Is Cutting Edge Technology Always Good for Business?

I love technology—there’s nothing more exciting than reading about some up-and-coming whiz-bang gadget that could revolutionize the way we play games, listen to music, or use our cell phones. Take my new G1 phone from Google (GOOG) and T-Mobile (DT)—it lets me use the phone as a barcode scanner to compare prices everywhere I go. Pretty cool, huh?

So I’m down with high tech, but what if it’s so high tech that the company making it can’t make any money off it? In other words: can technology be a bad thing for business?

But Carlos, doesn’t technology grease the wheels of capitalism? Don’t all those pixels and megabytes and gigabytes help us move onward toward progress and all things that are good? After all, without some geek off in a lab somewhere pushing the limits of technology, we’d have no TV, no Internet, no Roomba. The geeks are our friends.

And yet I’m still feeling down on the biz side of cutting-edge tech. The Nintendo (NTDOY.PK) Wii is a perfect example.

The Wii isn’t nearly as powerful as Sony’s (SNE) PS3 and Microsoft’s (MSFT) XBox 360—the graphics are basically a generation (or two, according to some) behind. In terms of tech, the Wii is like surfing the ’net on a 14.4k modem.

That technologic lag is what gives Nintendo an edge over the competition. Their system costs less to make, and that means the company makes a profit off of every single system it sells—something Sony and Microsoft can’t claim. Yup, believe it or not, they lose money off every Xbox 360 and PS3 they sell because that new technology is so expensive. They make their money by selling the games for those systems.

Instead of making a machine with incredible graphics, the Wii went with “fun” as its strategy, and it has paid off handsomely. Stores around the country are still selling out and the system has been out for over two years.

More people want “fun” games at a lower price than they want awesome graphics at a premium price, which is something no one really knew for sure until the Wii came along. I know that first hand—I absolutely loved High Heat Baseball on the PC back in the day. And that is the perfect example of an awful-looking game that’s almost as fun as throwing sawed-off bats at Mike Piazza.

The lesson here is that, while new technology is cool and all, it doesn’t necessarily mean it’s good for business. It’s expensive and if customers aren’t willing to pay the price and you can’t make a decent profit from it, it’s not really worth it.

So next time you find a product that does something no other product can do, try to find out if the business plan behind it is as cutting edge as the technology.

Disclosure: No positions.

Comments

[Sasha B:]

I think the title of this article is provocative and a little bit misleading. The matter of fact is that Wii does have a cutting edge technology. Luckily for them it's not stupid graphics, but a controller. The controller makes all the difference for the Wii and its users. If anybody can convince me that the controller is not a cutting edge technology I shall stand corrected. The real lesson from this console story is that pure "leading edge" technology is not necessary what majority of the customers need. The want fun in the games. Sony sell graphics instead of fun. Wii went after what customers need and not the benchmark performance that drive development of Xbox and PS. All the companies use new technologies it's the match of our needs to the new technologies that makes the fittest to survive.

2008 Dec 24 12:28 PM

[Trent Tucker:]

Ergonomics is derived from the Greek word "ergon" meaning work and "nomos" meaning law and ergonomics is the assimilation of human behaviour into the new technologies of the rapidly developing man machine systems (corporations, Mfg.'s etc) of the global economy.. Ergonomics, or human engineering, biodynamics, manned system technology, etc., there are many terms for ergonomics, cannot keep pace with technology so much of the assimilation of humans into novel technological industries is through experimentation. Or simply put, technology is progressing faster than our ability to cope with it. Sound familiar? So ergonomic engineers are forced to experiment. Doesn't that make you sleep well. Do you think this might be one of the reasons for the wild economic swings as the people who make the rules and regulations, and the technology to implement constantly race ahead to beat their competitor who is nipping at their heels. Race car, no breaks, but you have to keep pace. And the consumer is caught in the crash.
Quis Custodiet ipsos Custodes, latin for who keep the keepers.
So who does? Who holds the ticket in this lottery?
Trent Tucker
author Wall Street Dancers www.strategicbookpubli....
t Dancers

2008 Dec 24 01:28 PM

[Carlos Port...:]

Sasha, I think you said it all:

"Sony sell graphics instead of fun"

But all gamers, even the hardcore folks who demand HD graphics and photorealistic interiors, want fun. That's what gaming is all about. There are scores of games that have been made with incredible graphics and all the reviews point out that, while the graphics are top notch, the game itself doesn't stand out.

Whether or not people care about that before they buy is another story...

2008 Dec 30 10:41 AM

[Carlos Port...:]

Here's a great line from a WSJ review of a new book about the development of the chip that drives the PS3 and the XBox 360:

"The lesson, lost on Mr. Shippy and Ms. Phipps, is that technical supremacy divorced from sound strategic vision is no virtue. It can even end up in disaster."

Check out the full review here.

2008 Dec 31 03:04 PM

[Carlos Port...:]

Here's the link:

online.wsj.com/article...

2008 Dec 31 03:04 PM

[Yasir Aheer:]

I believe it’s not the “cutting edge” technology that is the culprit here, its failure of creating blue oceans within the industry. If you read the "Blue Ocean Strategy" from W. Chan Kim and Renée Mauborgne; this is exactly what they talk about. The bloody waters of competition contain small market share and low profit. Wii is a great example of a product that pushed the limits and created “blue oceans” of little or no competition.

One example is the market share and target audience. XBox and PS3 till now have had a very specific target audience. Wii not only targeted a much wider audience but delivered on their specific needs. Wii targets children, women, teens, young adults, professionals and the elderly. Wii have been installed in retirement homes where elderly to play bowling. Prior to Wii, could you imagine your grand pa playing video games?

Jan 27 03:55 PM

[Carlos Port...:]

Yasir, I pretty much agree with what you're saying—I'm just amused that Sony and Microsoft continued down the line of better and faster technology in their hardware despite a business model that means they lose money on each system sold.

That, to me, is sacrificing sound business principles because they didn't have the creativity or foresight to make a move like Nintendo's.

Jan 30 03:19 PM

[kolgoroth:]

The Wii's controller is nothing more then an updated version of Nintendo's Power Glove and U-Force that was introduced in the late 80's.

On Dec 24 12:28 PM Sasha B wrote:

> I think the title of this article is provocative and a little bit
> misleading. The matter of fact is that Wii does have a cutting edge
> technology. Luckily for them it's not stupid graphics, but a controller.
> The controller makes all the difference for the Wii and its users.
> If anybody can convince me that the controller is not a cutting edge
> technology I shall stand corrected. The real lesson from this console
> story is that pure "leading edge" technology is not necessary what
> majority of the customers need. The want fun in the games. Sony sell
> graphics instead of fun. Wii went after what customers need and not
> the benchmark performance that drive development of Xbox and PS.
> All the companies use new technologies it's the match of our needs
> to the new technologies that makes the fittest to survive.

Feb 11 09:28 AM