Being tired as I am of the endless waves of "results lol" topics which just result in endless arguments over minutae of sales figures, I thought it'd be better to discuss something that has some relevance: the business models used by each company. In this topic, I encourage that you put aside any sales-first mentality and think instead on what it is that makes each company's strategy worthwhile, as well as what makes the model flawed. I encourage anybody to contribute their own perspecive on the business model of any of the three competitors. Suggestions of how they can improve their models is fine too, but keep in mind that the main focus is to see what's working and what's not.

We'll begin with a basic overview of the production methods used by each company.

Microsoft

Hardware Model: Produce units above cost (distribute at a loss). Improve efficiency over time to bring down costs, ideally to break-even or profit. Quality assurance to production speed ratio: favors production speed.

Software Model: Produce a limited line of first-party software (~10% at launch; mostly static) and rely on third parties to supply the rest (~90%). Software quality is: higher than third parties overall.

Goals: To prevent Sony from gaining a monopoly on home entertainment.

Sony

Hardware Model: Produce units above cost (distribute at a loss). Improve efficiency over time to bring down costs, ideally to break-even or profit. Quality assurance to production speed ratio: roughly equal.

Software Model: Produce a limited line of first-party software (~15% at launch; mostly static) and rely on third parties to supply the rest (~85%). Software quality is: roughly on par with third parties overall.

Goals: To gain a monopoly on home entertainment.

Nintendo

Hardware Model: Produce units at or below cost (distribute at a profit). Improve efficiency over time to bring down cost further. Quality assurance to production speed ratio: favors quality assurance slightly.

Software Model: Produce a considerable line of first-party software (~40% at launch; drops to ~20% over time) and rely on third parties to supply the rest (~60%, working to ~80%). Software quality is: higher than third parties at launch, slightly higher than third parties over time.

Goals: To disrupt the video game industry and render their competition irrelevant.

Go ahead and post your thoughts, or suggest corrections you think need to be made to the analysis of the models the companies rely on.

The goal is to make money. So far Nintendo is winning by a huge margin in this respect. In fact, Nintendo has had the most profitable year for any video game business unit in the history of video games.

Well at least somebody replied. I happen to agree, but I was interested in particular to hear peoples' thoughts on the process and what's working, what's not working. Maybe an example would help...

The production process being employed by Sony and Microsoft looks more or less the same, and has a flaw that's pretty obvious: the more hardware they make, the more they're losing. They have to make up for it in software sales as a result, which is a bit of a gamble if software sales aren't high enough to offset hardware costs. As such, they're very software-centric, meaning they need a significant volume of available software to make a profit.

Conversely, Nintendo's production model results in simpler hardware which they can offer at a profit, meaning they don't need as heavy a software focus. Their production capabilities, however, are less than Sony or Microsoft, meaning that they cannot produce as many at a time, and of course their production output level is limited by their quality assurance as well. Nintendo is not software-centric, but not hardware-centric either. They will make a profit either way, but aren't banking on software or hardware alone to do it.

Well, the failure of this topic to draw any attention largely confirms my suspicions...

I'll bump this thread.....But, it clearly looks like Nintendo's strategy is working...Over tim, Sony's strategy should begin to work....Microsoft's strategy is well....Just to destroy Sony....

BTW, we all know Nintendo is producing 1.8m a month (maybe more)...But how much are Sony and Microsoft producing? I want to know..

Look the Gamecube was more "successful" than the xbox and right now Ps3 and 360 because it brought in more money than any of these consoles did. It made a profit. PS3 and 360 are starting to profit but they will need to increase by a huge amount just to offset the losses already made. The Wii is the most successful console of all time not because its the one which is most bought but because the profit made by Nintendo because of it. DS as well. They profit on the machines as well as the games.

MS and Sony require large sums of games to be sold to offset the cost of the console which therefore reduces their profitability.

In the end if a company sells 100m consoles but doesn't profit from its endevours then it was a waste in the eyes of shareholders. You need to profit from it and right now Nintendo is the one who is laughing all the way to the bank.

The funny thing is, Nintendo's strategy didn't work before. For two hardware generations in a row, in fact. Certainly they never ended up short for cash, but look at the gross difference in success between N64, GameCube and Wii. Whereas Sony's strategy did work for those same two generations. What can we learn from this?

What I learned from it is that there's more to process than just business model. There's also the product you're applying the model to. In Sony and Microsoft's models, all you need to succeed is a lot of starting capital and no market disruption. In Nintendo's model, the key thing necessary to succeed is the invention of the very disruption that Sony and Microsoft's models abhor. And if you look closely, you can see Nintendo was trying to cause that disruption with the N64 and GameCube too. They didn't work, but the effect is clear.

Take a look at the N64 controller, and how it's designed. You might start to spot some curious similarities to the Wii Remote: two grip styles with one in legacy controller format (middle/right grip or left/right grip; Wiimote can be held vertically or horizontally), a form-factor trigger on the new grip (Z on N64 controller, B on Wiimote), an expansion port for add-ons, and a new control feature (analog and eventually Rumble Pak for N64, motion control and IR camera for Wiimote). When you look at it, the two were aiming at the exact same goal: to disrupt how people played games.

So why didn't the N64 controller work, but the Wii Remote did? Two reasons:

1. The feature that set the N64 controller apart was easily shoehorned onto the old controller style
2. The controller was not user-intuitive

The first point was devestating on its own, because it meant their advantage was not only nullified, but turned into a shortcoming (Sony doubled the analog stick count on the Dual Analog, and then doubled the rumble motor count after the Rumble Pak came out with the DualShock). As for the second point... What's the first question anybody asks when presented with an N64 controller? "How do I hold this?" And if it were user-intuitive, the answer would be "Exactly how you'd think you hold it." That makes no sense for the N64; you'd need a third arm to do that.

The GameCube controller tried something very similar, but it was closer to why the Wii Remote is successful (paradoxically enough, given the GameCube controller is so standard). It rearranged the face buttons in a way that could not readily be replicated on other gamepads. Most games on PlayStation and XBOX platforms rely on the button layout being the standard "4 same-sized face buttons", so switching to a "central button with 3 orbiting buttons" format would not be appreciated. But the problem there was, while it was relatively user-friendly, it was not developer-friendly at all. It was an innovation, in short, that brought nothing truly new to the table.

So let's hear some more theories and ideas on why the plans work and don't work.

While it is the ultimate goal of every business to make money, judging the success of individual endeavours is not usually simple. Most companies make money according to the 80/20 -rule, but getting rid of the 20 does not improve the business, it often does just the opposite.

On another note, when talking about strategy it is important to have an understading of what is meant by strategy. A good overview can be found here: http://home.att.net/~nickols/strategy_definition.htm

We have to understand that we can only observe the strategy of a company from the outside, and surmise what the strategy might be from what we see. We can't really trust the PR statements each company makes about their strategies, as those might just as well be smoke screen to mislead the competitors.

So, taking the aforementioned into account, what Sky Render wrote is what we can see from the outside. Do we know for a fact that the strategic intent of MS is to prevent Sony gaining control of the home entertainment? No, we don't, but it does seem very likely. It is also very likely that they have other strategic intents that are not as easily seen by outsiders. The same goes obviously for Sony and Nintendo as well.

So, why does it seem that MS can't make their plan work? Or Sony? Demanding questions that need some time, and right now I don't have it, unfortunately. But if this thread is remembered, or my opinions cared about, I can get back to the issue when I have time, which will be after roughly three weeks. I do think this is an extremely interesting topic, and also very important in understanding why things have gone the way they have, and what is likely to happen next.

Of course we're only guessing. But it is possible to make educated guesses about the process by looking at the methods on the surface, surmising a theory, and testing that model backwards in time to see if it applies to earlier iterations of the same model. That's how I came to the conclusion that Nintendo has been trying to make a disruptive innovation since at least the N64 (much of their theorized method based on this analysis can be seen in my previous post).

This is a good thread. Too bad I have nothing to really add. Sorry Sky Render.