A Brief Follow-Up

I ran across an article published today that makes some of the same points I did with my blog yesterday. It mainly makes the point that companies should be focused more on being independently profitable rather than concerned with holding more market share than their competition. The crux of the article is here.

"The harm that competitor-oriented objectives can cause the companies that pursue them was the subject of a December 4, 2006, article in The New Yorker by James Surowiecki, the
magazine’s business writer. Surowiecki describes how Sony, with its PlayStation 3, and Microsoft, maker of the Xbox 360, are beating each other’s brains out trying to capture the biggest share of the video-game market.

Meanwhile, third-place Nintendo, with its new game console called Wii (pronounced “wee”), has quietly become the most profitable game console company in Japan.

Nintendo “has not just survived out of the spotlight; it has thrived”, Surowiecki writes. “It has $5 billion in the bank from years of solid profits, and this past year, though it has spent heavily on the launch of the Wii, it made close to a billion dollars in profit and saw its stock price rise by 65%. Sony’s game division, by contrast, barely eked out a profit and Microsoft’s reportedly
lost money. Who knew bringing up the rear could be so lucrative?”

My own comments are obviously in my previous blog, but this article was so in-line with my points that it had to be shared.

Short Vs. Long-Term Console Life

Phil Harrison, Sony big-wig said a couple of things lately that I feel like addressing. The first is an off-handed statement about the supposed longevity of the PS3 Vs the Wii.

“I think Nintendo, although I am very respectful of the innovation in Wii, and I think everybody should be respectful of it, I’m not sure that it has the technology base to propel that platform in the long-term. So I think their platform lifecycle is inherently going to be shorter, so they could have learned from us in terms of the high technology approach.”

The life of a console is dictated by a simple cost/benefit ratio. A corporation exists to make a profit. In regards to consoles a typical profit chart would be in the red for a period of time. This is typically because of the monies spent on research and development of the console, and for the cutting edge technology and components used in the manufacturing. Typically a console is sold for less money than the unit cost the corporation to manufacture.

The second phase is after the components drop in price because of increased availability and improvements in assembly. Eventually there is a crossover point where the corporation begins to make more in the sale of a unit than it cost to manufacture but the corporation still has not recouped the research and development costs.

The third (and every corporation hopes, the longest) phase is when all their numbers are in the green because they have earned back their R&D costs and component/assembly prices have continued to drop making each unit produce a net profit.

Sony has stated over and over that the PS3 will be around for 10 years. Its easy to see why they hope it will happen. The PS2 has only made it into the third phase in the last year or so. Sony doesn't make detailed information available often but we know they barely made back (in total) what they spent (in total) for the PS2. Not having a long-term phase three product hurts Sony's ability to continue R&D for future products and is just a step away from putting a department in a deficit.

Every console manufacturer in this business is already hard at work designing the NEXT console but when that console launches years from now it will contain cutting-edge tech, not stuff that we have now. Obviously the designs are in a very fluid form now, and will slowly solidify the nearer we get to the launch of a new product.

When a console is released it represents a sizable investment for the corporation and steps are taken to protect that investment. Marketing is going on to push the consoles out the door because even if the sale of a new phase one unit represents a loss, the software purchased to play on it will hit it's own crossover point almost immediately, bringing money back into the corporation's coffers. Peripherals also usually represent a monetary gain as the R&D costs are typically small change compared to the console.

Another way they protect their investments is to compete technologically with each other. Nintendo has stated that they have removed themselves from the competition by providing a cheaper, less powerful machine focused on the gaming experience. If, however, the Wii was exactly the same as it is today but with N64 graphics, units wouldn't be selling. At all... So while they say they aren't competing graphically with the other big boys it is more of a gradient scale because the fact is that they have lost customers who feel that they would rather have a console with HD output. They will continue to lose customers to this fact. The majority of people though will find it more cost effective to buy a much cheaper, somewhat less powerful machine. It happens every day.

Let me draw a ready comparison. I looked up some pricing for a segment of the technology market that I would classify as very volatile; video cards. I just looked up prices for the very popular GeForce cards. Their current top of the line is the 8800 gtx weighing in at $555. The 8800 gts is only slightly less powerful and launched at almost the same time, yet it only costs $294. Last years models range in price from $268-$44. The available models from the two previous generation were around $50-$30, meaning within 18 to 24 months a brand new product is brought in line with products from three years prior.

This comparison is important because it spans the technology industry. Blue Ray is expensive now, but in a couple years (if it manages to beat out HD-DVD which I wouldn't bet on) it will drop drastically in price and that particular component of the PS3 or any device containing it will drop comparatively.

The cost/benefit scale for replacing a console becomes skewed when the console reaches phase three because you now have access to new technologies that you can pack into a new machine, which brings us to the most important way to protect your investment; keep releasing new hardware. You phase out an old product and start the cycle fresh with one BIG difference, an installed base. If you can manage to sway people to your product lineup and make your new machine backwards compatible you will already have millions of people who can enjoy your new product without the outlay of cash needed to buy a console, some peripherals AND a few games to play. And as the first few months of a console release are typically meager on the the software release side they will have games available to stave off the boredom that might have them turning to a competitor.

The PS3 won't be Sony's flagship for ten years. It's not impossible, just not fiscally feasible. They want to have a longer phase three to boost profits but Microsoft and Nintendo are sure to release new consoles in the typical 5-6 year time frame and they will have newer technology than the PS3 currently has, giving the PS3 only one advantage of being cheaper as the PS3 will have dropped in price to the consumer in 5 years. But the disparity between the outdated PS3 versus the next generation consoles will woo consumers away from the PS3 and its software forcing Sony to release a new console to compete for consumer dollars.

Sony wants their console to last for 10 years, but they have to dance to the beat of their competitors. The PS3 won't last a decade. Not this generation, maybe the PS4 will have a better chance.

In stark contrast I will quickly point out Nintendo which launched the Wii with last year's graphics card, so to speak. They went directly into phase two as they immediately made a profit off each unit and only need to recoup their R&D costs. With the majority of Nintendo games being produced in-house they will be in phase three probably before their competitors meaning that at least in regards to profit, the cheaper, somewhat underpowered machine beats out the cutting edge product on the bottom line. Nintendo has produced about the same net profit as the whole of Sony for the last few years even with it's "terrible" Gamecube sales. Nintendo produces a 20% net profit which is a level of efficiency many corporations cannot achieve.

As a side note the Wii has sold 4 million units worldwide, half as much as the 360 and almost three times more than the PS3. If sales continue at this rate Nintendo could outsell the 360 by the end of the year if software support remains strong. We will see.

Mini game review : Wii Play

So I picked up a new game the other day. I was waiting on getting my fourth controller because the game has one packed in. The game is Wii Play. It has 9 mini games on it, most of which started out as tech demos at E3. Alot of people are saying that its not a very good stand-alone game and if it ddnt come with a controller it wouldnt be worth picking up. I agree that the compilation may not be worth a full $50 but some of the mini games are extremely fun and well polished. The one for which I am blogging is called Tanks.



Tanks is the kind of game that new gamers and hardcore alike can get into. It is very similar in game mechanics to a game that many of you have played on the 360 called geometry wars. Basically you drive your tank around with the analog stick and you point at the screen to aim your gun. You can shoot with the B trigger and drop proximity mines with the A button.



The enemy tanks vary in ability from stationary to mine-laying, to tanks that shoot rocket propelled rounds. Each is designated by a unique color. The graphical feel of the game is that of toys shooting at each other. The tanks look like little toy tanks and levels have obstacles in the form of wooden blocks. The only thing that detracts from the 'toy' theme is the giant explosions and round contrails that quickly fill the screen.



Bullets ricochet geometrically once before detonating on the second surface so there is quite a bit of strategy involved in trying the bounce your rounds around obstacles. Mines will destroy certain blocks opening new paths and even though you can block of certain routes with a mine they detonate on a timer as well as with proximity meaning they will not be permanent obstacles.



The levels quickly rise in difficulty from a couple 'dumb' tanks to many 'smart' tanks with varying degrees of aggressiveness. The last level is devoid of cover and has two white tanks which turn invisible as soon as the level starts. You can only locate them by where the bullets are coming from and the tread tracks each tank lays down. You start out with three lives and gain a new life for every 5 levels you clear.



On top of it all there is a two-player mode in which each player has their own tank and they try to #1 clear the levels and #2 get a higher kill count than their buddy. Friendly fire is definitely turned ON and matches can become intense as players turn on each other in order to eliminate a rival for kill count. If one player is eliminated but all enemy tanks are cleared both players are still on the next map. If both players are destroyed the game is over meaning that while you may try and stop each other from getting kills in the earlier levels, you will find yourself forced to get over the butt hurt of getting stabbed in the back by your buddy in order to clear later levels.



I discovered a great new way to play this game the other day. One player holds the nunchuk and the other holds the controller so you have a driver and a gunner, each putting the other in a position of complete trust. It is incredibly fun and a completely different way of playing the game.



This game can only be described as extreme fun due to it's simplicity paired with a high level of tactical awareness. If you are looking to get an extra controller for the Wii this is definitely a great opportunity to pick one up.



Some of the other games on the compilation that deserve a mention are laser hockey, target practice and the billiards game. All of which would benefit from options to spice things up a bit. For example the billiards game is 9 ball only, and the laser hockey is set at an 8 point game. As far as target practice goes, the game is extremely fun but over too quickly and it would have been nice to see more ducks, and the dog. How can you have a Nintendo made throwback to Duck Hunt without that dang dog laughing at you when you miss?



If you need another controller, I highly recommend Wii Play as an addition to your game library.

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