Foundations of Business Strategy Final
Project: NCSoft
To: Taek jin Kim, CEO – NCSoft
From: Salvo D. – Business Analyst and strategist
Re: Strategic Analysis – Overview
Date: 09/04/2013

Introduction to the company
NCSoft is the largest video game company in Korea and an international online game
operator. It was founded in 1997 and focus on online game business (It also publishes
some casual games, but this market is limited to a regional spread). Today, NCSoft , is
home to numerous industry-leading franchises, like Aion, City of Heroes, Guild Wars and
Lineage.

Industry Overview
The online video game industry is, in fact, a fast-growing industry characterized by high
business margin, low cultural barriers and a multi-year business cycle (in contrast with the
normal video game market that has yearly business cycles).
According to marketing researches Online is the fastest growing game platform with a
compound annual growth rate (from now on CAGR) of 21% in the period analyzed 20092014.
China is the biggest online game market with CAGR 23% in the period 2009-2014.
The new tablet, and hi-tech phones industry impressive growth, made possible the
creation of a new online mobile game market. Though this market is in its expansion
period, online game industry is actually the much faster growing game platform.
Talking about genres, MMORPG is the most favored in China with 50%-60% market share.
Just like China, online will serve as the most dominant game platform in Korea as well,
making up 88%-89% of Korean gaming market through 2014.
So, while Console market is shrinking, online is expected to grow faster than Mobile
(CAGR 17% vs CAGR 10%) and MMORPG genre is expected to expand continuously in
EU on the back of strong user base in Germany.

Executive Summary
In the early years, NCSoft, decided to focus on regional/country market and quickly began
to play the dominant role in its industry. So the decision was, at first to grow in an
economy that the company knows well in terms of tastes, uses and traditions. If we have
to refer as the whole world to define NCSoft positioning we must say that this way of
acting make it seems like adopted a “niche” position.
Many of the products that the company offers in his early years were limited to the South
Korean/ Asian market.
Lineage and Guild Wars are the most important titles NCSoft has to offer.
With Guild Wars and especially Guild Wars 2 NCSoft brought a massive innovation to the
industry and a big threat to the world market leader Activision Blizzard Inc. and its World
of Warcraft online game.
Before the release of Guild Wars 2, there were only subscription fee online games and
other low-qualitative actors that tried to reach the glory gained from “WoW” trying to
imitate gameplay, interface, storytelling, etc… But the Activision Blizzard’s monster was
too strong, economically and humanly, even to have a worthy rival.
The release of Guild Wars 2(GW2) brought the entire MMORPG (massive multiplayer
online role playing game) industry in the mature phase of the competitive life cycle graph.
GW2 had all of the features that WoW’s rivals didn’t in term of quality and
competitiveness and had no subscription fees. This sounded like revolution.
The main strategy of NCSoft with the introduction of Guild Wars 2 was to penetrate the
international MMORPG market and doing this shaking up the industry with one of its
main capabilities: Innovation.
Removing subscription fees for such a quality product put NCSoft in a condition of
competitive advantage among its competitors and most important against the market
undisputed leader WoW. But this maneuver also put the company in a position that can be
difficult to sustain.
So the principal revenues, in this case, came from the sale of game copies (digital, boxed or
deluxe edition), fast development of several new expansions for the game and the so
called “micro-transactions”.
"You, the customer, get to decide how much money you spend on the game after launch,
based on how compelling it is to you. You get a complete and playable game no matter
what, but we think we can provide additional content and services that you'd be happy to
pay for. And when you pay for them, you help fund our support of Guild Wars 2 in a way
that benefits all players of the game", wrote ArenaNet (development studio property of
NCSoft) cofounder Mike O'Brien on his company's blog.
Data in the NCSoft financial statements and reports show us an impressive growth of the
EU market (from 2% in the 4th quarter of 2011 to 18% sales in the 4th quarter of 2012) and
the US market (from 5% in the 4th quarter of 2011 to 25% sales in the 4th quarter of 2012)
since the release of the game.
These reports also show that GW2 represent the 45% of the revenues that are related to the
MMORPG industry (followed by Lineage with 24% and Blade & Soul in the 3rd position
with 10%).
Games like Lineage 2 and Aion paid this revolution with reduced sales.
The 4th quarter of 2012 recorded historical high quarterly revenues on the back of strong
L1, GW2, and mobile games. Operating profit in the 4th quarter was also the highest
operating profit of all time, thanks to limited increase in expenses.

What the future will bring
Recently, NCSoft, made some strategic moves that let investor understand what could be
its plan for the future:
1. Sold stock to Nexon – receiving 74 million dollars from the acquisition.
2. Shut some unprofitable MMORPG.
3. Plan to release 2 or more MMORPG in 2013. One of this will be a brand new
Lineage Game (revised and with a lot of innovation in it).

Five forces Analysis – Synthesis
Substitutes:
non-online
video games
(console and
pc)
New Entry: A
lot of
potential
entrants
Main
Competitor:
Activision
Blizzard
Buyers'
power:
moderatehigh
Suppliers'
power: Low
Activision Blizzard is the main competitor in the American and European Market. In 2000s
NCSoft acquired Arenanet and in 2005 released Guild Wars. That was a clear signal of the
internationalization strategy. Compared to the American colossus, NCSoft is still too
young and can’t truly compete in terms of costs and revenues. Another main competitor
could be EA, brand new incoming company in this industry.
That’s actually another problem of the industry. Potential entries can manifest anytime,
also due to low barriers to entrance.
NCSoft principal substitute for its markets are basically console and pc videogames. From
a study we know that 70% of the players always wait new console titles to play, but, after
they finish them, they come back to the online games.
That’s mostly because the competitive life cycle of the online videogames is much longer
(5-7 years) than the one of offline games (1 year).
Offline Video Game
Mature
phase: 7th
month to
12th
Emergent
phase:
pre-release
to 1 month
Growth phase:
2nd month to 6th
month
Online video Games
Mature
phase: 5th
year to 6th
Emergent
phase:
pre-release
to 1 year
Growth phase:
2nd year to 4th
year
Power of suppliers is really limited, since most of the activities required to create a game
are internally integrated. Power of Buyers in this kind of market could be moderate or
high if we’re referring either to distributors or final clients. Digital downloads for the
game limit the power of the distributors, but final clients and customer must be heard and
their dreams and wishes have to be translated and put into the game to win this industry
war.

Conclusion
NcSoft is a young reality, which always tries to listen to its targets, customers, and to
satisfy them by innovate either their products or their competitive strategy. Choosing to
manage multiple online games at once is useful, in terms of strategy, because they can put
into effect a cross-game promotion cutting off marketing costs.
Entering the EU and US markets let NCSoft to extremely raise their revenues.
Their final goal is to achieve leadership in this industry, but to reach that purpose they
have to face Activision blizzard in a face-to-face battle and stay alert for possible new
entrants.
My recommendations are:
1. To continue the development of online video games internationally, mostly the
ones that are the cores of NCSoft Business (Lineage, Aion, Guild wars 2, Wildstar);
2. to abandon the ones that has very little market share;
3. to continue with this innovation trends, invest in R&D and marketing researches;
4. Develop mobile games for the EU/US market (so entering in this new market and
gain sharing from it too), to further expand revenues.
5. Monitoring the market for fusions/acquisitions opportunities.
Thank you for your attention
Best regards
Salvo Davì, Business Analyst & Strategist
[email protected]
PS: Addendum and references to follow.
Addendum
Growth projection by Platform
140
120
USD BN
100
PC
80
Arcade
60
Console
40
Mobile
20
Online
0
2009
2010
2011
2012
2013
2014
Year
Breakdown of Online by regions
China
Korea
Europe
US
Japan
Others
1
2
4
0
1
2
2
3
1
1
2
3
1
1
3
3
6
1
1
3
3
4
5
2009
2010
2011
4
4
9
11
7
4
7
1
2
4
8
10
11
2012
2013
2014
Market share trend in EU
120
100
80
%
60
40
20
0
2007
2008
2009
2010
2011
Casual game
50
49
44
43
41
MMORPG
50
51
56
57
59
NCSoft Sales by region
300000
16823
250000
Royalty
200000
Taiwan
14922
150000
Japan
Europe
14337
100000
US
Korea
50000
0
4Q 2011
3Q 2012
4Q 2012
NCSoft sales by game
Unit: Krw in MN
300000
250000
200000
150000
100000
50000
0
4Q 2011
3Q 2012
4Q 2012
8220
10219
14239
GW2
0
45841
119013
B&S
0
32662
26904
Aion
51729
26940
25057
Lineage II
24731
13300
16456
Lineage
39952
38306
64861
Others
References
1. http://global.ncsoft.com
2. “ArenaNet Explains Guild Wars 2 Microtransactions” from the escapist.
http://www.escapistmagazine.com/news/view/116439-ArenaNet-Explains-GuildWars-2-Microtransactions
3. MMO trend reports from newzoo. http://www.newzoo.com/trend-reports/mmotrend-report/
4. http://en.wikipedia.org/wiki/Comparison_of_massively_multiplayer_online_roleplaying_games#General_information
5. Global online game report 2012.
http://www.researchandmarkets.com/reports/2126935/global_online_gaming_repor
t_2012
6. Iresearch.com
7. Google finance
8. www.spaziogames.it