The Big Mistake

I've been thinking about the latest generation of console wars lately, ever since Penny Arcade talked about it on Monday. (Penny Arcade is this little webcomic, kinda deals with videogame-related humor. You might have heard of it.) They basically discussed how Sony's Playstation 3 isn't selling well, and how Sony seems to be dealing with the problem by lying about it.

But all that, I think deals with the situation from the perspective Penny Arcade has, which is the "hardcore gamer" perspective--that is to say, the people who think of videogames as one of their primary interests, and who are willing to shell out the vast majority of their free time and discretional income on videogames. To them, the problem is "Sony's lying." This is like finding out Mommy and Daddy lied to you about giving that puppy to a nice farm where it's much happier.

But I, like many others, am a "casual gamer". For me, videogames are an interest, but they don't consume a lot of my free time (no, I will not tell you how much time I spend playing 'City of Heroes'. It's not much, and I can stop anytime I want.) And they certainly don't consume a lot of my free money--I buy perhaps one video game every couple of months, and I'm not likely to buy more than one video game system. To me (and the people like me), the problem is, "Sony's charging WHAT for a video game system? What does it do, clean the house while I'm asleep?"

This is Son'y big mistake. They simply do not understand their own industry very well. To them, the target market is the "hardcore gamer", the person for whom the lure of newer, faster, better technology is in and of itself enough of a lure to get them to spend a near-unlimited amount of money on a new system. They think all they need to do is say, "It's the Playstation 3. It's better than the Playstation 2, and newer. What are you waiting for?"

But the facts argue against this. When you look at the jump from the Super Nintendo to the Playstation, or the Playstation to the Playstation 2, you see an immediate, shocking, dazzling improvement in the quality of the games and the gaming experience. You see something that immediately convinced you, "This is a much better system." That's not out there with the new generation of systems. The PS3 is better than the PS2, the XBox 360 is better than the XBox, the Wii is better than the GameCube, but not eye-poppingly so.

But the price differences are (for two of the above three.) A Playstation 2 is $130 right out of the box. A Playstation 3 is $600. That means that the Playstation 3 has to be almost five times as good as a Playstation 2 in order to justify buying one. And it's clearly not.

Nintendo understands this logic. They've been paying attention to video game history, and know that what's killed systems isn't quality or lack of same, it's price. The 3DO died at seven hundred dollars, the CD-i died at seven hundred dollars, and the Sega Saturn lost out to the Playstation despite only a one-hundred dollar difference in price. Why? Because to the casual gamer, a hundred bucks is a lot of money to spend on a video game system, and...

(Wait for it, this is my point...)

The casual gamer, not the hardcore gamer, determines the success or failure of a system. Nintendo gets this, Sony doesn't, which is why the Wii is punishing the PS3 in sales right now. Because the average person looking to buy a new video game system sees "System A, $600" and "System B, $250", and says, "I think I'll buy the $250 one, thanks. $600 is a lot of money to spend on a video game system." (This also applies in the hand-held realm, where the Sony PSP is $200 and the Nintendo DS is $130. Sure, the PSP is no doubt better...but seventy dollars is a lot of money to the casual gamer.) And while the hardcore gamer spends a lot more of his or her disposable income on videogames, the numbers of casual gamers so overwhelm those of hardcore gamers that it's a better marketing strategy to aim at the casual gamer than the hardcore one. You can make more money by selling a cheap product to every household in America than you can by selling an expensive one to one out of every 100.

Of course, in an ideal world, Sony would be able to use its initial sales to drop prices, and eventually bring the PS3 down to what a casual gamer would pay. But when you start with a $300 handicap, that's going to be very difficult. Most casual gamers wouldn't even pay $300 for a new system, preferring to wait until the price gets closer to the $200 mark (or even less); this means that the Wii treads close to the casual gamer's price point at launch, while the PS3 has to cut their prices to a third of what they're charging now to catch up. (I've not mentioned the XBox 360 much, because the PS3 charges more and therefore makes a better example of the economics involved; but since it's $400, assume it's somewhere between the Wii and the PS3 in terms of its situation. If the history of the console wars is ever written, though, it'll be very important--Microsoft's charge at "hardcore gamers" with the XBox made Sony get into the "hardware wars" instead of "price wars" to begin with.)

Does this mean that Sony is doomed? Probably not. Everyone predicted disaster for them with the PS2 launch, after all, and they weathered that storm fine. (Although note that the PS2 launched at $300.) But they could be unpleasantly surprised at the speed at which the Playstation's dominance in the video-game industry gets overturned; Nintendo lost its hold in a single generation, when the Playstation overthrew the N64, and history could be reversing itself.