E3, which stands for Electronic Entertainment Expo (or Experience), is the largest trade event for the video game industry in the US. Or, should we write: “was”?
As we explain in Chapter 1 of our book, network effects lie at the heart of platforms. Roughly put, network effects arise when economic agents enjoy benefits that depend on the decisions of other agents. Network effects are positive if the value of the interaction for every participant increases when more agents participate in the interaction. Yet, network effects also make the interaction harder to organize because, when making their decisions, economic agents generally fail to consider the effects that their decisions have on other agents. It is then likely that although all agents would find the interaction valuable if it were to take place, none of them is sufficiently motivated to set the interaction in motion on their own. This is precisely where platforms can make a difference. First of all, by bringing participants on board, platforms make them realize the value that they generate for one another. Second, by deploying the right strategies at the right time, platforms reduce a variety of transaction costs and, thereby, help participants coordinate their needs and facilitate their interaction.
In sum, platforms can create value by linking economic agents (individuals or organizations) when, on the one hand, these agents can benefit from interacting but, on the other hand, they fail to organize the interaction by their own means. The launch of E3 in 1995 nicely illustrates this proposition. Liao (2021) describes why and how E3 was born:
" In the early 1990s, to access the video game section of the Consumer Electronics Show (CES) in Las Vegas, attendees had to walk through the convention center, toward the back of the hall, pass the porn section, and go out the back door to a large tent set up in the parking lot. There were Porta Potties and there was no real food. In 1992, it was also raining, and the tents leaked. (…)
“At the time, the whole industry was just exploding, and the fact that we were being treated like second class citizens," said Pat Ferrell, who is often credited as the founder of E3. Ferrell was the CEO and President of Infotainment World at the time, which launched GamePro magazines and a TV show. "[We] were just like now, we’re growing in a way where we need to be treated the same as a television or a boombox [at CES]. So we quietly started pitching the vice presidents of marketing, of sales, the guys that we knew in the industry to say, ‘Hey, look, what if we gave you an alternative?’”
Most of the industry was on board, including Sony and Sega. The event would be held in May and replace the industry’s need to go to the annual second CES held in Chicago. Gone were the Porta Potties and leaky tents."
Expansion ... and ending?
Since then, E3 has grown to become the game industry’s largest annual expo, during which game publishers and console manufacturers announce what is next for gamers. E3 can be seen as a platform that manages two types of network effects. There are mutual positive cross-side network effects between professionals and gamers (professionals value the feedback that gamers can give about new releases; gamers value the information, experience, and exclusivities they can get from professionals). Positive same-side network effects also exist within the group of professionals, who appreciate the networking and face-to-face business opportunities that the event provides them with. Thanks to the feedback loop that these positive network effects generated, E3 became the dominant focal point for marketing new game titles.
But recall the two conditions that must be met for a platform to create value: users would benefit from interacting but fail to organize the interaction by their own means. Even if a platform manages to exploit this business opportunity, the second condition remains key. Platform operators must always keep in mind that the value they have created may dwindle if their users find alternative and cost-effective ways to interact. If so, feedback loops quickly start acting in reverse. The recent history of E3 is a brutal illustration of how a platform’s fall from grace can come swiftly.
Deco (2017) reports that early signs of disintermediation were observed a decade ago, which lead E3’s operators (the US’s Entertainment Software Association (ESA) and events company ReedPop) to react:
"In 2013, some companies started to skip formal E3 presentations in favor of their own presentation formats, such as pre-recorded announcements. Other companies started performing their own pre-E3 events at other locations to highlight their own products and games outside of the E3 space. In response, E3 started allowing members of the public to attend in controlled formats, such as hosting a free E3 Live event in 2016 at the then-Nokia Theatre. In 2017, 15,000 tickets were sold to the general public to allow fans to attend."
Then came the covid-19 pandemic, which reinforced the disintermediation tendency. As Peters (2023) explains:
"The pandemic proved that gaming could survive without E3. The last year E3 took place in person was in 2019; the event was cancelled in 2020, held as a digital show in 2021, and bounced from in person to online-only and finally to fully cancelled last year in 2022. Yet even without E3 as an anchor, developers and publishers have found ways to make a splash that don’t include the investment required for a big booth on the expo show floor. (…)
For years, one of the remaining arguments for E3 has been that it’s a place for companies to do business in person, get face-to-face time, and shake hands on stage to promote their brands. But even execs have been forced to figure out how to do those things remotely during the pandemic, and may not need it anymore."
The cancellations caused by the pandemic could be the final nail in E3’s coffin. The first evidence is that E3 2023 has been called off “after huge gaming companies like Nintendo, Microsoft, and Ubisoft all said they wouldn’t be participating in the event” (Peters and Parish, 2023). Worse, it appears that the video game expo is not going to take place in the next two years either – at least not at the Los Angeles Convention Center (where it usually took place), according to a report from the Los Angeles City Tourism Commission.
Even if ESA and ReedPop have not confirmed the news, they understand that if E3 wants to survive, it will have to reinvent itself. As Buckley (2023) reports:
"When the show was cancelled again in 2023, ESA President and CEO Stanley Pierre-Louis told GamesIndustry that the trade show may need to change to survive. "E3 will iterate to ensure it's meeting the needs of companies that want to market on this global platform." Pierre-Louis said. "That means it will iterate in how people engage with E3. We want to meet the needs of players who view this as an important platform and that's going to evolve over time.""
To achieve this goal, they may want to use our Multisided Value Proposition Canvas to redefine their value proposition!