Just thought I would point out that there hasn't REALLY been a price cut to the PS3. What we have right now is a 'clearance sale' marked as a price cut.

This has probably been banded around for a while, but I was thinking about this today and wanted to share my thoughts...

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b) What Sony should have done: Launch the PS3 at $999 US (maybe with 1 game + 1/2 controllers + HDMI cable?)

Sony would have made a good amount of money per unit. Every unit sold MAKES them money - rather than losing it.

Initial sales would have still been strong. PS fans would easily still spend $1kUS on a PS3. It doesn't matter that sales would be lower - Sony is making lots of cash, and they can ramp up production slowly as needed.

Gives an impression to consumers that the PS3 is really something special - and that owning one is something special. At the current price point, it feels like a 360 - with a BluRay drive (regardless if this is almost what it is).

This also gives Sony LOTS of room to move on the price point. They can drop the price at will - and regularly. And rather than finding themselves in a position where their LOSS increases each time they drop the price - they can keep their profit margin, gather lots of positive press (each time the price was dropped) and boost sales each time.

This also falls more into line with their strategy of a "10 year" timeframe - and their "quality console" push.

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The main danger I can see, is few other companies would support the PS3 software-wise at this price. Sony would have to initially drive software themselves (not a bad thing - with some quality titles), but it would also give companies a couple of years to develop a "quality" PS3 title.

If Sony had taken option#2 - they would be further behind in terms of WW sales - but they would be racking up a significant profit (say 2m sold --> 500m profit, rather than 600-700m loss). 

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Thoughts? Should Sony have considered this approach, rather than undercutting themselves as they have? (Consider they still have the PS2 selling well - as a low cost alternative to the PS3)

Ahh well - like I said, it was a thought. And I don't think it would be as bad as you all make out.

There would have been 2 - maybe 3 - price drops by now - and I think sales would have reached 2m.

The price cuts, if any, would have been to maybe $800 or $700. Still too pricey, and setting a bad precedent for the market. People see quick, successive price cuts as a panic move, and it instills consumer uncertainty. People would be hesitant to buy a PS3 because it might have another cut tomorrow.

And while I think your 2m user base is much too high, it is still just over half what it is now. 3Ps are distraught over the current base; cut that in half and they'd be out right pissed. Sony lived and died by 3Ps the last two generations, and 3Ps don't give a damn if the console is making a profit for Sony or not. Plus Sony itself makes more of its revenue off game sales than hardware - cut the user base, cut the 3P support, and game sales evaporate. And that would further diminish what little demand there is for the system.

Lastly, look at the impact this would have on BluRay. The one unqualified success the PS3 has had is that it automatically boosted the base of BR and gave it an edge over HDDVD, which is why BR movies are outselling HD nearly 2:1 and most analysts are calling for HDDVD to toss in the towel. Cut out 1-2m PS3 owners, and the ratio of BR:HD owners, and thus software sales, is pretty much back to 1:1.

Everyone would be laughing a lot HARDER at Sony than they are now - except for the shareholders, with Sony 1bn better off.

I don't know about everyone, but I would sure be laughing harder.

If Sony's tactic is selling MORE hardware, and making money off software - why isn't the console cheaper? Surely their current position not only doesn't let them sell much software, it makes them a loss - and makes them non-competitive versus the competition.

Razor blade companies sell the razors at a loss, and make it up in blade sales. Doesn't mean they give the things away for free.

Sony has people in expensive suits with high salaries, huge amounts of sales data and forcasts figure out what is the ideal price for a product. In something like this, there is going to be a debate over long term vs short term profits. For game consoles, the long term profit of a successful system is well worth a modest short term hit. Cutting the price even more is

 This is Nintendo's strategy.

Absolutely not. The Wii sells at a profit because it lacks true HD and surround sound, lacks basic DVD playback let alone BluRay, and generally cuts corners on the tech. They make up for it by emphasizing the gameplay over the specs.That allows them to offer the console for cheap and still make a profit.  You cannot borrow Nintendo's financial model without also taking their design model, and that would have resulted in a dramatically different PS3.

Sony's is to "create a kick-butt piece of hardware", "that lasts 10years+" and "dominates the competition in the long term" - "creating a profit for the company". Problem is, they aren't doing any of this at the moment. Sort of stuck in the middle (just like the GC was last gen).

Not sure how any of this is like the GCN last gen. The GCN was arguably as powerful as the XBox, certainly more powerful than the PS2, and they offered it for a lower price and supposedly lost less money on consoles sold than their competition. What killed the Cube was not what is killing the PS3. The Cube was killed by marketing. You do not combat a perception of being a "kiddie company" with a purple lunchpail and letting your competitors play "whack-a-cube" with misleading console statistics. What is killing the PS3 is it's insistance on going after the hi-tech crowd, with a feature laden console that costs an arm or a leg (depending on the model).

The iPhone is what, $599US? And its selling like hotcakes? The N95 (Nokia) costs about $1k US? Surely Sony should be "positioning" the PS3 to be superior pieces of hardware than either of these?

Because these are selling to businessmen who make much more money than the average person, and are not even close to representing the gaming audience.

What would a console *need* to have in it, for you to consider a purchase - at $999US? What about something like the MS surface - would you buy one of those "as a console" (assuming it was) if it was priced at $999?

Timmah! said:

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Ferraris are cool and can kick a Toyota's butt, but Toyotas still sell better.

So why is Sony trying to sell and market a Ferrari?

The analogy actually doesn't work - because the cost of consoles (electronics) drops considerably over time.

I picked up a PS2 on day 1 - for $1kAU - and never felt ripped off (it also included extra 3years warranty). Sure I could have picked it up for $600 about 6 months later - but that's my problem. I was willing to spend the money, to get the best - on day#1.

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Ok - no one agrees (no great surprise ;). Funny, I didn't think selling hardware to consumers for a PROFIT was such an insane idea.