The Wii U vs PS360 launch comparisons may be misleading.

[DanneSandin]

BlueFalcon said:

Wii U sales were lower on a unit basis when compared to the original Wii in December 2006, but due to the Wii U's higher price, the system generated 11% more dollar sales year-to-date than the Wii by the end of 2006. In addition, more than 4.5 million units of software have been sold on the Wii U thus far and Nintendo starts making money after only 1 game sold. The console is selling reasonably well given that it has no killer app title and 95% of the 3rd party ports were poorly done, with little to no optimizations for the Wii U made by the developers (actually a lot of they studios even outsourced the actual porting of Wii U games to 3rd parties). Due to the software attach rate > 1 game per Wii U, the "Wii U business model" is already profitable for Nintendo. The same cannot be said of Xbox 360 for the first 2-3 years and especially not for PS3 (which really was a great console but as a business model was a financial disaster with Sony losing $$$ overall on the PS3 business from 2006 until today). That's not even considering that MS and Sony put up some good game bundles this holiday season(2-4 games Skyrim+Forza 4 or Uncharted+Infamous for PS3). The economy is also in a far worse shape today than it was in 2006 with consumer spending on electronics significantly down overall. 

The true test of Wii U's popularity will only show itself once it has 2-3 great games that peek interest outside of hardcore fans and once we see where PS4/Xbox 720 land in terms of price and features. If PS4 and Xbox 720 are $449-499 consoles and Nintendo is able to lower Wii U to $249-299, then it won't really be competing against those consoles for the same consumers. People generally do not cross-shop a $250-300 electronics item with a $450-500 one. OTOH, if PS4/Xbox 720 end up priced at $349-399, and assuming they are much more powerful than the Wii U in terms of graphics (not just specs on paper), then Nintendo will have to really press the pedal to the metal in terms of new IP innovation and renewed focus on attracting 3rd parties onboard.

I think Nintendo is strategically saving $$ for a big marketing push for Q4 2013. Right now they are relying on Nintendo's hardcore fans to purchase the console and tell their friends about their experience with it. This type of "word of mouth" advertising can be more effective and frankly much cheaper. Nintendo can then save the much needed marketing funding and create a new marketing campaign for the Wii U around Q4 2013 when it might have 1-2 great games. During Q4 2013 it will be a lot more paramount to push the Wii U because the hype train for PS4/Xbox 720 will be in full swing. Right now, they are banking on early adopters and waiting until manufacturing costs subside before they can drop the price perhaps $50 by end of 2013.

Nintendo's entire strategy is a complete opposite of PS4/Xbox 720. They could have easily made a powerful console that cost $400-500 with a focus on graphics but it would have failed automatically since 12-18 months later PS4/Xbox 720 would have an even more powerful consoles at the same price levels due to the nature of how technology works. The analysts and gamers don't get this - the market cannot sustain 3 consoles that are "basically the same with a focus on graphics and hardcore gamers alone." Therefore, the alternative approach is to do something different (GamePad) and price the console below PS4/Xbox 720. I fully expect Wii U to undercut Sony's and MS's next consoles once they actually launch. 

What the console fanboys don't realize is while PS3 is an excellent device, as a product meant to make $$ for the company, it was a complete and utter FAILURE. 

http://www.ign.com/articles/2012/08/02/sony-posts-312-million-loss-playstation-stagnant

I mean really PS3's business since 2006 hasn't made $ at all if you take all the massive losses Sony took on PS3 since 2006 until today. The software sales did NOT make up for losses on hardware for Sony. Nintendo's Wii U business model is at least meant to be profitable. It's no wonder Sony's market value has declined from $120 billion to just $11 billion today. Really, the only company that can afford to sell consoles at a loss is Microsoft. Both Sony and Nintendo are struggling to survive. MS could lose $5-10 billion on the next Xbox 720 and not care just for the sake of bankrupting Sony and MS's console business. That's why it always pains me to see so much hate for Nintendo by Sony fanboys when the reality is Nintendo and Sony almost need to merge together to survive against MS's $225 billion business. 

The truth is for small companies with finite financial resources (i.e., Nintendo, Sony), it is more important how much $ the overall business model can make to stay in business, rather than the distinction between selling 30 million and say 150 million consoles for market share bragging rights. This is because for a going concern business "Market share profits/dollars" are more important than "Market share %" in the long run.

Just look at Apple. It has the majority of smartphone profits in the industry, despite nowhere near leading market share with iPhone against its competitors. 

It's better to sell 30 million Wii Us and make $ than to sell 75 million PS3s and lose $ on all of them for 5 years in a row.... It's common sense for anyone who understands that positive free cash flow is what keeps the business sustainable. It really doesn't even matter if PS3 sold 150 million consoles. The actual business model on which PS3 was based was flawed from the beginning and it will never be NET cash flow positive from 2006 to EOL of PS3. Another fundamentally flawed PS4 generation and Sony is going to be on the verge of bankruptcy. So the fact that say PS3 sold > 70 million consoles is more for fanboy ePeen than anything. Sony's corporate finance and Playstation executives know PS3 failed miserably as a console for the firm. Nintendo knows it's actually in the same spot as Sony, going against MS, which is why they took the risk with the GamePad on the Wii U.

So really we have a situation of 1 company that can afford to launch the most powerful and the cheapest console if they wanted to (MS) just for the sake of bankrupting Nintendo and Sony's console businesses. If people just want to compare sales of consoles and ingore the fundamentals of how the console business actually works, then there is not much that needs to be said. At the end of the day you can sell 1 billion consoles but if you lost $ overall, it would have been better to not sell any consoles at all. Any executives that think they can create a more powerful console than MS, be price competive with MS's next console and actually make $ in the process are delusional. Sony's executives were naive and cocky enough to think they could do this and they obviously failed. Nintendo's executives are actually smarter because they know you cannot beat MS at the same game. The Wii U was designed to not compete with the Xbox720 on the same metrics. 

MS's equity value ~ $225 billion

Nintendo's equity value ~ $14 billion

Sony's equity value ~ $11 billion

Any company that tries to create a console that's price competitive with MS's Xbox 720 and is as powerful will most likely fail in the long run (Sony found this out with PS3, Nintendo was smart enough to not even try this ludicrous strategy). It's finance 101 because MS can afford the loss leader strategy or undercut the price indefinitely until the competitor is eventually bankrupt. The key ways for Sony and Nintendo to remain viable against MS is to out-innovate them, focus on exclusives, strong 3rd party support, offer more features (online gaming for free, etc.). All of this means taking a lot more risk for Sony and Nintendo that MS doesn't need to really need to take. 

Very long post, but very good! Read it!!