Memo To Microsoft and Sony: Game Consoles Are For Playing Games

Well, well, well. "Window to the living room.""If we build it they will come." These phrases and others like them are the stock in trade of my friends over at Microsoft (MSFT) and Sony (SNE).

Build a big, powerful, muscle-bound machine with a billion features and people will be willing to pay a premium price for all this added functionality beyond gaming. No, I said. People who buy gaming consoles want to play games. I've been writing about this for 10 months. Sure, online games are great. But HD-DVD, Blu-ray, etc., etc., etc., for $500, $600 bucks? I said "You're limiting your market and strictly catering to the hard-core gamer. No, Microsoft and Sony said. You don't get it. This is a long-term strategy. Our customers will get it.The problem is, according to a recent NPD survey, that they're not getting it. Not at all. This from last week's ARS Technica:

The Xbox 360 and PlayStation 3 consoles are marvels of technology. The PlayStation 3 features a Blu-ray player, the ability to stream video and music from your PC, and it's a very impressive upscaling DVD player. The 360 has a robust selection of movies and television shows you can purchase and rent through the Xbox Live service, and with VGA or HDMI connections it will also upscale your DVDs. For some gamers, these functions go a long way towards justifying the high price of these systems, but a new study from the NPD Group suggests that not only are people not using these functions, they're not even aware of them.

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It's apparent from the study's results that one thing interests the majority of consumers: games. The dueling next-generation HD disc formats, the ability to download content, and even high-definition graphics don't seem to matter to the majority of the game-buying public; if these figures are reflective of the wider market, all those features are being roundly ignored by most gamers.

When you take another look at the three next-generation systems through this filter, it becomes obvious why the Wii is in such a dominant position. It's the least expensive system, and all the added features that make the extra cost of the 360 and PS3 good values to the plugged-in aren't swaying the mainstream buying public. With constantly shifting hardware configurations, falling prices, and the HD DVD/Blu-ray fight still going strong, Microsoft and Sony may be sending the message that they're too complicated for the average gamer, while Nintendo's game-first attitude and strikingly lower price point may be exactly what the majority of console buyers want.

Doh! Not exactly what the pooh-bahs at Sony and Microsoft want to hear. Gamers want to play, what, games? Not to be an I-told-you-so guy, but here is what I wrote four months ago on this exact topic, building on my earlier thinking from last fall:

Fast forward to today. Both Microsoft and Sony are offering super-premium versions of their products, more firmly cementing their bets in the multimedia space. Hard-core gamers seem willing to pay for the high-end graphics and extra functionality, but what about the casual gamer? They seem to be much more in tune with the features, functionality, usability - and price - of the Wii. Nintendo has clearly struck a chord with the everyman, someone who just wants to step to the plate, bowl a game, smash that serve or share with their friends. Nintendo is about accessibility, ease of use, value and fun. Theirs is not a holy war against a competitor, but a quest for understanding and acceptance from their market. THE market. The market where you can sell 100 million consoles. The market that provides you with the foundation to layer on additional features as technology costs continue to drop and even more games are developed for the platform. Microsoft and Sony are battling it out in the trenches. Nintendo isn't playing their game. Interestingly enough, they are clearly winning. Just look at the stock price.

Sheesh. Kind of the way it has played out, huh? Now I know that the mucky-mucks at Sony and Microsoft will pooh-pooh this survey as they do most other forms of market feedback, but that's ok. We know the truth. The market has spoken. The only question is, who is really listening? In one word: Nintendo (NTDOY.PK).

Comments

[Tom B:]

There is nothing MSFT designs that is User-centric. Sony is much better, but the PS3 team shot itself in the foot with the mandatory Blu-Ray bundling. I'm not convinced the future won't be downloaded movies, direct thru iTunes. That seems to be how things are trending.

2007 Aug 13 02:15 PM

[navalang:]

The NPD study was certainly interesting. But Microsoft's Xbox Live Marketplace quickly became the number 2 seller of digital movies behind iTunes. When Sony releases their digital download store, their numbers are likely to be the same if they can get their install base up. My point is that the 'it's all about the games' mentality is largely a myth, particularly when we are talking about the financials of a company: once the number of users hits a critical mass, you have a high-margin, low-maintenance revenue stream in place that acts as a parallel, albeit smaller, channel to gaming.

2007 Aug 13 03:30 PM

[robert99:]

First, I'm long NTDOY, and have been since the Wii's release. In the past, I thought Sony totally and utterly botched the PS3, but then I read an article on the number of Blu-Ray players vs the number of HD-DVD players out there, and with the PS3, there were ~4 times as many Blu-Ray players in consumer's homes as HD-DVD players as of a month or two ago. I think that high definition is where things are heading, largely due to a cooperative effort on the part of the corporations to stuff it down the consumer's collective throat (which is working, to some extent). As long as the global market/economy stays strong, people will eat this crap up like the sheep that they are, and Sony has a very nice lead on the competition by which they can market their proprietary HD format. Even if they only sell 5 million PS3's this year, they'll have 3.5 million more Blu-Ray players installed - And as the parts for the PS3 grow cheaper, that number will accelerate. So, the PS3 won't be a total loss for them. Sure, they took a sales hit in the gamer market, but I think the payoff in the long run (assuming their market penetration trumps whatever Toshiba can/will come up with). Microsoft, however, just keeps screwing itself over and over and over...

2007 Aug 13 11:34 PM

[Phil L:]

No Roger, games consoles aren't just for games. Uou've been writing about the PS3 for months, but you still haven't understood Sony's PS3 strategy. You write that Wii is disruptive, and that Sony needs to disrupt the disrupter. But you haven't understood that Sony's strategy IS disruptive, and the basis of that strategy is a focus High Definition and home media. The PS3 is a classic horizontal product play that ties into multiple Sony lines of business: handheld gaming (PSP cross-over), TV (Sony is defining a "True HD" 1080p positioning to re-inforce their position as a premium player in the TV market), movies (Blu-Ray intellectual property, higher margin format, and forthcoming movie downloads via the PlayStation Network), photography (import, view in Full HD, rotate/crop and print from the PS3), home video (import and play full AVCHD movies into the PS3), mobile ("Home" access/sharing from a Sony Ericsson mobile), and of course music. Multiple Sony business units leverage and benefit from the PS3 strategy. When it comes to gaming, Sony defined a high-definition experience, and realized (unlike Microsoft) that higher capacity storage would be required to deliver that experience. The PS3 has a Blu-Ray player not just to support Sony's desire to delivery the successor to DVD, but because Lair requires 25GB, and Killzone 2 requires 3GB for a single level. Further, Sony has done more to broaden the appeal of their game console, by not just on motion sensing controllers (which the PS3 has) but on community ("Home") and user generated content (e.g, LittleBigPlanet, SingStar), as well as puzzle games (e.g., Soduku, Echochrome) and board games (Eye of Judgement). Not only is it trivial to add on Wii-like controllers, since the the PS3 already supports motion sensing and supports Bluetooth as a wireless standard (third parties are already producing controllers) Sony promises even more intuitive/innovating gaming using the Playstation Eye... allowing video control of games. In short, Microsoft has niched themselves with inferior technology and quality for hardcore FPS games. Nintendo has broadened the appeal of gaming, but cannot handle High Definition (and to do so will require an expensive re-design) or handle other forms of media. Sony has produced good quality product and is ruthlessly reducing the cost of production in order to take it to a larger market and has the longest "legs" on it. As you said yourself.... disrupting the disrupter requires taking a longer term view. The PS3 is winning the HD war for Blu-Ray, helping to drive HD revenues in Sony's home entertainment division, providing Sony's studios with a new, higher margin media for movies and online distribution, and building the basis of a larger and longer-term online revenue stream. Sony deserves more credit for what they are achieving with the PS3 than this sort of facile business analysis.

2007 Aug 14 11:50 AM