My career is analysis and problem solving. I am a formally qualified engineer and for the last couple of years have been essentially involved in higher level management consulting. As such i thought i might turn my mind to having a wider look at the forces on the videogame industry. More importantly, where companies have gone wrong leading to the current state of play within the industry.

The first thing i would like to make comment on is that in attempting to analyse sales data from the videogame industry, you have to look far wider than the industry itself. You also need a base level understanding of "group think" or what is essentially mob mentallity, as the products are aimed at mass consumption.

HD displays and formats - This is oft touted as one of the prime strengths of the Xbox360 and PS3. But what is the true effect of HD displays/formats on the mass market? It is easy to see that the mass consumer is trending towards HD displays in the form of either LCD or plasma TVs. So is the market truly moving to HD? For the mass market this is a by proxy "yes". The proxy part comes in the form of what is driving HD sales. The mass consumer does not look at a 42" plasma and initially say"it is 1080p", they look at this display and see a good quality picture, on a screen that is 2-4 times larger than what he previously had, in a form factor that is slim and stylish, for a reasonable price. The fact that the display is HD is part of the decision to buy, but for the mass consumer it is not the overiding factor. Rather it is oft considered an added bonus. So while HD display sales are increasing, it is not primarily due to the HD factor. This leads to a misconception of the applicable market forces, on which other commercial decisions are based, such as HD media formats (BR, HDDVD) and the hardware for these formats (standalone players, consoles). Sony made a larger fundamental error here than microsoft due to their vested intrest in their own proprietary format. Recently it has been recognised that the mass market is yet to really choose a side in the HDDVD v BR format war. Sales of mvoies on either type are nowhere near DVD levels. Rather it appears that the mass consumer is relatively happy with the DVD format and despit owning a HD display, would rather spend money upgrading his player to one that can upscale DVD to 1080p than investing in a whole new format. Remember i am talking of the mass consumer here, not the technophiles whose voices seem so dominant when talking about HD v SD.

Time - This may seem a rather strange market factor, but the time available to your mass consumer today is crucial, especially when talking about an entertainment device. Your average mass consumer today has less time available to them now than they did 20-40 years ago. Time is money is the axiom of the 21st century and people are loathe to waste it. As such the mass consumer focus is on "instant gratification". They want their music now, they want their internet now, they want their enjoyment now, with the effort involved in gratifying this want being minimal. Each market also has varying amounts of time available to them depending on the culture.

Cost - If time is money, and time is valuable, then money must be valuable. Doubt anyone would dispute that money is of general concern to the mass consumer. Needless to say, cost of a product must balance perception of value (not actual value) against cost. the difference between actual and percieved value is exactly that, perception. The mass consumer does not look at the power of the cell, the advantage of 50Gb BR storage, the "future proof" nature of a technologically advanced piece of hardware, the size of the HDD, the improved wireless speeds, the ability to add HD or any other number of specific factors. The mass consumer generalises and then comes up with a percieved value. Would a phone sell better if it was MP3 capable for the same price? Yes, as the percieved value would be greater. Even if the consumer already had a MP3 player, or had no real use for a MP3 player the perception of value would be greater. This has a limit though, as i stated before, as it needs to be balanced against cost. Revolution v evolution also add to mass consumer perceptions of cost v value.

Style - The modern mass consumer is far more style aware. The awarenese being borne predominantly of the current cultural trend of image signifying importance or societal standing. Consumerism and posession are culturally considered bigger indicators of importance and social standing than is money. Not to say that money isn't part of it, as you still need to have the money to consume and possess the goods. However, credit and debt in society are far less frowned upon than they were 20-40 years ago, and far easier to obtain.

This is not an exhaustive list of the market factors. I have specifically left out factors that have been previosuly discussed in other posts such as user base, development costs, production costs, etc. These have been done to death. The broader factors mentioned above from the mass consumer point of view have seen to be overlooked quite often however.

Wii - percieved value v cost is good. The "new way to play" and "novel idea" that is the Wii increase percieved value. The HD display/format factor is considered appropriately in it's use of technology, however this may be good luck more than good planning and analysis. Style and form factor fit with current mass consumer trends. Fails to expand on possibilities that would increase value however. Considers the time factor by addressing the instant gratification that the casual audience is looking for, but also runs the risk of alienating the  established audience.

PS3 - Pushes a format that the mass consumer is not ready to adopt. The "push" of the format makes the mass consumer standoffish. Cost v percieved value is poor due again to the misinterpretation of the market adoption of HD display types, which ties into new HD format. Cost v Value also suffers from similarity to other products that have a higher percieved value such as a PC. Time factor alienates a wider audience as games tend to be "hardcore" and require a more devoted effort for full enjoyment. Style suffers due to size more than form factor. Over time the products appeal will increase as the above factors shift, but the horse may have bolted by then.

Xbox360 - Cost v Value is fair and reasonable, but reported failure rates tarnish this. Percieved value through large library of games is good, but limited due primarily to the genre focus of the titles. HD factor is well balnced. Appears to understand the HD market trend the best. That is that it is becoming the new standard but is not yet purchased based on the new standard. Time factor suffers in the same way as PS3. Stle factor is moderate, but suffers again in the same way as PS3.

DS - Time is the DS's major advantage. Especially in japan. You can gratify your want/need almost instantly, and very quickly just about anywhere, espcially given the nature of the games made for it. HD display/format factor is again understood on a technical basis when applied to the handheld market. Cost v value is again well understood, but suffers from poor development of possibilities that would improve this. Style is demonstrated by the growth in sales from DS to DS Lite.

PSP - Suffers in a similar way as does Xbox360 when compared to Wii (DS v PSP). Multifunctionality means all elements suffer in same shape thus reducing perception of value to cost. (yes it does internet, MP3, video, games etc, but a solo MP3 player is much smaller for example. Cramming everything in reduced the "portable" appearance of the device.) Time suffers based on games catalogue, especially during the era of PS2 to PSP ports. Style is good, but againn suffers in a similar way as PS3. Looks good, but too big.

This is my broad and VERY VERY SIMPLISTIC analysis of why sales can be seen to be the way they currently are. Hopefully the basics of the point are conveyed however. Finally, i hope that the videogame fanboys (don't care what console you back) realise that the industry is not it's own microcosm. The attitude of the market in general, and not just to videogames has to be understood. The only one who this generation appears to have understood it is nintendo. That is not to say that they have not stepped a foot wrong. This analysis is also with the benefit of hindsight. 

wow



damn man, thats pretty good

hmm pretty good, nice to see you are unbiased by putting both positives and negatives.

Some good points, here's my own take: 

1. BLuRay is not a proprietary Sony technology. Sony is part of a BluRay consortium which includes Samsung, Denon, Philips, Hitachi and a couple other heavyweights. In terms of price, BluRay and HDDVD are almost the same. Technically, however, BluRay's smaller wavelength means it has much greater long-term storage potential. It's hard to imagine consumers suddenly switching to a smaller storage media.

2. The PS3 is not meant to be a mass consumer item. Sony is still selling millions of PS2s and doesn't want to kill the golden goose. Ergo, they introduced the PS3 for tech-savvy users and early adopters. Sometime next year, though, the price of the PS3 will drop to $299, and then it will become a mass market item.

3. The 360 lacks a built-in next-gen storage device. This is a crucial weakness for a console which is supposed to have a six to ten year life-cycle. I'm not sure what Microsoft was thinking - as a PC company, they should've known that you can never have too much storage.

4. It's hard to compare the DS and PSP - they're very different products, aimed at different audiences. The PSP is designed to be a web-capable multimedia center, while the DS is built around stylus input. Both were designed to maximize different styles of game-play.  

Great analysis - and welcome to this site :)
Looking forward to you posting future articles!

I like what I read I think style play a bigger role then you wrote but then again you said it was a very very simple analysis. I wanted to ask if a system has a very balance time style and cost will it always be the winner in every situation.

Good analysis, thank you. One note I want to add: As the cell seems to be a good real value, it isn't necessarily. Hardware is only as good as the software that takes advantage of it. The real value of a game console is very dependant on the games released. That is a problem for the PS3 at the moment, it may change with the release of Home, MGS4 and FF13 (we will see).

Very good analysis. Damn i wanna work as an analyst :P.

@ slorgnet

quit with the whole "PS3 is not a mass market device". That has to be one of the dumbest statements on this site!!

As i said at the end, this is a VERY VERY simplsitic analysis. There are other facets which i failed to mention as i wanted to get the main part out there to start with. I will make one addition however.

Multifunctionality - This is a dual edge sword in terms of mass market. Mutifunctionality can be used to add percieved value to a product, for very little cost. Mobile phones are the ideal example. A lot of people buy a phone based on mutifunctional features (camera, MP3 player, USB mass storage, etc) and then still buy standalone products such as digital cameras, MP3 players, etc. In the mobile phone market this value adding mentality works well. However, as i said before, there is a dual edge to this sword. That dual edge is comprimise. Multifunctionality works well in mobile phones because rarely does the base purpose for the product suffer due to the added functions. However, the added functions are often not as capable because they have essentially been crammed into the device. Multifunctionality works against you when your base product suffers too much due to the added functions, or the added functions appear pointless.

Nintendo - blatantly do not adopt any multifunctionality in their base products, but oft allow add-ons. This policy has hurt them in the current videogame market. Agree that just about everyone has a DVD player now, so having a DVD player in the Wii isn't necessary, however it would have added to the percieved value of the product. Perception of value is a key mass consumer requirement.

Microsoft - Have had a half baked attempt at multifunctionality through the HDDVD add-on drive. May have been better to have a DVD drive that was capable through firmware upgrade to HDDVD playback. This could then be purchased. Flow  on from that would be that half way through the life cycle it HDDVD playback for gaming content could be enabled to increase game storage capacity.

Sony - Go too far with multifunctionality and fall on the worng side of the sword. HiFi stores tout the PS3 as a BR cheaper player, games stores tout it as a powerful gaming device. The use of BR made the gaming device expensive for the gaming device suffered for the inclusion of a BR player. The BR player suffered for the fact that it was built on a gaming device. The added value negates itself as each end suffers. Mutifunctionality for Sony has however succeeded in terms of generating a larger BR user base than HDDVD, making appear more commercially viable as a HD format.

 @ Mnementh - very true about software. Specifically did not discuss this as there are a number of other threads that already discuss this. This analysis was looking to extend the view beyond just the videogame industry microcosm and look at the wider consumer market of which the games industry is part of a competing for your consumer dollars.

@ allstar35 - Having good balance amongst all the factors does not make your product a "winner" every time. the term "winner" is open to any number of interpretations, such as market leader, most sales, most profits, etc. I think that a better way of looking at it is success in the mass consumer market. Where success is essentially generation of profit for the company (and this profit doesn't need to be necessarily money, good will is also a form of profit, as is brand recognition. The non monetary profit from a product generates investor intrest and general investment, so profit by proxy)

@slorgnet - Yes, sony is part of the wider consortium, was keeping things generic and simple though. Sony does however stand to gain a lot from BR as opposed to hardware or media only companies as it has a hand in both camps. I also actually agree that BR is a better media format. However i will post again to discuss that as this post is already getting too long. I agree that the initial release phase of the PS3 is not mass consumer oriented. However i do not feel that this is through good management that this situation has arisen. Microsoft has been reasonably savvy so far. I both agree and disagree with your point on microsoft. If the Wii with DVD sized content becomes the new market baseline this generation then microsoft loses nothing, as it still hold technical superiority over the Wii. However they have restricted the Xbox in terms of future development. In the end its all a trade off on the keep cost low, produce technically superior product principal.

Finally it must be remembered that all this is said with the benefit of hindsight. Hindsight is a huge factor in any analysis, and this is a simple analysis that is aiming to build on others dicussed on the forums here such a software catalogue, publicity and advertising for the products, etc, media releases, development costs, etc. 

J_J2000, is the PS3 not meant for the wider consumer market then? When speaking of market orientation, it's suicide to release a product such as a video game console, when you plan to reach a very limited user base. What is there to gain for Sony later on if they can't achieve any success right now? Because i doubt that Sony will bring console production costs to such a minimal level which will give them profit on hardware (within the next year). At this rate very little 3rd party devs will want to create games for Sony due to the lack of userbase. What's your stance on this?