Every once upon a moon I grace the soapbox to read the articles posted on our fine soapbox here, and it never fails to make me think, write, and eventually want to post.

I have never made a post for the soapbox before because of one very simple tenant I hold dear: "it's probably been said before". this time around however, while glancing through the back and forth arguing on a recent Subrosian post, I finally cast my better judgement aside. it may have been said before, but I want to say it again.

I want to talk about the gaming industry, and specifically I want to rate it using Michael Porters 5 forces model. before I get into this though, I'm going to have to bring some people up to speed so to speak on what Porters 5 forces IS (it's never graced the dinner table conversation in my experience, I expect that to be the norm).

I will clear my background up right now so that people know exactly what level of knowledge I am using. I am currently a 4th year honours bachelor of Commerce student in University, my Major is Management Information System and Operating Management, and my Minor is in Human Resources, I have however spent the first 2 years of my education gaining at least an intermediate knowledge in all major business functions, as well as Economics (both micro and macro). Economics is key here because that's where Michael Porter comes into play.

Porters 5: Michael porter was an economist who developed a way to rate how favourable an industry was. because he is an economist, I must point out that his methodology is that of a power based mechanic, money rules, and there is no place for things such as goodwill (this is a constraint, but no model is perfect). It's called porters 5 because there are 5 elements on which the industry is rated, they are as follows:

Threat of new Entrants: This is how easy it is to get into an industry, if capitol costs are low and there are low barriers to entry, then it will be bad for the industry because it will lead to high......

Threat of Competitors: This is pretty basic, the more competitors you have, the less your market share gets well.... shared. Competition is healthy for business, but too much competition will bring companies to their knees until the little guys are pushed out or swallowed up.

Threat of substitutes: Not to be confused with your competitors product, but can you use another product to achieve similar goals. The internet for instance can be a substitute for cable television.

Power of buyers: This one confuses some people, the power of buyers basically whether or not the BUYER can set the price. for instance, can I walk into Wal-Mart and demand that lamp is only $25 instead of $35. You can however bring this argument further. You have to consider the macro environment which is determined by the elasticity on pricing. Wikipedia describes elasticity best as: "elasticity is the ratio of the percent change in one variable to the percent change in another variable." (And I often have to look this up, because I ALWAYS get these terms backwards "Generally, an "elastic" variable is one which responds "a lot" to small changes in other parameters. Similarly, an "inelastic" variable describes one which does not change much in response to changes in other parameters"). basically, can the company change it's price without having much effect on volume sold, or will a change in price quickly reflect in volume sold.

Power of sellers: Well now, looks like we have gone full circle. If I'm making chairs, I need to buy Wood. The power of sellers is also the power of suppliers. are we like Wal-Mart? Can we bully our suppliers into lowering their price? Or do they give us a price and we have to either take it or leave it.

now that we have our forces, what in blazes do we do with them? I personally don't agree with how simple the rest is, but I see the necessity, porters 5 is a simple and quick tool, but it scales well with detail. a quick glance will give you a rating in about 10 min if you are familiar with the industry, but a detailed look can take hours. (i' doing a quick look, it's not like I'm submitting this for marks). So what we do is take each force, and decide whether or not it's good or bad for business. If it's good, we give it a big ol STAR, if it's bad, it gets nothin'. At the end we count our stars and BAM, we have our 0 to 5 star rating on the industry.

we have to be careful though, very careful. There are some things to note about "the 5" that we have to take into consideration. FIRST and most importantly, you have to CLEARLY define your industry and its scope. For instance, Console gaming is different from PC gaming is different from handheld gaming is different from video gaming is different from recreation (different industries, and different degrees of scope). Second, this is a model, with constraints. porters 5 will not tell you everything you need to know, it will give you a clear outlook, but just like the product life cycle (or BCG Matrix) it will always be flawed to some degree. it's a tool, and you can use tools incorrectly. Also note this rates industries attractiveness, there have been companies that have done amazingly well in 1 STAR industry such as west jest and southwest airlines (this is thought to be a function of good management, which is much more important).

the entire time I have been writing this, I have been debating back and forth on whether I want to post my own star rating on Porters 5. The main reason I am posting this, is because I want people to think about the business aspect of our past time. This is important, business drives the creation, distribution, and consumption of our gaming, and I thought it would be neat if people thought about the gaming industries that were important to them, and rated how easily a company may do in that industry. So what I am going to do is post my quick 5 star on a tricky industry, third party developers. Feel free to disagree, with the speed that I am going to take, i'll most likely have missed something, and be wrong.

Third party developers such as giants like activision blizzard, all the way to small developrs like Talworlds are my "Industry".

Threat of new entrants: High. Companies are entering quicker than ever with start up aid like Wii ware, Xbox Live, and play station network allowing them to get their foot in the door. And there is no shortage of code monkeys out there. this force does not get a STAR.

Threat of Competitors: High. there are only so many genres, and currently we are seeing companies fighting like rabid dogs for their franchises to come out on top. There are ALOT of TPD out there, and it's a dog eat dog, always a bigger fish kind of world. No STAR for you.

Threat of Substitutes: like what.... going outside? technically your could count first party devs, but they can't carry a system and they are still operating within the confines of the TPD industry. They definitely get the STAR in this one.

Power of buyers: this one is kinda funny, because for the most part, you and I aren't the buyers. we don't walk over to the Bungie store and buy our Bungie game. TPD have to work in partnership with the systems they are developing for, and sell to the stores that carry their product. buyer power in this regard is moderate, enough that I would say this doesn't deserve a STAR, but don't quote me, I haven't fully decided on that for sure and might change my mind.

Power of Sellers: This is tricky, and might show a limitation to the model. We are talking about DIGITAL product here, so there are fewer inputs than normal. If blizzard has to buy the CD's and DVD's the game comes on, then that would be a supplier, but the most important input here is talent and ideas. In this regard I'm going to guess this is probably a STAR.

So there we have it, from my perspective it looks like at a quick glance, Third Party Development is a 2 out of 5 STAR industry.

what's your industry? And how do you rate it?