Comparative analysis of Disney Infinity and Activision Skylander
Term Paper

1. The instrumental source of value creation for Activision via activities of Vicarious Visions was based on the core innovation involving using RFID technology to wirelessly connect a computer to the toy figures via the USB port. In the driving seat of this development were Bala brothers who had accumulated significant experience in the video gaming industry, and thus, who were well positioned to understand nuances of the market, latent and unmet needs. This revolutionary innovation has given birth to an entirely new genre of the life-to-toy gaming approach that since has undergone rapid evolution. In its strategic positioning of the new product through differentiation the company took advantage of the natural desire of children to re-enact imaginary world into reality. Only Skylander reversed the direction of such transgression according to the current state of technology, from reality back into imagination, augmented and embodied by the video game experience. This product was a natural progression of a novel concept developed by Activision in 2005 when the game Guitar Hero heralding detachment from the existing consoles and demonstrating capacity to penetrate the market by crossing over various platforms. Thus, armed with the previous hugely successful experience of developing in-house capabilities to establish production of plastic and electronic assembly designs, the company was less averse to the risk posed by venturing into a principally new business of manufacturing a new category of toys – toys-to-life. Design and manufacturing of these toys was especially complicated because it would have to match the complexity of the electronic interactions of those toys in the imaginary world. Thus, the toy characters had to posses a unique personality and legend, modes of moving, special powers, costumes, weapons, etc. Embarking on the path of creating a special line of figurines for the game also afforded an opportunity to capture additional value by positioning of these figuring on the market as an independent toy. Using this strategy the company took advantage of the common social and behavioral patterns where children are not allowed to bring the video games to schools whereas they could bring toys. Enabling children to physically bring the representation of a new product into their social space served well to create a special ecosystem for these toys in the environment of schools, kindergartens, and playgrounds. Such presence of the game across the habitat further reinforced transgression from reality into imagination by allowing children idling the game while devising new ways of character perception and development at school only to give in to this newly acquired addiction as soon as the opportunity arose, instead of working on home assignments. Pure evil… The company implemented a novel maneuver of unlocking the characters (figuring) by enabling them to travel across games and even generations of games. Such strategy further reinforced anchoring of the characters to the social fabric among children who were free to exercise their attachment to a toy or drive toward novelty. Importantly, such strategy afforded additional degree of freedom to children who would not need to wait for their parents to update the toys in order to adapt to a new generation of the game. Conversely, such feature was well positioned to appeal to the parents by taking some pressure off their budget. Such strategy decreased the stream of revenue from the toy manufacturing, and if the product were less then fulminantly successful it would have made less sense. However, capitalizing on the momentum of the initial strong market penetration insured the overall positive balance of such approach. In addition, the company introduced other techniques to stimulate purchase of new products while still allowing the game to go on when parents cannot make such purchase. Thus, the later generations of Skylanders Trap Team came with the incentive to buy new Trap Master characters as only they could reach the Elemental Zone. On the other hand the game could be played on variety of consoles so that those who already purchased hardware from Sony or Nintendo could play the game as well as on any PC. All these innovative strategies allowed the company to occupied the coveted lonely place on the best practices frontier where the benefit delivered to the costumers is exclusive and substantial. The important differentiating factor for Skylander, independence of a console, did not only stimulate sales due to its ubiquitous compatibility, but additionally dissociated dependence of sales of the game on sales of any given console. This further advantageously position the Skylander product on the market in the context of external positioning. Once the new genre was introduce the company had to stay afloat by keeping up with innovations to continue to captivate imagination in order to offset the natural progression into the “franchise fatigue”. Thus, the next iteration of the figurines brought about the new capability of the figurines to mix and swap parts of the bodies allowing players to operate with 256 new heroes while having only 16 actual member of this family of toys. In additional to devising new differentiating features for better strategic positioning by defining and maintaining objective and scope discussed above the company also concentrated on improving operational effectiveness which was not a simple task due to inherent fusion of two divergent production processes – toy manufacturing and software development. This aspect of competitive advantage became especially palpable when the SWAP Force line was under development due to inherent design and technological complexity of the swappable heroes. Thus, realization that the process of swappable product development was lengthy and inefficient the company re-vamped the development process by analyzing each stakeholder motivation and systematically identifying the bottlenecks in the process. This effort improved the product approval rate from 10% to 90% accelerating rate of progression of elements of the product through the design and manufacturing chain. In order to further streamline the process the company used simulation models to accurately predict a completion date in the product development process, among other measures. Since all elements of the manufacturing process took place in-house in order to further align the internal coherence of the production process the company established an ergonomic spatial arrangement for collaborating entities, such as a sound recording studio and an electronic lab. Thus, in addition to developing a well-differentiated product Activision’s strategic positioning also involved optimizing internal coherence and minimizing costs of production. One of the key elements of competitive advantage is increasing gap between the willingness to pay for the product and production costs. Review of the consolidated balance sheet through the end of 2013 (www. Albertmorgenstern.com) reveals the high margin of 22% that the company enjoys on its huge sale (4.6B in revenue) with the net income of 1B. Review of the Net Revenue by platform in Exhibit B shows sustained revenues from the old games such as World of Warcraft (Note 1). (similar data on Skylander franchise only is not available to me) In conclusion, Activision Skylander Franchise competitive stategy is based on its innovative product delivering substantial benefit to costumers at a competitive price while allowing to retain high profit margin owing to a favorable ratio of WTP to the costs, and owing to favorable strategic positioning through differentiation and cost optimization. 2. The gaming industry is undergoing rapid evolution with appearance of new distribution channels and variety of platforms. These changes allow entrans achieve global penetration of the market with relatively small investment. However, the established companies who may gain significant product differentiation of their own to match and overrun that of the Skylander pose the biggest challenge to Skylander franchise. Thus, Disney followed Activision with introduction of Disney Infinity heralding entry of the first competitor to Activision in the toy-to-life space. The main inherent product-differentiating factor of Disney Infinity is employing famous characters (Cinderela, Woody) with rich social connotations that may carry significant advantages in adaptation of the toys-to-life category of games. The toys from the Disney collection may not only easily capture attention of the players due to the known history behind the characters but they also may be creatively linked together in a predictable patterns of interaction owing to pre-existing expectations of their actions based on the social connotations. In contrast to the Skylander’s strategy the Infinity does not allow all figurines play in all games. Instead, each figurine can only participate in the corresponding story. Such strategy seems to be restrictive and raises a question of competitiveness with the strategy of Skylander with the aforementioned advantages. However, for the Disney this restrictive approach offers some distinct advantages if one considers the plethora of existing art involving Disney characters, such as movies, books, TV, them parks. Keeping stories together by disallowing crossover of characters is likely based on the appropriately perceived necessity to preserve Disney culture as we know it in the video game space, as this represents the main differentiator for Disney. Another source of competitive advantage for Infinity is Disney’s position on the adult and late teen market, again owing to its rich social connotations. While Skylander’s characters may excite a kid and relatively limited number of idly addicted adults, the characters from the world of Disney, if correctly introduced, may draw older audiences attention. The same consideration underscores a potential landmine – for the adults to be attractive the games and toys should possess robust intelligent humor and requirements of more complex dexterity. Disney’s consolidating strategy to keep characters within its known social domain may pose a problem of crossover among generational boundaries. This may have a detrimental effect in the loss of clearly defined objective, scope, and external positioning or consistency of the Disney product. Perhaps the offset this potential loss of identity Disney introduced a Toy Box with its functions of interactivity and character mixing. This product is geared toward older audience including adults. It is especially exciting to older children and adults because various characters can be mixed in an open virtual custom build world with various themes, populations, decorations, creating logical connections among objects, establishing causal relationships, etc. Not withstanding advantages offered by the Toy Box for the more mature audience, co-existence of two opposing restrictive and unrestricted approaches, even though closing intergeneration gap and capturing additional adult market, may create even more malignant loss of overall objective and scope. Reportedly, overall gaming quality of Infinity is significantly inferior compared to the Skylander (venturebeat.com). Experienced players report that Infinity’s stories are embarrassing rubbish (I guess, like the rest of the Disney stories), the physical layout is not complete with many nonfunctional doors and passages, there are many bugs (like inability to aim with weapons, poor control of vehicles), and there is slow game progression with motion ceasing during a conversation. As one blogger put it in venturebeats.com “Disney Infinity is both amazing in its breadth and frustrating in it execution”. Poor quality of the product represents a significant core deficiency of a competitor, especially for a new entrant. On the other hand, the Infinity prices and deals are more favorable compared to those of Skylander. “The 75$ starter pack comes with a base and three characters, the Toy Box, and multiplayer play” which apparently amounts to a huge content. So, perhaps Infinity can be placed significantly lower and to the right on the Productivity Frontier, perhaps within the frontier, in contrast to Skylander. Comparing the two franchises, Disney Infinity and Activision Skylander, there are multiple differentiators between the companies that operate in the same space of toys-to-life. However, the features of the two companies appear relatively complimentary to each other allowing the possibility that they would share the market. Thus, it is to an advantage of Skylander to signal to Disney a particular direction of further development so that perhaps Disney would steer the other way. In terms of objective and scope, given purely innovative nature of the characters and stories in the world of Skylander, the company should develop several distinct large non-mutually overlapping (but interchangeable and flexible inside of each group) lines of products geared toward well-defined age groups. This will be advantageous to the company both because it will be able to capture a larger market while having a very distinct identity and because it will force Disney into similar strategy that for Infinity would be detrimental owing to their well established legacy. Skylander should continue to spend significant resources in maintaining superb quality of hardware, toys, and software. The vast breadth of other products by Activision, financial health, and large profit margins should be used to allocate sufficient resources to developing esthetically identifiable brand features based on exclusive quality. Thus, the company should strive to maintain the lonely place on the north west of the frontier. At the same time it may be advantageous to ad certain features of Disney, for example ability to control the game with the actual toy. 3. The following is the outline of the directions of further development for Skylander:
a) Integrating into the existing social internet networks
b) Developing distinct lines of products for distinct age groups, and perhaps classes of people
c) Enable configuring figurines to be the source of control
d) Enabling an individual player to create a personal character who will travel from game to game accumulating scores, experience, reputation, building character features, etc – instead or in addition to the interchangeable imaginary characters
e) Building an interactive dating site which may be based on the same video games or adventures
f) Merging with smaller studios to maintain vast repertoire or product and various talent capacity
g) Penetration of the international market
e) Entering electronic sports space, auctions, gambling