Wii has not increasd the number of people buying home consoles, mostly correct (10% are new buyers).

Sony is not going to expand the market with a $500 console (that cost 600 to play, once you buy the right cables and a game). They can't lower the price anymore right now because they will face more losses. It doesn't do anygood for them to sell 100mil consoles and lose $10 billion ((-100/console)*10^6). That would not be made back. So they should keep the price high, sell into early '09 at 450-500 and possibly make money than as more people adopt to own HD TV's and production cost go down you lower the price, there will also be a big library to entice people by then.

Sony and MS are not going to "win" this gen, unless it stretches past five years. If they suffer 10 digit losses this gen both companies should eliminate their gaming divisions and fire the all of the top executives. Their best option is to do what Nintendo did during the N64 and GCN days, keep first party software and accessories expensive and top quality to tap into their niche and generate profit with out being the market leader. Basic business: Not at the top of your market, two ways to make a profit 1. Qulaity Niche (stated above) and 2. Mass Market.

HD Video Game consoles are not mass market so #2 is the only option. This model applies to Electronics (Coby (model 2), Bose (1)) , PCs (Alienware (1), Acer (2)) , Auto Makers (Luxury Brands (1), Kia-Hyundai (2)), Food (Dr. Browns or Jones (1), Store Brand-Manufacturers (2). For some reason game companies think that they can ignore basic business principles, and they lose money because of it. Sony has to face reality and adapt quickly to make a profit not being the leader. MS needs to get their act together and take advantage of their lead and lower price.

(EDIT: Innovating is good as long as it is done with in the structure of a good business.  Nintendo innovated with the Wii and DS, and kept grounded during this time.  They make a profit off of every console, every peripheral, marketed strongly and intelligently, and maintained customer satisfaction.  MS has done terrific marketing and has an innovative network, but customers are unhappy with hardware performance and potential customers are afraid to buy.  Sony has not innovated yet (six-axis is poorly implimented), the marketing is horrible (crying babies, rubik's cubes, off-beat featurettes that don't mention the PS3), but the public percieves that the hardware is reliable.  MS and Sony both built their business around being the Market Leader, unfortunately at least one (both?) will not be the leader and lose lots of money.

in all Seriousness for blue ray to win that "war" and the ps3 to win the console "war" they just have to do one thing"


get a ps3 sku w/blue ray out on the market for under 300 dollars.

Great article, and a nice find TheSource. I wanted to comment on a point raised by Bodhesatva (comparing Sony's business to a luxury model automobile company) and steven787 above. The problem with this comparison is that the business model for both Sony and Microsoft is predicated upon being the market leader; the PS3 and 360 are both sold at an initial loss and expect to make back that loss with software licensing. This model only works when their product becomes a runaway success, in the vein of the PS2; any other scenario just sees both companies take massive losses. Comparing these companies to Ferraris or Alienware PCs doesn't make sense, because both of those high-end businesses are specifically catered to service a niche market. That's why your Alienware PC costs $5000 - they have to turn a profit on the very small number of units being moved. Now the PS3 could be reinvented as a niche product, in theory at least, but that would require raising the price to something like $800 and accepting drastically smaller sales. Few units moved, with a small profit as the payoff. Can you honestly see that happening? Everything about the PS3 (and 360, to a lesser extent) was design upon the assumption that it would be a mass-market product. You can't suddenly reinvent your product this late in the design cycle. That's why these comparisons simply don't work.

I also found that quote from EA to be extremely interesting. Here's the line again, for repeated emphasis:

“We’ve become a niche,” Riccitiello told the Times. “Eighty, 90 percent of the resources that are put into play by us and most of our competition are in building sequels of games that super-serve teenage boys with fast thumbs.”

EA's revenues have been completely stagnant for the past four years; they've essentially seen zero revenue growth while their costs (especially R&D) have steadily been rising. Meanwhile, the company continues to churn out sequel after sequel, appealing to the same core demographic of fans. I think that EA's situation reflects that of the gaming industry in microcosm. Core gamers might be happy, but there's not much growth taking place outside of them, and innovation has been in serious decline for some time now. It reminds me in a way of the flight simulator genre that was so prevalent on the PC in the 1980s; as the games grew more and more complicated, they continued to cater to a dwindling niche audience, until the market for such games collapsed entirely. That's why the Wii (and DS) have been so good for the industry as a whole; NorthStar may hate the Wii, but there are 10 new or relapsed gamers coming back into the fold for every disgruntled gamer like him. I expect there will be many young males who seem angry that an industry that has done nothing but cater to them is realizing that they are only a small minority of the potential market.

Perhaps what's most significant is that EA (and other third parties) are well aware of these facts, and changing the direction of their companies to match them. Food for thought.

Ratatouille.

I think the movie analogy is a decent one, but I don't think that the silent/talkie example is a good one. I mean that was really a "zOMG we have to have this!" kind of thing, even if it did take a while for the industry to shift over completely. A better example might be B&W/color films. Color is much more versatile and obviously took over the market, but there are some good points to B&W as well, and it is still in use as recently as 2005 ("Good Night, and Good Luck.") as a stylistic choice. And then there's Pleasantville.

[edit: A better example still is CGI. Not every movie needs CGI, just like not every game benefits from motion controls. But they are both absolutely here to stay, and anyone who can't use CGI in movies or motion sensing in games is much more limited in the experience he is capable of giving to his audience -- depending on what he is trying to do.]

But the Forbes article is a transparent attempt to graft old ideas onto a market alien to the author.

Option #1 would be a lot tougher than the first time they copied Nintendo's new, innovative controller (Dual Shock). This one is not impossible, but very unlikely and difficult.

Option #2 is simply idiotic, as other users have said. This strategy would fail like the 32X. This option is the chief reason I am attacking this article.

Option #3 is alternately vague and highly unrealistic. The article seems to focus on putting new hardware on the market, and I highly doubt the author realizes how time-consuming, damaging, and costly that would be. The "new handheld" 'idea' is just hilarious.

The entire Forbes article is worthless because it focuses on Sony implementing a HARDWARE remedy when a SOFTWARE solution is the only practical one.

Overall, I think that Sony needs to play to their strengths, while taking cues from Nintendo as to what gamers want. By strengths I mean, yes, hardware capability, but also their PSN, the relatively large standard HDD, etc. I think that LittleBigPlanet is a sign that Sony may be doing just that. LBP is a very beautiful game with realistic graphics (albeit in a fantasylike setting) which is designed for people to share their creations online and play with others on PSN. The maps can be downloaded onto the HDD that EVERY PS3 has. A game like that will not be possible on XB360 until MS admits that Core is crippled and stops forcing games to be Core-compatible. (If they have already done this I am sorry, I am unaware of that.) Of course, MGS4 and FF13 won't hurt.

Rol made this point earlier, Sullla, and I actually have made this point as well, as I'm sure you're aware, in previous posts. I'm not suggesting that MS and Sony's current business model is appropriate, although I can see that's what I implied. Instead, what I'm suggesting is that they could continue to go more and more upscale, and make a profit off the technophile market, rather than try to be the everyman console. This would definitely require Sony to stop using a loss-leading strategy in the market. Nintendo managed to make healthy profits off a comparatively small user base for a long time, and I can imagine Sony doing the same, if they change their marketing strategy to suit.

To phrase this in a (hopefully) more clear fashion: instead attempting to copy or innovate in order to compete with Nintendo as the mass market console, Sony could accept the position of technophile niche, and carve out a smaller but still profitable space for themselves. 

Regardless, excellent post as always, Sullla.

@Final-Fan: I deal with advisors at my Job, and they suck. Like I said in my earlier post you have to remember business fundamentals. Than you can innovate and change within those parameters. Thinking outside box is always wrongly applied. Thinking outside the box originated in logistics, ways to change old methods with then new technologies. It is meant to encourage people to not be afraid of change and to be open to new ideas. These companies and advisors think of completely unsound ideas, but because of office politics and excitement of new things. But they are obviously bad decisions.

I am sure these lines sounded great in the board room
"4D"
"People will save up to buy it"
"599 is a great deal"
"Hey, let's sell it at a loss, I am sure we will make it back on Bravia and Bluray sales."

You get the point.

 So you suggest the path of greatest floppage

I think the point of this article is that Nintendo has been able to attract new gamers with this disruptive approach. You could reduce the cost of the PS3 to the level of the Wii or even lower and it still might not appeal to some of the gamers that Nintendo has found. This sets the stage for some serious innovation next generation.

Fantastic article, and it's good to come up with some ideas, the problem that they have to solve is how to disrupt the disrupter, which is the hardest thing and none of these ideas will cut it. Unfortunately Sony wrote off Nintendo when they unveiled the Wii and claimed they've lost their mind and that they will not appeal to many people etc etc.

The same comments were made about the DS being a 'gimmick', the similar comment about Wii was that it was a 'fad' they just don't get it and think that it's going to disappear, they can't pro-actively do anything because the entire company is still set in the 'we're the best we won two generations - when *insert game name here* comes out things will start going in our favour' I can gaurantee that is what a lot of high ups at Sony might think.

That might be enough to trounce the 360 but it's not enough to stop the Wii, if anything they might start selling at 1/2 or 2/3 of what Nintendo is selling, but I can't see PS3 out-selling Wii for any extended period of time for this entire generation.

It's funny how PS3 fans STILL can't seem to grasp the situation and what is going on in the games industry.

 They are whoopin 360s ass world wide, yep floopage.