Square Enix 2011 Annual Report Download - page 8

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To Our Shareholders
As it became possible to play games on all devices, the barrier
in form of investment required for hardware began to disappear.
From now on, we must focus our attention on software as the
platform for playing game applications.
In the next stage of development, the focal point becomes
whether games are playable on application software, such as
browser and Flash, as standard features in PCs.
In the coming years, I believe the capabilities of this
software will grow tremendously and allow the market to
expand to customers who lacked awareness of games in the
past (this is already happening).
The dramatic expansion of the customer base and the
permeation of the network environment will cause both
business models and content design to transform fundamentally.
From now on, only those who are able to create true innovation
in response to this new marketplace will be leaders.
The era of physical media such as DVDs selling through physical
channels of retail stores and marketing methods primarily
through mass media is coming to an end. Now, the important
point is how to best utilize social media networks as sales
channels. Furthermore, revenue models will evolve from one-
time, fixed priced sales to a pay-as-you-go billing (“freemium”
being one example).
On top of business models changing, content design must
also evolve. Values required going forward are fundamentally
different from those of the past. In this industry which is not
cooling down, but rather, expanding substantially, most game
publishers, including us, are struggling to make a leap forward
in the midst of such an evolution of values.
Furthermore, what comes next is cloud gaming.
Assuming the availability of a network environment, data
storage and processing are performed by servers. When we
move to this stage, content and services are managed on the
servers, leading to the emergence of a new entertainment
market whereby not just games, but many forms of
entertainment, are fused together.
Here, I should touch upon a common question. The
question is whether or not the browser and cloud are only able
to penetrate the market with simple games and full-scale
games remain on consoles. I believe that these new platforms
are not inferior, but rather, will evolve, whereby the boundary
between consoles and other devices will disappear. This is the
Time
Product
Performance
Performance
Range Demanded
by Customers
Arcade Games
Home Console
Games
Mobile Phones, etc.
Browser Games
Cloud Games
The Innovator’s Dilemma
Figure 5
Pr
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P
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fo
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06