Microsoft’s future

I don’t think I’ve ever written a post on Microsoft (it’s usually Apple or Google), but the past 10 days they’ve certainly been interesting to watch.

First off, Microsoft announced a major corporate restructuring and strategy update. For a company of its size, this is certainly not a trivial matter. What was interesting to me was how similar in theme the restructuring strategy had with some recent discussions on Asymco about functional vs. divisional organizations:

Horace Dediu’s core argument is that a functional organization is better at creating and responding to disruptive innovation, as opposed to a divisional organization. The divisional organization is symbolized by old Microsoft, with large business units with independent P&Ls, whereas the functional organization is best represented by Apple – there are products, but no product P&Ls, and resources are organized by functional expertise (engineering, marketing, etc.) and allocated to different products/projects based on strategic vision. With these analyses in mind, the Microsoft reorg looks promising on paper – it is meant to tear down walls internally, so that the company can reorganize itself around future growth initiatives, instead of clinging on to dying (slowly) cash-cows. Obviously, the reorg will not happen overnight, and results won’t show at least a few years down the road (if you think of initiating a new project from scratch).

The other interesting piece is Ben Evans’ blog post, The irrelevance of Microsoft. The charts are compelling, especially this one:

In classic strategy terms Microsoft is a horizontal integration player (while Apple is the typical vertical integration player). Therefore it is truly alarming (for Microsoft) to see its share of platforms drop from a monopoly status (which is the end-goal for any horizontal play, and a key criteria for generating profits for that strategy) to something similar to a vertical integration player (which can be perfectly healthy and profitable with 20% share). Given how Android has the lion’s share of that chart now, and the fact that Android is a free beast (both price and otherwise) that Google doesn’t have strong control over, it seems a renewed horizontal strategy from Microsoft would have some really steep hurdles. I wouldn’t be surprised if Microsoft goes down a more vertical path.

There are, of course, silver linings. Freed from internal pressure from other divisions, there’s no reason why Office cannot extend to both web and mobile leveraging its own network effects, and continue to be a lucrative cash-cow as the monopoly player in the productivity space. Xbox + Kinect are a strong contender for control of the living room (despite some of the initial gaffes with the Xbox One). And Windows Phone does enjoy some Machiavellian benefits as the third platform in mobile – it will continue to get support from telcos who want to limit Android/iOS.

Microsoft is diversified enough that it will have some time to figure out its relevance in the post-PC era. And even if it doesn’t, it will still be around for a while (at least in tech time – a decade in tech feels like an eternity). Let’s see how this plays out.

 

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Starcraft 2 and the e-sports eco-system, part 3

In the third post of this series, I want to discuss how Starcraft 2 is interrelated with web social media.

The original Starcraft was born pre Google, blogs, and of course Youtube and Facebook. Starcraft 2 was developed through the years of the web 2.0 scene. This led to both in-game designs that incorporate web 2.0 (Facebook integration with user accounts), and more broadly, community developments that heavily utilize social media innovations.

Not all the community building is done by Blizzard. There is the obligatory Facebook fan page and Twitter account, but I wouldn’t say Blizzard has done an outstanding job at either (50k followers on Twitter is nothing to boast about, I’d say). What’s really interesting is the self-motivated and extremely enthusiastic gamers who are creating vibrant media content on top of the game.

For example, a number of “shoutcasters” have emerged as celebrities within the community (shoutcasting refers to live commentary on spectator video games, similar to sports announcers). One of the most famous such shoutcasters, Sean “Day[9]” Plott, even hosts a “Day[9] Daily” show, where he does hour-long shows announcing games and teaching strategies. Another shoutcaster, “HuskyStarcraft”, has quietly amassed over 100MM views on his Youtube account and has over 300k Youtube subscribers. He’s even branched off from pure shoutcasting to do the following parody music video, which has 3.5MM views:

Further more, gamers have strongly embraced streaming technology to livecast community competitions, or even just self-casting (where a player – usually a very good one – casts himself playing Starcraft 2). At any given point in time, video games are generally some of the top-viewed content on Justin.tv, ustream.tv and livestream.com. For Starcraft 2 fans, Teamliquid.net (the website of a professional Starcraft team) offers a convenient one-stop shop to see what streams are live at any time. Teamliquid also hosts a wiki site where players can view and document advanced gaming strategies. There have also emerged dedicated gaming streaming sites (own3d.tv), and dedicated Starcraft 2 casting sites (such as ragequit.tv, glhf.tv).

What I find interesting is that for sites such as Justin.tv and ustream.tv, which are usually popularized by pirated content (illegal rebroadcasts of live TV), gaming streams offer an attractive type of fully legal content. (Well, at least until the game studios start banning such gaming streams, which at least currently they are not doing as it’s free promotion for the games.) More importantly, such community media will strongly reinforce the popularity of the game, and help maintain its relevance. If Starcraft could last close to 14 years now and still be played around the world (a dinosaur of a game by video game industry standards), then Starcraft 2 could certainly hope for the same type of longevity with such community building.

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Starcraft 2 and the e-sports eco-system, part I

I have been playing a lot of Starcraft 2 recently. A LOT. So not really a surprise I haven’t blogged at all the past 2 months (the game launched end of July). But I thought I should put on my MBA hat (on top of the nerdy gamer hat), and analyze a bit the gaming eco-system, especially since a lot of it is related to social media.

I plan to cover this in a series of posts. This first post will give a quick overview of “esports“.

Overview

Gamers have played competitively since the inception video games (the wiki article linked above gives a historical perspective). Commercialization began in the late 90s, thanks to the popularity of First-Person-Shooters (FPS) such as Quake (which I think gave birth to a lot of the gamer vocabulary today – such as pwnage). But where commercialized gaming really took off, as most people probably knows, is South Korea. The common catalysts quoted are that Korea had great broadband infrastructure, and during the Asian Crisis of 97-98 many people took on Starcraft as a way to kill time (though this second one sounds more unlikely). Anyhow – Starcraft, the Real-Time-Strategy (RTS) from Blizzard, really took off in Korea, and starting from around 2000, Korea has had professional Starcraft gaming, involving professional teams, full-time players, television broadcasting, and around the year tournaments.

Globally, various organizations have attempted to create major global tournaments (the Olympics or World Cup of gaming). Two competitions that I believe have had good longevity are the World Cyber Games (WCG) and the Electronic Sports World Cup (ESWC). Total prize money for WCG has steadily risen to around $500,000 from $200,000 a decade ago, split over 10 or so games. This is by no means a huge jackpot (for majority of pro-gamers it’s not a sustainable career), but the growth has driven up the popularity of e-sports.

Major Game Genres

Judging by the prize money involved (check out the above links for WCG / ESWC, for prize money per type of game), FPS and RTS are by far the dominant genres, though there are a few up-and-comers such as MMORPG (World of Warcraft) and DotA (a custom map on Warcraft III, which really doesn’t fall under any major genre). Other popular genres including guitar hero, fighting, racing and sports simulation (football etc.).

Interestingly, by and large most of the competitive genres are solo play (one-on-one). While most games, such as Starcraft, support team-based play, the major competitive format has been solo gaming. This has given rise to a series of individual stars over the years, most of which only enjoying celebrity status within the community, but a few who have actually made legitimate money and fame (again, mostly Koreans – look up the Wiki entries on “Nada” Lee Yun-Yeol and “Boxer” Lim Yo-Hwan, probably the two most famous professional Starcraft players ever).

In contrast, the only major team-based genre is FPS, and especially the hit game Counter-Strike. Counter-Strike popularized the 5v5 format, which has been adopted into DotA. Of course, many FPS games are competed in solo, such as Quake.

Major Countries

In terms of where most pro-players are, this is heavily biased by game genre. Korea by and large “owns” RTS, especially Starcraft and now Starcraft 2. The Korean pro-leagues offer the highest prize money (the recent first Starcraft 2 pro-league, GSL Season 1, featured a ~$90,000 cash top prize) and attracts the best players globally, however most of the top players are Korean.

Warcraft III, another popular RTS, is slightly more diversified, with good European and Chinese players alongside the usual Korean suspects. My personal opinion is this is due to Starcraft’s overwhelming popularity in Korea, which has kept many great players away from Warcraft III.

In FPS, the scene is very different, heavily dominated by North American and European teams and players.

Business model of professional teams

Again probably pioneered by the Koreans, the professional team setup involves a manager (who also acts as the agent for his players) and anything from a handful to dozens of players. Players earn salary and are often provided accommodation and food; any prize money won is split between the player and team (I’m not sure of typical ratios).

Teams get income from competition winnings and sponsorships / advertising. Typical sponsors are major IT manufacturers (Intel, Samsung etc.) as well as specialized gaming equipment makers (e.g. Razer, which offers professional gaming grade mice / keyboards). Teams may be based out of a Internet cafe (which sponsors the team), which offers an environment to train in.

Growth Issues

There are several major issues with e-sports / pro-gaming that have hindered commercialization efforts. First of all, outside of Korea, where Starcraft is a national past-time, core gaming remains a subculture in society, mainly followed by adolescent males – the demographics base makes a big media play (such as a dedicated gaming channel on cable) very difficult. Furthermore, this base of core gamers are further segmented by the types of games and the specific games they play (again in contrast to Korea, where most of the commercialization revolves around Blizzard RTS games, such as Starcraft, Warcraft III, and now Starcraft 2). This limits the total advertising dollars and overall market size.

Secondly, the inherent short product life-cycle of video games goes against the needs to build stable spectator sports. New games, even sequels such as Starcraft 2, need to innovate on the gaming mechanics to sell; this however makes following the games harder (imagine if football or any other sport had major changes to its rules and therefore strategies every 2-3 years).

Thirdly, the steep learning curve for a spectator who has not played the games also blocks market growth. Most of these core games are incredibly complex, for example any RTS would feature 30 or more different types of units, each with unique attributes and mechanics. Also, the mechanics of certain games makes spectating boring at times (in Counter-Strike, there is usually pro-longed periods of stalemate with short bursts of intense action).

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