer analysis. The current Apex player base is large enough to introduce new game modes without causing fracturing or cannibalization. Where players might be bored with a single map and single game mode, new maps and game modes can fulfill an unmet need. A similar investment into single player titles following the most played and most popular characters may be worthwhile. If the newly advertised Valkyrie character was released alongside a Titanfall 3 premium title, the Apex Legends character release would have served as a way to advertise the premium title. The current roster of characters could also serve as a marketing test bed for single player premium titles. Reusing EA’s Frostbite engine for a higher quality single player experience and choosing premium title content based on character pick rates and cinematic advertisements could create a marketing feedback cycle to continuously release and improve on in demand single player titles.
Where Apex Legends is ahead of Overwatch, however, is in crossplay and mobile gaming. In March 2021, a crossplay beta test was announced and in April 2021, the Apex Legends Mobile beta test was announced. Again, crossover events and advertisements could bolster the player base and increase brand and developer loyalty. However, if not implemented properly, crossplay could turn off competitive gamers. Also, if the mobile game ends up being incompatible with crossplay, the similarity in feel and design means there is risk of cannibalization, especially in the social gamer segment. The major recommendation there would be to pay attention to the segmentation of the players and to silo or join their player bases accordingly.
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