I'm going to post a portion of my last post (which I just cut out) because I think it's a fairly sophisticated point that needs to be taken on its own. Here it is:

Video games aren't like other markets -- for example, toaster production -- where you can break in to it by simply making a cheaper and/or more reliable product. For toasters, it's competely irrelevant if your best friend happens to have the same toaster brand as you. But that's not true for gaming hardware! If your friend has a different video game system, often times you will not be able to play together, and that's a big problem. Just as with PCs, you need to both use Windows in order to share word processing documents, and so forth.

Let me put this simply: if I'm buying a toaster, "Toaster Brand A" is no more valuable to me than "Toaster Brand B," regardless of what anyone else owns, because I the toaster functions in precisely the same manner whether my friends are with me or not. But video games are a communal experience. In video games, if "System Brand A" is owned by all my friends, that system is automatically more valuable to me than "System Brand B," because I want to play with my friends. That's absolutely crucial to keep in mind. In effect, gaming systems -- like PCs -- are designed for monopolies. Any market where something becomes more valuable as it becomes owned by more people is simply always, always always going to tend towards monopoly over time. A system is owned by more people, so it becomes more valuable to more people (who want to play with their friends), so it catches on with more people, so it becomes more valuable... and so forth. 

This is precisely why PCs, despite being considered less user friendly than Macs, remain more valuable (and thus more purchased) to most people. User friendliness is absolutely very valuable as the iPod proves; but nothing adds value to a product like being able to play it with more of your friends than the competing products. 

But what if I don't like toast? What if I'm not into breakfast at all? And I might have friends that don't like Toast either. They say toast is too cruchy. They prefer waffles. It's a good thing I got me a waffle maker so my friend can come over and have waffles!

There should be no reason for the overall market to shrink if one platform were to become dominant. If it can do everything the other systems can, why would shrink? (I'm aware that this isn't true right now in this generation, but the Wii really is an aberation). It would just mean everyone buys one system instead of splitting up and buying 3. The only thing that would shrink would be total systems sold (due to some people buying multiple systems), but there would really be the same number of users and presumably the same amount of software developed and sold.

Nintendo was right in assuming that the only way to break Sony's burgeoning monopoly (which was supported by a great deal more economic muscle, since Sony was previously both a larger and more profitable company) was to make something distinct and different, and hope that it caught on. It did. Now, Sony and Microsoft are battling over the same market, and both are losing tons of money; simultaneously, almost every major third party developer is either seeing its profits shrink or they're actually losing money. The Wii effectively broke up Sony's monopoly in the last few years before it became effectively unbreakable, like MS's Windows monopoly has been. Yamauchi, Nintendo's previous CEO, even openly stated that if the Wii and DS didn't perform well, Nintendo was probably finished.

The PC certainly USED to be a platform in and of itself, but that's not the case any longer. Think about this: if a PS3 had word processing, what everyday function would a PC serve for you that a PS3 DOES NOT? Sure, for business purposes PCs aren't going anywhere, but for everyday people, music, movies, internet browsing, games, photos, and word processing are 90 percent of a PC's purpose. These platforms are definitely converging, and its precisely why MS entered the video game market. 

In the sandbox genre, I think Disaster may help a lot, and a GTA game for Rockstar will open many doors. GTA sells everywhere, even on a portable where it isn`t suppossed to work well.

That's totally silly, I'm sure you know! Obviously, if you don't like toast very much, you won't buy a toaster, just as someone who doesn't like video games won't buy video game systems at all. Also, a toaster can make frozen waffles

The hypothesis was: what happens if two people actually want to buy toasters (which is directly comparable to two people who actually want to buy video game systems)? It is completely irrelevant to me if person A buys toaser A. In contrast, it is very important to me if person A (and B and C... and Z) buy console A, because then I can play games with them and, moreover, more games are likely to be made for console A. 

I truly believe that people want an experience that they feel speaks to them. This is why Xbox was able to enter the market last gen. Xbox appealed to the gamers taht are hardcore (not hardcore gamers). Xbox was a system that you wouldn't have to feel embarassed about playing. I think as long as companies know how to cater their image to the individual (a theoretical oxymoron of course) there will be multiple companies.

Something else to consider about monopolies and consoles.

No console maker has ever won three successive generations. Nintendo (if they are up) will fall. This I guarantee. Maybe not this generation, maybe not next. But the next next.

And of multiple toaster households?  Do those not exist?  Especially if the price point is low enough.  This I believe is a lesson that will be learned by all (At least I hope).  A console wants to be sold at less than 299.  Imagine how different this race would be if either of the companies had that price point (for the premium model....no one buys a crap model).

Game Boy

Game Boy Advance

DS 

I'm sure the horse is dead. Beaten by a waffle maker and toaster/frozen waffle maker. Good discussion bodhe, thanks.

Good point Final...however, I think there is a distinction between handheld and console if I'm not mistaken.  (Pardoned by a technicality......phew!)