Ensemble Studios was once the most successful pioneer of Real-Time Strategy (RTS) games. It was founded in 1995 and made a smash hit in 1997 when its first game, Age of Empires, came out. Approximately 90% of gamers worldwide played Age of Empire, giving the game a user base of tens of millions of players. Even though it was the most successful company of the time, Ensemble Studios was a relatively small company that had only 40 employees prior to the acquisition. Being the most prestigious and profitable software company, Microsoft decided to acquire Ensemble Studios in the year 2000. The two companies reached an agreement with relative ease, and people described the union as a “tiger with wings.” Ensemble Studios had the advantage of unlimited capital and high-tech equipment, while Microsoft anticipated a lump-some profit. However, reality did not turn out according to plan. Ensemble Studios suffered a loss every year for eight consecutive years and finally closed down in 2009.
The most important reason for Ensemble Studios’ failure is that it fell right into the competence trap. Being a pioneer of RTS games, it continued to develop only games of the RTS genre. This worked well prior to the year 2000, but two things happened after the acquisition: there was an entry of imitators and the market demand began to change. Right after the huge success of Ensemble Studios, many game developers decided to make RTS games (Leahty, February 19, 2009). For example, Blizzard Entertainment started making Warcraft and Starcraft instead of mini-games (Leahty, February 19, 2009), and Westwood Studios started making the Command and Conquer series. These imitators were able to capture a part of Ensemble Studios’ market shares. For Ensemble Studios, the imitators alone were a nuisance, but the gaming market for RTS games began to shrink too (AccuVal Insights, December 2007). Massively Multiple Online Role Playing Games (MMORPG) soon became popular. However, Ensemble Studios did not adapt to the market as did Blizzard and other competitors. Ensemble Studios decided to make RTS games because the top management group believed that whatever had worked in the past would always work. With this logic, Ensemble Studios failed to diversify. Finally, after releasing six more RTS games, the company was forced to close down.
Acquisition and Corporate Culture
Another failure factor was that the acquisition changed the corporate culture of Ensemble Studios. Normally, it takes about two full years to get a product onto the shelves. However, after the acquisition, Ensemble Studios managed to develop two products every year. It increased its human capital from 40 to 70 people, and the corporate culture changed as the size of the firm increased (Inwin, February 20, 2009). Additionally, being acquired by Microsoft, it no longer enjoyed independence, and Microsoft eventually cancelled six developed projects (Inwin, February 20, 2009). Not only did the investment of the six projects become sunk costs, but it was clear that the developers no longer had the ability to develop games of their own liking. In addition to losing its independence of game development, Ensemble Studios lost control of company operation. According to Bruce Shelley, advisor to Ensemble Studios, Ensemble Studios was the most expensive Studio Microsoft owned, but it was nowhere near the most profitable of Microsoft’s studios. Naturally, Microsoft had good reasons to close down Ensemble studios.
Efficient Game Development Process
After the acquisition, Ensembles Studios quickly adapted to Microsoft’s efficient culture. Prior to the merger, Ensemble Studios would put a fixed number of people into a development project. For example, Age of Empire II had forty people on the project. However, this method of development is highly inefficient (Leahty, February 19, 2009). As shown in the first graph, the quantity of labor required increased as game development increased, but near the end of the developing phase, the quantity of labor decreased drastically. For example, Age of Mythology started out with 25 people, and as the game development process continued, 15 people were added to the team (Inwin, February 20, 2009). However, for the last two months of the game development, only 10 people remained on the project, while 30 other people began developing other games. This method of game development greatly increases the efficiency. Ensemble Studios was capable of producing two games a year, in comparison with the standard average of one game every eighteen months for most competitors.
However, the above method of production has many drawbacks. First of all, developing multiple games at the same time creates competition over human resources (Leahty, February 19, 2009). The developers in the initial phase are not likely to be the developers of the final phase because good developers are picked out by producers to develop new games. Once a new game is in the final stage, these good developers are again picked out to help create another game. The spontaneity of developers causes inconsistencies in the games. The story plots tend to have huge holes and the characters tend to have multiple variations (Leahty, February 19, 2009). One famous example is Amelia Black, a character in Age of Empire III, who reveals approximately 20 differences during the course of the game: her head band changes color occasionally, her rings show up on a different hand every time she appears, her scars are highly mobile, and her tattoos display subtle differences.
Second of all, the quality of the game significantly declined over time. Ensemble Studios’ games, starting with Age of Mythology, possessed bugs that crashed the game, errors that showed up during installation, and large numbers of basic grammar mistakes. This phenomenon led to the cancellation of projects. Therefore, even though twelve games were developed within six years, only six were released to the shelves. In addition to its game flaws, many broader mistakes haunt Ensemble Studios. The gaming servers often go down without prior notice and the company never seems to reply its customers.
Last of all, the overall gameplay improved very little over time, since developers were subject to a high turnover rate. Developers had very little time to improve their games due to the efficiency-driven process of the company (Leahty, February 19, 2009). As a gamer myself, I have noticed that Age of Empire III (2005) is merely a replica of Age of Empire II (1997). Given the eight- year gap between the two games, it is disappointing to gamers that Age of Empire III did not show any great improvements from its predecessor.
Another factor leading to Ensemble Studios’ demise was its multitude of managerial problems. First of all, instead of slowing down the product development process when projects were developed simultaneously, managers of Ensemble Studios recruited extra developers during these times (Zlefden, February 2, 2009). Since the new recruits were not yet accustomed to Ensemble Studios’ style of gaming, many of the projects requiring new developers were cancelled. The company’s failure to downsize despite the cancellation of certain projects added to the overhead costs. Second of all, managers did not want to expand or differentiate even after RTS games became obsolete. There are many alternatives that the company could have made use of. Ensemble Studios could have started developing MMORPG earlier (by the time it developed MMORPG, closure was already inevitable). Even if Ensemble Studios had wanted to stay in the RTS realm, many alternatives would have remained. It could have developed games for other platforms such as cell phones, xBoxes, iPods, Wii, psp, Gameboys, or even Facebook. As of now, there are no RTS games in any of these gaming platforms. Ensemble Studios would have been a pioneer if it had chosen to expand into these markets. Finally, the management group cancelled many developed projects into which the company had invested heavily, and these projects were considered “raw diamonds with the need of subtle refinement.” For example, Titan, the only MMORPG developed by Ensemble Studios, was cancelled right after its alpha testing, which occurred at the very end of the project. That particular project took seventy people to develop. Although the game received bad reviews, the flaws could be fixed easily. However, instead of refining the game, the management group of Ensemble Studios decided to abandon the project altogether.
Loss of Human Capital
Prior to the acquisition, Ensemble Studios had never cancelled a project. Undesirable projects were polished continuously until ready. However, Microsoft’s approach to tackling unattractive games was to simply remove them. The most critical incident happened during the development of Titan. Titan was considered the grandest game ever produced by Ensemble Studios, with all seventy people on the project (Inwin, February 20, 2009). After the cancellation of Titan, fourteen top designers resigned from Ensemble Studios to create their own game developing Studios: Bonfire Studios and Robot Entertainment (Leahty, February 19, 2009).
Inability to Fight Against Piracy
Ensemble Studios truly believed in human kindness and intellectual property rights, but this company overlooked a few important things. The largest gaming population is in Asia, or to be more specific, China, a place notorious for weak intellectual property rights (Leahty, February 19, 2009). Chinese gamers were able to download the games for free through programs like GoGoBox. Another thing Ensemble Studios overlooked was economics. It is rare for people to buy new games during a recession, and the easiest way to acquire a game during difficult economic times is through internet downloading services. There are a lot of things Ensemble Studios could have done to fight piracy. Electronic Arts (EA) does this by simply assigning codes to each individual game sold (Zlefden, February 2, 2009). Since the code can be used only once, possessing a game without the accompanying code is fruitless. Blizzard effectively fights piracy by charging continuous monthly fees for its services. Many Asian gaming companies fight piracy through an internet check-in system. The players have to log on to the official website to get the game program checked every time they wish to run the game.
Incompatibility with Apple Computers
Even though the manuals of Ensemble Studios’ games state that it can be played on every operating system, it is not so. Speaking from personal experience, all of Ensemble Studios games crash every five minutes on Snow Leopard (Apple operating system). Even though Ensemble studios released patches to fix these “bugs,” crashes and errors are not completely removed. It simply went from crashing every five minutes to every ten minutes. Perhaps Microsoft demanded Ensemble Studios to make its games compatible only with Windows. However, Microsoft failed to realize certain aspects of gaming. Consumers buy computers for multiple purposes, but games do not generally offer anything else other than entertainment. Therefore, even though games are complements to computers, computers have way more influential power as opposed to games. People are more likely to choose computers over games, even for gamers.
High Computer Upgrading Expense
The approach Ensemble Studios had with games is that the gameplay (interface and control) remains the same while the graphics improves significantly. For example, Age of Empire II is two dimensional, while Age of Empire III is three dimensional. However, this put burden on gamers (Inwin, February 20, 2009). A Pentium 4 with duo-core of 2.80 GHz can hardly play Age of Empire III, The cost of that is approximately $420.00 in 2009. In considering that Age of Empire III was released in 2005, the price was around $1099.99. Remember, that was the very basic requirement (meaning that every function is turned on low such as shade, reflection, lighting, polygon, detail, particle, landscape and texture). In order to play the game in high quality, the investment in graphic card and CPU would be around $2500.00. It is unlikely for people to spend that much on gaming, even for gamers. Ensemble Studios has over-emphasized on the quality of the graphics as opposed to the quality of the game. It seems that Ensemble Studios overlooked the price elasticity of its compliment. However, it is not to say that there are no other companies that focus on graphics. Other companies have developed strategies to overcome the problem with costly complement. For example, NCsoft developed Lineage, the most popular game from year 1998 to 2005, had the expansion strategy. When it first came out, the graphics were considerably the best amongst the world. Similar to Ensemble Studios, not many people were able to play the game. However, instead of making new games, NCsoft releases expansion packs every year along with heavy promotion (Zlefden, February 2, 2009). At 2002, the amount of players increased by almost ten times its original size. This is because the cost of the CPU and graphic cards decrease exponentially. More players are able to afford the game now because the cost of the complement reduced significantly over four years. However, because NCsoft kept expanding on the original game, it is able to both retain the old players and attract new players.
In essence, the closure of Ensemble Studios was the result of the competence trap, consequences of the acquisition, the processes used for game development, managerial defects, human capital loss, piracy, incompatibility of Apple computers, and the high cost of complements. However, even though these shortcomings have been fully addressed, the alternatives would not necessarily have been better choices. Indeed, Ensemble Studios’ persistence of RTS gaming development led to its demise, but this is not to say that diversification would have led to success. In fact, even if Ensemble Studios had chosen to expand to other markets such as MMORPG or First Person Shooting (FPS) type of games, it would have been lacking in both experience and capabilities. This simply means that Ensemble Studios might have failed either way. Similarly, even if Microsoft had not cancel the six projects, the projects might have turned out to be disastrous. This means Microsoft might have actually saved Ensemble Studios from more sunk costs. With regard to the incompatibility of Apple computers, it might not actually have any effect at all. Apple and Microsoft are known rivals, and Apple users might have exercised their strong sense of brand loyalty and chosen not to play any games developed by Microsoft. Therefore, this might not even have been an issue to begin with. It is important to realize that identifying failures has its limitations, for the identification does not provide the “right” strategies. All it provides are strategies that should be avoided, but it does not give a clear indication of whether or not the alternative is any better.
AccuVal Insights. (December 2007). Video game: Increased supply and demand for the holiday season. Retrieved November 12, 2009, from http://www.accuval.net/insights/industryinsights/detail.php?ID=29
Inwin, M. J. (February 20, 2009). The death of Ensemble studios. Retrieved November 12, 2009, from Edge online: http://www.edge-online.com/features/the-death-ensemble-studios
Leahty, B. (February 19, 2009). Live Blog: DICE 2009 – Bruce Shelley, Ensemble studioss Post-Mortem. Retrieved November 12, 2009, from G4TV: http://g4tv.com/thefeed/blog/post/693374/Live-Blog-DICE-2009—Bruce-Shelley-Ensemble-Studios-Post-Mortem.html
Zlefden, N. (February 2, 2009). Ensemble studios: The last tour. Retrieved November 12, 2009, from Gamasutra: http://www.gamasutra.com/view/feature/3919/ensemble_studios_the_last_tour.php