Sony fighting to stay relevant?

[Kenology]

UncleScrooge said:

First of all: I think Sony will make it. They are in trouble but at least SCE can get out of that. That being said they will need a different strategy than an arms race with Microsoft. I think it's really telling what Sony did this year - or rather didn't:

- They did not cut the Vita's price even though it is in deep trouble
- They did not cut the PS3's price even though a cheaper-to-produce model was released
- They closed down several studios

Sony has always been very aggressive at dropping prices and undercutting its competition. They simply can't do this anymore. The strong Yen really came at the worst time for them, a time when they were already in trouble.

Usually Sony's strategy in the gaming market is to gain market share by undercutting the competition at first and regaining the losses later. But this time they can't lose money on the console for the first three years because they've been in the red for a long time now. The strong Yen makes it even worse and Sony's current credit rating doesn't help, either. On top of that Microsoft is in a very strong position to sell their next console at an initial loss.

The Sony of 2006 was able to lose $200 on each PS3 sold and still cut the price by $100 a year. The Sony of 2012 can't do that. They'd have to keep the price up longer. This is exactly why Nintendo dropped out of the graphics race in 2006 and developed a disruptive product instead: They had no chance to outspend or undercut their competitors and they knew they would lose that race. Sony is in the same position now but unlike Nintendo in 2006 they don't have a solid financial foundation and because of the strong yen they might have to release a weaker consoles than Microsoft and charge a higher price for it (the PS3 was always said to be slightly stronger than the 360, it had a Blu-Ray Player and came with a bigger HDD).

Sony's position is not unlike Sega's when they released the Dreamcast: They had lost money and market share with their last console and they had to compete with a big, financially robust competitor. That's not to say Sony will share the fate of Sega, of course. I still think they'll make it. But we shouldn't act like Sony was all fine and ready to fight in an arms race with Microsoft next gen.

Sony's best answer to this is not an arms race with Microsoft but the same thing Nintendo did: Looking for blue oceans or releasing a disruptive product that competes on values other than power and graphics. In direct competition the bigger company will almost always win because direct competition is a race of resources while disruptive innovation is a race of values.

Good post.