IMO SONY needs a powerful machine for PS4 -- but one that takes advantage of PS3's current design.

The biggest upgrades for next-gen are going to be WiFi speed (802.11g to 802.11n), RAM (4gb - 8gb ) and Drive Speed (2x blu-ray to 16x blu-ray).

To add to that if SONY ends up designs a good OS that manages to provide a unified and standardized experience then PS4 will be an excellent console, considering that SONY should be aiming to launch PS4 @ $399 or $449 at the most...

Making a powerful console is not the issue. Kutaragi designed the PS3 with no regards to cost and with no regards to developers. He made no effort in keeping costs down during the systems development and that lead to the PS3's insane launch price and manufacturing cost.

If Sony gets back to the philosophy that made them successful with the PS1, not only will they make more money but they will have powerful console that is easy to develop for and is reasonably priced. The Gamecube was cheaper to manufacture than either the PS2 or X-box, was more poweful than the PS2 and could go toe to toe with the X-box. Nintendo made it a point to consider the cost to the end user and it allowed to come out with a powerful and yet inexpensive console. Sony did something similar with the PS1.

Kutaragi started to get out of hand with the PS2 and with Sony promoting him to company president, there was no one to reel him in and let him know that launching a console at $600 would jeopardize their market share. If Sony launched a system that was equal to the 360 at a the same price point, the PS3 would most likely be in second place right now and that would have removed most of MS's leverage when it comes to money hats.

I think the PS4 will be the most powerful console on the market when released, Cell based and coming with PS3 compatibility out of the box (as well as PS1 and PS2), but will be far less costly to make as for instance Blu-Ray technology will be cheap by then. It will probably have Home pre-installed, so users after signing into their user profile (including trophies) can directly make use of their customized character and customized private space.

A much smoother transition from PS3 to PS4, than it was from PS2 to PS3.

I think a lot will depend on where PS3 / 360 and Wii are towards the end of their lifecycle. Sure it'll be more powerful, but will it be a massive jump or something less costly?

I also think Sony will probably avoid (if they can) the expense of the PS3 and the amount of engineering lead design going forward. While I dislike the build quality of 360 vs the Wii / PS3 if there is one thing MS did well it was to look to build something that suited developers.

I seem to remember Sony recently hinted they felt in retrospect the PS3 was too lead by tech decisions and did not have enough balance from SW design principles.

Of course after PS1 / PS2 you can understand why Sony felt they could just produce the tech and leave developers to sink or swim, but of course the 360 had enough marketshare by PS3 launch plus developer mindshare that Sony's expectations fell flat.
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Next gen, Sony should start focusing on BUYING their exclusives back. Screw earning. To be honest, I wouldn't mind if they gave the PS4 all the capabilities of a PS3, with a different design, a reasonable price, and the name "Playstation 4" slapped on it. (You get what I'm saying) PS3 is powerful enough as it is. Does its predecessor really need to make the same jump that PS3 made from PS2? I'd rather play the games I was promised. But I'll admit that Blu-Ray is REALLY nice.

I htink ps3 should make a killing machine, but at the same time a way simpler console, that could be upgraded to reach the killing machine. That way they could sell thet top to people who were disposed to pay maybe $800 for it, but also a 400 or maybe 350 to those who don´t want or need such a powerful machine rigth now. With retrocompatibility in all systems, of course. One of the big problems of the ps3 was its price and the retro thing, in my opinion.
The option af a ugradable system istead of a finished one wouldn´t condemn the buyers of the lesser system to have a lesser system till the end of the gen.

I agree with most of what you said, and I do believe that they will stick with a CPU based on the Cell processor and a Blu-Ray drive. The thing I don't really know about is whether Sony will produce "The most powerful console on the market" ...

I personally believe that Sony and Microsoft are both going to take a look at their current strategy and are going to realize that people are only willing to pay so much for a console, and taking a massive loss to produce more powerful hardware does not increase the sales of the system; as a consequence of this, they will take advantage of newer technology to produce a more powerful system but their main focus will be on producing an affordable system that isn't sold at a large loss.

In contrast, I see Nintendo comming to the conclusion that the uniqueness of the Wiimote allowed them to sell so well (and attract third party publishers) in spite of the lower performance of the Wii. In the next generation they will not be in a position where they have such a unique user-interface and will be forced to produce a system which is more competitive in terms of processing power.

Who ends up haivng the "most powerful console" will (in my opinion) depend on how far each of the console manufacturers go in their new direction. It is entirely possible (although unlikely) that Sony would decide to take the exact same approach Nintendo took with the Wii and release a system that is 2 to 4 times as powerful as the PS3 that comes with an upgraded Wiimote; at the same time it is possible (although unlikely) that Nintendo would release a system which is much closer to the limits of what is possible when they release their next console, which could be 8 to 16 times as powerful as the PS3 or XBox 360.

the problem with this is that most people define the nex gen as hardware only, they think the machine needs to be more powerful...they have bluray and they will have to stick with it, the processor can be replaced and the ram can be upgraded but that is about it, they wont be able to do much more b/c right now its able to put out graphics that are almost real, pushes the boundaries of the uncanny valley...what they needs to focus on is game immersion and taking the player further into the game world ....the experience is what they need to up not the hardware

also the price needs to ht launch at or around 399 anything more and they will have a repeat of this gens horrible launch...no matter what you hype no one is going to pay more then that in mass amounts..

they tried to play off of the brand loyalty and it got them no where and it wont work next time either

I never realized that more RAM could be installed via firmware.

PS3, winning the battle through firmware!

...

Wait. You realize that both the Wii and 360 also update their firmware on a continual basis, right?

Well, this is about all I think about the matter... Also I am quite sure that nintendos success will shape all consoles in next gen somehow.

@HappySqurriel

They really can't just use multiple CELLs in PS4 and if they are going to make new one that is based on CELL, it would cost quite nicely(again). Of course it would be easy to reuse code that was used with PS3, but still it would introduce even greater problems for new developers.