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As the video game industry matures, it will need to invest in understanding its customers. Sometimes you get the feeling that games are made based on what the people in control of the process want to play (or what their gut tells them other people would want to play). Essentially, it is a glorified guess. For the larger companies, they deeply believe in this process because it got them to that level of success. They ignore the fact that they were lucky; while they guessed a successful game, there were 10 other companies who guessed wrong.

As these big video game companies grow and go public, they are subjected to heavy pressure to continue to create new hit titles. Well, they may be able to guess one hit game...maybe two...even three, but when their revenue projections begin to rely on 10-30 solid titles, the odds of guessing will catch up to you. So what do you do? The initial reaction of a immature industry is to go conservative. They try to find ways to release sequels every year even though it will not move the title forward very much (essentially trading future brand equity for current sales). They look at the hits of their competitors and try to replicate it them. I think you can see every large video game company committing these faux-pas.

What they need to do is try to understand their customer.

This past Friday, I completed one of the first projects that was assigned to me back in week one. The project was to analyze data surrounding video games of boy-targeted TV licensed properties. Incidentally, a goal of the project was to better understand the customer. For the project, I amassed an impressive data set that included sales, advertising, TV ratings, and platform install base info and tried to sift through it looking for key lessons about the genre. It turned out to be a very difficult project. The difficulty was not in interpreting the results, it was finding the proper methodology that would deliver relevant results. To this end, I had to redo my research three times - revising data, finding new data, modifying regression methodologies. On that 3rd go around I was very relieved and amazed to get some solid findings. Now, I am not going to reveal the key findings (thats why THQ pays me the big bucks), but I can say the results reveal two distinct levels in the target market that dictated different product types and different marketing strategies. I won't be so bold as to claim my results are hard and true facts about how this genre operates, but they are starting point for further observations to test the validity of my conclusions. More importantly, it establishes a methodology for other THQ brand managers to evaluate their markets. ...And that is a step towards better understanding their customers.

A few weeks back, THQ was visited by sales reps for the Fox Interactive Media properties. The primary focus of the presentation was how MySpace plans to leverage its audience for consumer product companies. Essentially MySpace is moving towards being able to create detailed segments of their audience. It is mining every piece of content on an individual's MySpace page to categorize him or her for companies like THQ.

This kind of segmentation is happening throughout the internet, not just on MySpace. I am sure Facebook is doing the exact same thing. At first glance, that kind of segmentation sounds awesome for consumer product companies, but, upon further thought, it also poses some grave consequences.

The implication of the movement to higher segmentation on social media sites like MySpace and Facebook is that companies need to better understand who are their potential customers.

The obvious benefit of this segmentation is that companies will be able to reach highly targeted groups of individuals. As a example, think about a TV ad - it will reach an broad audience of a particular show. The MySpace segmentation would effectively allow a company to send its TV ad to only males, 20-24 yrs old, who drive Honda civics that they have customized. That is very powerful.

On the consequence side, it means that these product companies need to know their customer. You may say that I am over-reacting - "Trevor, video game companies can still just advertise to all males, 18-30 yrs old, video gamers and hit their target market". Maybe so, but don't forget the video game market is shifting with the rise of casual games. More importantly, this new level of data presents opportunity to those companies who learn how to leverage it. One of the big teachings of an MBA program is how to strategically take advantage of technology by creating business structures that leverage it. The company that figures out how to identify their potential customers at the level of MySpace segmentations for each video game title (or any other product for that matter) will create a competitive advantage over other their competitors. I am not sure many B2C technology companies are ready to do this. If they don't a competitor will and they will be playing catch-up.