IA on Sony/PS3 and Microsoft/Xbox 360: Did I Get it Right?
It has been some time since I’ve written about gaming, but the recent spate of industry news has prompted me to take a look back at some of my writings and ask: did I get it right? After a little time and reflection, my answer is an unequivocal yes. I’m not going to discuss Nintendo/Wii or EA right now, as I clearly nailed them both - hard - and I’m in no mood for gloating. I reserve my right to do that a different day. However, how about my reading of the Internet tea leaves as it relates to Sony/PS3, Microsoft/Xbox 360? Here is a little wrap-up of the last nine months or so:
THEME #1: SONY’S STRUGGLE WITH PS3 AND TROUBLE MAKING MONEY IN NEXTGEN GAMING
IA’s Legacy Positioning:
1. Bad culture and communication within Sony
Related posts:
5/08/2007: Me on CNBC: Getting Down and Dirty on Sony (and Apple)
5/02/2007: Gaming and Razors - a Hopelessly Broken Metaphor
3/04/2007: Howard Stringer of Sony: The Corporate Britney Spears?
2. Sales goals inconsistent with strategy and execution - “All things to all people” sales goals with a hard-core gaming strategy
Related posts:
7/03/2007: IA to PS3 Fanboys: Buy the Console, NOT the Stock
5/15/2007: Marketing-Push vs. Evangelism-Pull: Microsoft/Sony vs. Apple/Nintendo
3/19/2007: Nintendo vs. Sony: It’s like Atari vs. Betamax
2/11?2007: From Inside EA: Buy Xbox 360 and/or Wii - NOT PS3
12/07/2007: Update on Sony, EA and Nintendo: The Internet Got it Right
11/20/2006: Sony - “Wii are in Trouble”
3. Poor product positioning - “Window to the living room” multimedia player price point for features many customers neither want nor need
Related posts:
8/09/2007: Gaming Consoles are for Playing Games: All the Rest is Flash
7/09/2007: Sony Cuts the Price of PS3? In the Right Direction, But…
5/19/2007: Nintendo Wii: A First Six Months for the Ages
4/24/2007: Microsoft, Sony and Gaming: Fighting a Battle, Losing the War
Recent Online Commentary:
9/20/2007: Kaz Hirai Talks Nintendo, from Go Nintendo
“We belong to the same industry, and I think we seem to be
aiming at different targets. Whatever the industry in question, there
is no way that just one company can have everything.” - Sony Computer Entertainment group CEO Kaz HiraiWell I agree, one company cannot have it all. One company can sure have the lion’s share though, and that’s looking to be Nintendo as of right now.
IA comment: Kaz and his pals at Sony STILL don’t get it. Yeah, the market is big. So what? It is possible to do poorly in a big market, especially if your messaging is poor, your product expensive and the cost of developing games for the platform absolutely and relatively high. Oh, and then there is that trifling issue of subsidizing billion-dollar losses on the hardware with software sales, but if those sales don’t come through quite as expected because the hardware sales aren’t in as many living rooms as you had hoped… This is a very distressing message that shows Sony management singing the same old song, a song virtually unchanged since I started writing about gaming almost a year ago.
9/19/2007: Sony’s Plan to Cut PS3 Costs, from BusinessWeek.com
In the video-game industry, it’s the oldest trick in the book. To keep
a console from collecting dust on store shelves, game console makers
will periodically cut prices and watch as buyers flock. Since the
PlayStation 3’s global launch last November, Sony (SNE)
has already dropped the price of its two models, originally $599 and
$499, by $100 apiece. But with PS3 sales growing at a
slower-than-expected pace and trailing Microsoft’s (MSFT) Xbox 360 and Nintendo’s
Wii, Sony could be mulling over another price reduction in the coming
weeks. Some observers think an announcement might come as soon as this
week’s Tokyo Game Show.How can Sony afford such deep discounts? After all, the Tokyo
technology giant takes a hit on every PS3 it sells, to the tune of
hundreds of dollars a console. Analysts say it will take time to
whittle away at production costs, and don’t expect Sony’s gaming
division to break even for another year and a half.
But Sony appears to have a plan. The company is now in talks with Toshiba (TOSBF)
to sell the factory in Nagasaki where the high-performance Cell chip
that powers the PS3 is made, according to a Sept. 15 report in the
Japanese financial daily Nikkei. (********************
The sale could bring Sony an estimated windfall of $870 million. In the
best-case scenario, Sony would gain another benefit: With Toshiba’s
expertise in production efficiency, Sony could get a cheaper price on
chips that would lower the PS3’s costs. Sony now spends about $89 on
each Cell chip, or about a tenth of the overall cost per console,
market researcher iSuppli
estimated in a teardown analysis last November. “The point is this
would have the effect of driving down costs for Sony’s gaming
division,” says Macquarie Securities analyst David Gibson.
That would be a huge help for gaming boss Kazuo Hirai,
who took over in June. He needs to show that he’s the right guy for the
job by restoring video games to profitability after a massive $2
billion operating loss last year.The potential downside is that Sony would have to rely on a
competitor for a key PS3 part. And as Sony rushes to develop the Cell
for other gizmos, such as flat TVs, laptops, and cell phones, it puts a
promising technology in a rival’s hands. Sony would also be giving up
on microprocessors for video cameras and older generations of gaming
consoles.********************
Meanwhile he’s eager to close the gap between production costs and
retail prices as quickly as possible. When the PS3 went on sale, market
researcher iSuppli estimated that Sony was losing $306 on the
lower-priced 20GB model and $241 on the pricier 60GB version.
Outsourcing the Cell chip in-house may buy Hirai time to delay another
PS3 price cut.
Now this actually makes some sense. It is a strategy that does carry risks, and gets Sony away from its historic model of vertical integration that served it well in the past (and serves Apple well today), but I think it is a necessary move. Sony needs to focus on customers. I’ve written in the past about Sony being an engineering-driven firm, a strategy that worked well when pure technology was the source of competitive differentiation, but the market and competitive landscape has changed. Firms who best understand and are closest to the customer are winning, and Sony needs nothing short of a radical transformation to achieve this re-positioning. Outsourcing nuts-and-bolts components in order to focus on usability, product design and software will enable them to compete with more customer-centric organizations both through reduced costs and laser-like focus on the most critical parts of the value chain.
9/20/2007: Sony to expand PS2 business, offers no PS3 Price Cut, from Macworld
Sony opened Japan’s biggest computer gaming event on Thursday with a
keynote speech that promised a new PlayStation 3 controller and
expansion of its PlayStation 2 business, but not an anticipated price
cut.Kaz Hirai, the recently appointed president and CEO of the Sony
gaming unit, said Sony plans to put more effort into expanding its
PlayStation 2 business. At the same time it will continue to push the
PlayStation 3.The plan is unusual because gaming companies typically de-emphasize
old consoles when newer versions become available, but Sony’s in an
unusual situation. Instead of snapping up the PlayStation 3, many
consumers have shunned the console because of the high price.********************
To expand the PlayStation 3 business, Hirai said Sony will begin
sharing knowhow built up through its Worldwide Studios unit and will
invite game publishers to provide feedback to the company on a
periodical basis.Sony has also acquired two game developers, Evolution Studios and
its subsidiary Bigbig Studios. Evolution, which is based in the U.K.,
is best known for the million-seller “MotorStorm” game, a new version
of which is scheduled for release on the PlayStation 3 next year.Hirai also announced a delay to the “Home” three-dimensional online
user community that was due to be released around now. Sony now expects
it to be available in early 2008.
Also, Sony Delays Home Coming, from Briefing.com 9/20/2007.
The “Home” online service, which allows users to create and own characters
within a virtual community, was originally expected to be launched this fall.
However, the company now plans to postpone the release until next spring in an
effort to improve product quality.The announcement reflects the ongoing troubles facing Sony’s newest game
console, which continues to lag its rivals, Microsoft and Nintendo, due to
product delays,
hardware glitches,
and
higher prices, as well as few hit game titles for the new-generation
platform.
This to me seems like good news/bad news stuff,. Harvesting the PS2, ok. Why not extract full value from the firm’s installed base while penetrating less-developed markets at a lower price point? However, it is still stuck at too high a price point with its PS3, which doesn’t address a fundamental issue that’s been knocking around for some time now. Acquisition of two game developers and getting closer to game publishers? Good. Delay in its Home user community? Bad. So a mixed-bag at best.
Conclusion:
It doesn’t seem to me that Sony has made material progress against the three issues I’ve discussed over the past year. Sure, they’ve dropped price a bit, boosted Kaz Hirai while pushing Kurtargi to the side, and are looking to outsource some hardware components in order to focus more on the development end of things. But they are still playing catch-up, have an ambiguous positioning in the market and no clear strategy as far as I can tell to take advantage of the rise in casual gaming. Oh, well. Keep trying, Howard. I’m paying attention.
THEME #2: MICROSOFT’S STRUGGLE WITH XBOX 360 AND TROUBLE MAKING MONEY IN NEXTGEN GAMING AND, IN FACT, ANYTHING IN THE SPHERE OF HOME ENTERTAINMENT?
IA’s Legacy Positioning:
1. Pricing strategy inconsistent with mass-market objectives
Related posts:
8/08/2007: Xbox 360: $50 Bucks Less in the US Won’t Fix a Broken Strategy
7/11/2007: How to Get Microsoft’s Xbox 360 Strategy On Track
2. Abysmal financial performance
Related posts:
7/05/2007: Microsoft Having Profit Problems with Xbox 360? You Don’t Say?
4/17/2007: MSFT, Xbox 360 and Japan: Failure-in-a-Box
4/10/2007: Microsoft, Channel Stuffing and Desperation: Old Tricks for a New Era
3. Cultural and customer service breakdowns
Related posts:
7/23/2007: Microsoft’s Identity Crisis Rages On - Take a Page from Nintendo, Guys
7/18/2007: Peter Moore to EA: As the Stomach Turns
7/10/2007: Xbox 360 and Three Red Lights: Like Tylenol and Cyanide?
Recent Online Commentary:
9/21/2007: Microsoft: Xbox 360 Can Win the Console War Without Japan, from FiringSquad
It’s well known that Microsoft has struggled to gain a solid foothold
in Japan in selling both the original Xbox and the Xbox 360. Despite
Microsoft courting Japanese developers to make original and exclusive
games for both consoles sales have been dismal in Japan. Now Next Generation is reporting
that Xbox 360 group product manager Aaron Greenberg is making claims
that Microsoft doesn’t need Japan to win the current console war over
the PS3 and Wii. Here is a snip:“For us, winning on a global basis doesn’t mean winning every single
market,” said Xbox 360 group product manager Aaron Greenberg in a group
Q&A session during the Tokyo Game Show.
“We’ll win some, we’ll lose some, but the key is to win across the sum
of the parts. So we feel like winning in North America, winning in
Europe and doing very well in Asia’s important, but I think that if you
talk to publishers, you can win on a global basis by leading
specifically in North America and Europe.”
Recently the Financial Times reported that Nintendo’s Wii console
has surpassed the Xbox 360 in total worldwide sales. Greenberg states
that they believe the Xbox 360 will still “stay very competitive with
Wii on a global basis.”
Conclusion:
So much has been written about Microsoft and Xbox 360 (not to mention the failure of Vista) that it almost tiresome to rag on them any more. Punch line is, there is still a strong sense of arrogance and rationalizations coming out of Redmond, neither of which is going to help get the Xbox 360 console strategy back on track. I think almost everything I’ve written about Microsoft, their Home & Entertainment strategy and Xbox 360 performance has come to pass. Again, I am just connecting the dots. The real people who know - gamers, industry watchers, key influencers - are the people from whom I divine my perspective, and they’ve been spot on pretty much since Day 1.
And oh, by the way, I find it kind of funny that EA recognizes the importance of Japan, even if Microsoft doesn’t. From GameDailyBIZ 9/20/2007: EA: Japan is a Strategic Priority.
As the world’s biggest third-party publisher Electronic Arts already has a major global presence, but according to the Financial Times there’s one very significant territory that the company would like to achieve greater penetration in: Japan.
Japan, after all, is home to many of the industry’s most important
companies and as a region it represents about 20 percent of the $30
billion global games market (second only to the U.S.). That said, EA’s
revenues from Japan are quite low and the publisher’s Asian market
revenue in general comprises only six percent of the company’s total.********************
Similar to other parts of Asia, Niermann believes the big growth
opportunities in Japan will come from the online games market. He also
sees mobile games as another sector where demand will pick up.
Earlier this year EA purchased a 19 percent stake in Korean online games company Neowiz. EA also acquired a 15 percent stake in Chinese online games company The9, which is known for distributing the incredibly popular World of Warcraft.
Is EA making rationalizations for writing off Japan? Are they sticking their heads in the sand and saying “We’re big and bad elsewhere; we don’t need to win every market.” Just read my blog to see the difference in evolution between EA’s strategy and Microsoft’s strategy over the past nine months. Both firms have been to the abyss, though for one it was a life-changing experience that has altered its strategy in short order (EA), while for the other it was more like “Well, at least we didn’t go all the way to hell. Whew” (MSFT). Microsoft still doesn’t get it while EA clearly does. I’ll expound more on EA in a subsequent review post. But suffice it to say, Sony and Microsoft still are facing many if not all of the issues that existed in late 2006, and their strategies have changed remarkably little. EA, conversely, has taken stock and gotten on a healthy glide path. I’ll check back in with a review of these companies towards year-end. But as it stands today, IA 1, Sony and Microsoft 0.
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COMMENT:
AUTHOR: bandolero
URL:
DATE: 02/02/2009 07:51:37 AM
sony as well as ms had let people down big time.I suggest that the article shouldn’t be about sony but ms how developer are pushing a side new technology cause 360 has dvd9,and old hardware but anyways in the long run sony will win again
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