I had started rambling over on Gamefaqs about something fairly related to this discussion of consoles dropping out and monopolies. Some is fairly similar to some of what Bodhesatva has been saying. It wasn't all one post originally, and some of it is a response to questions, but I think it flows well enough, especially with some editting.
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Yeah, but [Sony and MS] going to keep trying [to become a monopoly]. Both MS and Sony are convinced that the video game market is going to converge with home entertainment in general, creating the potential for a natural monopoly similar to what MS has with Windows.
I have a niggling suspicion that Nintendo may have accidentally secured that position for themselves. They've just shown the industry that launching at around $200 does wonders, but a lot of what they've got now is due to the Wiimote. Everyone's going to be looking for something innovative to add to a next-gen system, but, really, what else can you do? It seems like the logical thing for Nintendo to do is to adopt a Windows-style business model, releasing a Wii with a hard drive, more accurate motion sensing, Blu-Ray/DVD playback, and modest hardware improvements. New games would still be compatible with older Wiis, but the newer ones would run them somewhat better.
To clarify, the Windows model, as I use the phrase, is a strategy of maintaining full forwards and backwards compatibility for at least one generation. New software is optimized for the current model, but it can run on last-gen's model and it will run on next-gen's model. The idea is to leverage a successful console's install base into the next generation - this is the point of backwards compatibility, but it doesn't really go all the way. This way, developers want to develop games for the new model because they know that they don't have to worry about only serving a market of a few million people - the tens of millions of owners of the older model that haven't upgraded can still play the game. It's senseless to develop an application for OS X when you could develop it for Vista because there are tons of people with XP that would still buy it, since they can run it decently.
The beauty of that sort of business model is that you only need to have one third of your base buy the new system in order to maintain your monopoly. If everyone buys the Wii, and Nintendo implements this strategy with the Wii 2, then they only need one third of those people to upgrade. Then they only need one third of the original base (half of the people who still have the Wii) to upgrade to the Wii 3. Then they need what's left of the original Wii's base to move to the Wii 4, and then they keep leapfrogging - Wii 2 to Wii 5, Wii 3 to Wii 6, etc. It's perfectly rational for each group of people to upgrade to the newest Wii because there are already large groups of people who own a similar system.
This is why MS has such a stranglehold on the OS market, and I think it may happen with games.
[Nintendo has been trying to avoid media center consoles?]
Ashley, that's why I say that they did it 'accidentally'. All along, Nintendo has just been trying to stop MS or Sony from coming out with a media center console that they can run the Windows model with. Achieving this sort of monopoly seems to be the entire point of the 360 and PS3 - if either one was successful, its parent company would be in excellent shape to leverage it into the next generation. Nintendo was just trying to disrupt things enough to stay in business, but I think that they'd have to be blind not to realize the opportunity that's just been handed to them.
I'd guess that they'd need to get through two models in the span of a normal generation. Any faster and you're going to burn people out and fragment the market, but if you go too slowly your current games, because they need to be compatible with an older model, are vulnerable to another company releasing a newer machine that isn't shackled to older technological limitations. Since the market seems happy to live with the same technology for four or five years, I'd say that the optimal introduction rate is every two and a half.
...I'd be surprised if Nintendo doesn't incorporate some PSN and XBL marketplace type stuff into later models (with hard drives). Downloadable HD video and games are a large part of creating the sort of network effects that guarantee these monopolies. Consider what would have happened (or would happen, if you don't think it's too late) if the 360 absolutely dominated this generation. MS would already have a great deal of infrastructure set up to allow people to buy and download HD movies, they'd have the largest library of downloadable games, and they'd almost certainly have the content advantage regarding just about every online feature. Their next console would launch with the ability to tap into all of that, and, along with backwards compatibility with 360 games, it would have been a tremendous selling point.
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The upshot of all this is that these companies are more than willing to lose money to stay in because they see this convergence happening very soon, and that Nintendo has almost accidentally made themselves the front runner in capturing this monopoly.
