Game Console Wars 2006 – three companies, two strategies
This
battle has not yet begun. Both Sony and Microsoft have experienced
significant start-up problems, so none of the systems are currently
available at retail.
The Xbox 360’s scarcity
The Xbox 360
launched on November 22nd, 2005. Microsoft spent about $100
million promoting the product, to good effect -- PR firm Schneider &
Associates found in its annual survey of most memorable product launches
that the Xbox 360 was one of the top two most memorable launches of
2005.
Unfortunately,
Microsoft hasn’t been able to produce enough consoles to meet the
demand.
"[Microsoft] created demand for 5
million [units] and they delivered 607,000 …”
Michael Pachter, an analyst at Wedbush Morgan Securities, in The New
York Times, Feb. 06
Production of
the Xbox 360 has been slowed by persistent component shortages.
Microsoft won’t specify which components are causing the problem -- the
device has more than 1700 components supplied by over 200 manufacturers.
As a result, the
product is currently unavailable at retail. If you want to buy one, you
can pay 20-40% above list price on eBay.
Sony delays the launch of
Playstation 3
On 15 March,
Sony announced that it was delaying the launch of its competing game
console, the Playstation 3, by about six months, from April to
November. Ken Kutaragi, the head of Sony’s Game Division, said the
delays were caused by problems in developing copyright protection
technology for Sony’s new Blu-ray DVD format.
Like the Xbox
360, the Playstation 3 will be packed with technology. A Blu-ray DVD
player will be included, as will a 60 gigabyte hard drive, wireless
connectivity to other Sony devices, and a camera. The Cell processing
chip at the core of the console, jointly developed with IBM and Toshiba,
is capable of processing at speeds more than twenty times faster than
its predecessor.
A “Red-Ocean” battle of the giants
Sony and
Microsoft are pursuing similar strategies in their new consoles. As
Reggie Fils-Aime, Exec VP of Sales and Marketing for Nintendo, noted in
February:
Microsoft is … trying to get you to
put a PC in your living room because they are fundamentally a PC
software company. Sony is trying to get you to put an entertainment hub
that has Blu-ray technology because that’s important to their movie
business and the rest of their entire electronics business.
Reggie Fils Aime, Interviewed by Peter Rojas, Engadget.com, 20 Feb 06
Both companies
are pursuing “Trojan horse” strategies – they sell their consoles at a
loss with the hope of making profits by selling additional products and
services that use these consoles over the next several years.
The Industry’s Stalled Growth
In the meantime,
growth in videogame consoles has stalled. US revenue in the industry
overall grew about six percent from 2004 to 2005, due to strong growth
in handhelds, like the Nintendo DS. But sales of videogame consoles
declined by 12 percent, according to market researcher NPD.
And sales of
videogame software for those consoles declined as well, by six percent.
Electronic Arts, the market leader in videogame publishing, has warned
that its sales will fall below expectations in 2006. At the end of
January, the company laid off about 5 percent of its workforce.
Many analysts
expect this kind of slow performance in a “transition period” between
game systems. Consumers are reluctant to buy new games or hardware
when a new generation console is on the horizon.
Nintendo’s
management sees the problem as a more profound one -- the videogame
industry has not expanded beyond its core market of boys and young
men.
“This industry can no longer rely
simply on more and more young men coming of age to try gaming, and being
in the … “ten to twenty year old” demographic. The fact is that that
demographic is shrinking and the next cohort, their younger brothers, is
even smaller.”
Reggie Fils-Aime, Feb 06
Nintendo’s Revolution
Nintendo’s new Revolution game system will probably launch in June
2006. The company acknowledges that it will not be as technology-laden
as either Microsoft’s or Sony’s offerings. While Sony and Microsoft
consoles are designed to be multi-functional entertainment hubs,
Nintendo’s Revolution will focus on game play, with a newly designed
wireless controller that contains motion sensors.
Nintendo
hopes that the Revolution will enable it to expand the appeal of its
videogames to new customers who currently don’t own any system at all.
The
console wars of 2006 will offer two competing strategies across three
companies. But these battles haven’t started yet -- both Microsoft and
Sony must first overcome the technical and logistical problems that are
plaguing their sophisticated systems.
More Information:
1.
The New York
Times
story on
videogame sales lagging was from 6 Feb 06.
2.
The Business Week article on
Sony’s delay of its PS 3 system ran on 16 March 06.
3.
The interview with Reggie Fils-Aime was posted on 20 Feb 06 and comes
from the
engadget blog.
4.
I
wrote about Microsofts’ Xbox 360 in an
ICE Update from May 05.
5.
I
also did an Update in Sept 04 on
the previous round of game wars, between the Nintendo DS and the
Sony PSP.
6.
The April 2006 issue of
Wired Magazine, edited by Sims creator Will Wright, is devoted
to an aesthetic appreciation of video games.
