So I just realized that this is my 300th blog post. Odd that it is going to be somewhat business focused rather than my normal altoholic / leveling stuff. But oh well!
So I posted a comment on a post by one of my favorite bloggers, Alternative Chat who was kind enough to follow it up with a very thoughtful analysis of my comment. She's copied the text of my original comment at the top of this post (although the comment itself was on an earlier blog post.
So a number of the high powered consulting firms have developed quadrant approaches for looking at your business strategy. Each firm's iterations are a little different, but they basically involve segmenting your businesses into pieces and putting them into different quadrants. A basic version of this matrix looks like this:
So you take the elements of your business and divide them up based on different critera (not all versions use growth rate and market share on the various axes). What I've tried to point out, is that if you look at Activision / Blizzard from the perspective of a business, and not as a game, I'm sure they've done an analysis like this as part of their regular strategy process. If you look at their results as disclosed in their SEC filings for the last few years, I feel it is highly likely that World of Warcraft falls squarely into the cash cow quadrant (probably along with things like Call of Duty, Diablo and maybe Skylanders heading that direction).
Now what does that mean if a business unit is a cash cow.
First of all, you're looking to maximize the profitability and cash flow generation of that unit. You are looking for opportunities to continuously improve and streamline and make things more efficient. Again, keep in mind, I'm talking about Warcraft as a business, not as a game. I want to invest just enough capital to keep my customer base happy and to innovate where needed and the constant improvements often mean some additional capital needed for those efficiency projects as well. You may be looking at opportunities to consolidate or outsource certain operations in order to cut costs. Every investment will be looked at with a very careful eye towards the returns that will be generated by those investments.
But I'm not investing my growth capital here, and it's probably not where most of my management attention is going. Most of the management attention is probably being spent on the fixer uppers,which are generally the upper right quadrant above, and definitely the
Stars - the areas where I'm looking to invest the most capital, because that's where I'm driving the most growth.
It's my assertion that many of the steps that you see Blizzard taking are the result of their attempts to make the business of Warcraft more efficient and improve cash generation for them, trying to produce new content more cost effectively, keep a broad group of customers satisfied to maintain revenue generation and protect their market share.
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