| sonicfan1373 said: I would also like to add that like MS and Sony, Nintendo sold both the 3DS (after its price cut) and the Wii U at a loss; 3DS sold for a loss for about a year and Wii U became profitable as of mid-last year. Nintendo has lost a lot of money selling Wii U and 3DS at a loss over the past three-four years. By the way you might think this selling hardware at a loss is to give customers a break but it is not, I am pretty sure that if Sony and MS decided not the sell the system at a loss they would not have had a lot of people purchasing the system. With that being said I agree the Wii U was and is way too expensive to be reachable by the mass market, but Nintendo should not sell the system at a loss but rather they need to design the system in a smarter manner to be able to sell at a lower price. Also, for the record, I am compeletely against this entire idea of selling hardware at a loss and trying to recoup the money with software. This strategy very rarely works (unless the console maker has a huge market share, and even then the returns are meager), it did not work with Sega Saturn, Dreamcast, any of the Xboxs, PS3, and it has certianly not worked for Wii U and PS Vita. Big hardware companies like Apple, Samsung, and yes even Sony during their glory days as the number #1 brand name for electronics did not make their fortunes selling hardware at a loss. I personally believe that you have to build the hardware with a price in mind for customers and a decent profit margin for your business, if you are selling hardware at a loss then you have done something wrong. |
It was actually SCE that "innovated" the razor blade business model for game consoles with the PS1 and it worked. They established the trend with the PS2 and it worked even better.
The PS1, which was cheaper to manufacture than its primary competition, the Sega Saturn, was created after Sony's Play Station CD drive for the Super Nintendo was cancelled at a time when Nintendo arguably had the strongest hold on third party developers. Sony, chose to undercut the Saturn in price and aggressively courted third party developers to support their new Playstation console by providing more favorable relations and support than Nintendo. The Playstation SDK was designed to help developers as much as possible rather than simply treat them as competition who were being allowed to publish games for their platform. Sony realized the more licensed software they could release, the larger the potential consumer base due to having the greatest volume and variety of games.
It worked.
They doubled down on the PS2 with the same initial $299 MSRP and that remains the greatest console success to date. By launching the PS2 at $299, Sega was unable to compete as they again had hardware that cost more to manufacture than the PS2 ($399 Dreamcast) while Sony again had the strongest third party support. In short, the PS2 killed Sega as a hardware/platform manufacturer with a $299 PS2. Nintendo's third party support can be summed up with the words Game Cube. In the Game Cube's defense, it was cheap to manufacture and the primary sellers for the platform were Nintendo's own titles, making it profitable, just not the market leader by volume.
It really wasn't until Sony, apparently drunk off over ten years of industry dominance, decided they could literally double down on the PS3 with a $599 MSRP while still losing a monumental (estimated) $230 per unit based on the BoM to MSRP price, that the razor blade model showed its flaws due to the rising costs of game development. The $10 increase in retail titles from $50 to $60 didn't help enough to keep many studios in business after one commercial failure on a protracted development pipeline. Higher risk involved in development with no increase in potential reward.
It really wasn't until the surge in independent development, supported by the online distribution platform (saving on retail costs, manufacturing, shipping/distribution) that smaller studios could do streamlined productions once again that don't command $60 retail prices, but also won't bankrupt a developer if their title underperforms.
In the meantime, Sony went from losing $230 per unit on debut to about breaking even on the BoM to MSRP cost, which still counts as selling at an initial loss (the PS4 is no longer being sold at a loss), but it's a massive difference from losing $230 off an initial $599 MSRP.
