| sieanr said:
Its called the razor/razorblade model of business, and its what Sony did during the PS1 and PS2 gen, not just with the PS3. Most other companies, Nintendo and SNK excluded, have also sold their hardware at a loss for atleast a while. At the start of the Genesis era the head of Sega of America insisted on following this model, much to the anger of Sega of Japan. Eventually SOA had virtually 50% of the US market, while SOJ was far behind Nintendo and NEC/Hudson. But its not just video game companies that have profitted, and flourished off this model. Besides the aftermentioned video game and razorblade industry, ommunication companies do essentially the same - free installion and DVR/modems/phones up front, then the money is made back through a subscription. Basically you can think of the costs for the hardware being subsidised by the people who buy games and accessories, or subscribe to a service. |
I'm more than aware of how the model is supposed to operate. I wasn't aware that Sega used the model too, as I thought Sony was the first to introduce it. And as I pointed out, they had limited success before blowing everything. Microsoft has never made the model work and they have both games and XBL to make money back on.
The problem with the razor/razorblade model in videogames, is a handful of things. One, you have no guarantee that anyone will ever buy enough games (what like 10 3rd party games for the PS3 at launch). With razors and communications, you know people will keep buying. Either they buy enough razor blades right off the start to break even, or you force them to sign a contract for 2 years so you know you'll make a profit. Also, no one buys used razor blades and you can't resell the internet 
But you can buy used video games from e-bay or wherever.
I can't really think of any markets that I know use the razor/razorblade model and make a profit while still having the same potential issues as videogames unless they are completely dominating the market (like the PS1 and PS2 did).
