| As a result of problems related to the mass | | | | and Japan. |
| production of a key component of its Blu-ray | | | | Obviously, Europe isn't as well defined a market |
| DVD player, Sony (SNE) will delay the European | | | | as either the U.S. or Japan. So, it's much harder to |
| launch of its next generation video game console, | | | | predict how a certain type of console or a certain |
| the PlayStation 3 (PS3). Sony will also reduce the | | | | type of game will go over there. The U.S. and |
| number of PS3 units immediately available in both | | | | Japan are very clearly defined game markets, |
| the U.S. and Japan. | | | | largely because they have very clearly defined |
| In the U.S., the PS3 will launch on November 17th, | | | | consumer cultures in general and entertainment |
| with approximately 400,000 consoles available for | | | | cultures in particular. |
| sale. The U.S. launch will come almost a week | | | | So, what does the PS3 delay mean for Sony's |
| after the Japanese launch which will consist of | | | | future in Europe? It's hard to say. I'm more |
| merely 100,000 units. | | | | interested in seeing what the installed base of |
| Sony's PlayStation 3 is the successor to the | | | | each next generation console will look like in the |
| PlayStation 2, the world's most popular (and as | | | | American and Japanese markets after Christmas |
| recently as July, the world's best selling) video | | | | 2007, when we'll have the first real chance to |
| game console. | | | | predict how this round of the console wars will |
| The Number That Really Matters | | | | play out. |
| The fact that there will only be 400,000 PS3 units | | | | Of course, there are some predictions that seem |
| available for sale in the United States on | | | | pretty safe even now. For instance, it seems |
| November 17th is totally unimportant. The launch | | | | safe to say Sony will lose worldwide market |
| date itself is unimportant. What matters is how | | | | share. Simply put, the PS3 won't be able to |
| many units will be available for sale in mid to late | | | | duplicate the market share dominance of the PS2. |
| December. | | | | So, most likely we're talking about Sony's PS3 |
| Sony claims it will have 1 million to 1.2 million | | | | falling somewhere north of catastrophic failure and |
| consoles available for sale by December 31st. I | | | | south of market share gains. Although I think both |
| think it's safe to assume they don't plan to have | | | | of these scenarios are extremely unlikely, |
| many arrive between December 26th and | | | | catastrophic failure is more likely, simply because |
| December 31st. So, let's assume there will be at | | | | improving upon the PS2's market share seems a |
| least a million PS3 consoles available for sale in the | | | | near impossibility given the much tougher |
| U.S. by Christmas. | | | | competition this time around. |
| Will that be enough to put a PlayStation in the | | | | Is there a real risk that the PS3 might end up |
| living room of every household that wants one? | | | | being a catastrophic failure? I don't think so, simply |
| No. There will almost certainly be many people | | | | because of the number of PS2 systems still out |
| who have to go without a PS3 for Christmas, | | | | there. Price combined with solid competition on |
| despite being willing to pay the very high price | | | | both of Sony's flanks is the only thing that could |
| Sony is asking. But, that's nothing new. Other | | | | cause such a failure. If the price prevents |
| consoles (including the Xbox 360) have been | | | | widespread acceptance of the system, third party |
| launched without an adequate number of units | | | | publisher support would be a problem down the |
| immediately available for sale. | | | | line. Nintendo doesn't need a lot of third party |
| This isn't like failing to get enough Glad trash bags | | | | support. Sony does. |
| on store shelves. Once the console has launched, | | | | Although I do think Sony is doing serious harm to |
| limited availability shouldn't cause many people to | | | | its PlayStation line by insisting upon including |
| switch their planned purchase. If they want it and | | | | Blu-ray and charging a ridiculous price, I don't think |
| it's out, they'll wait for it. | | | | any amount of managerial ineptitude is likely to |
| A delay is much worse than a mere shortage. | | | | cause the catastrophic failure of a successor to |
| There's a promise (and a tangible product) behind | | | | such a dominant console as the PS2. |
| a console that has already launched. So, very few | | | | Price |
| people in the U.S. or Japan who planned to buy a | | | | If price isn't the elephant in the room, it should be. |
| PS3 are likely to change their minds because of a | | | | Most of the articles I read about the recently |
| Christmas shortage - no matter how severe. | | | | announced PS3 delay / production scale-down |
| The Things That Really Matter | | | | didn't say much about the pricing of the PS3. |
| The success of any gaming platform is largely | | | | That's a mistake especially, because several |
| based on five factors: | | | | articles mentioned the laptop battery recall, which |
| Available Titles | | | | has nothing to do with the PS3 and very little to |
| Relative Launch Date | | | | do with Sony (it has everything to do with |
| Price | | | | lithium-ion batteries irrespective of their |
| Predecessor's Installed Base | | | | manufacturer). |
| Technology | | | | The PS3's price is a big problem. One that might |
| Of these five, technology is by far the least | | | | have manifested itself in poor Christmas sales, if |
| important factor. The four most important | | | | the number of units available for sale had |
| factors (available titles, relative launch date, price, | | | | approached the expected demand. For now, Sony |
| and predecessor's installed base) are difficult to | | | | is planning on having so few units available in the |
| separate. Clearly, having a predecessor with a | | | | U.S. by Christmas that the launch will go well even |
| large installed base (such as the PS2) can be | | | | if the PS3 is ultimately a failure. Sony claims it will |
| tremendously beneficial, if you get satisfactory | | | | have 6 million units by the end of its fiscal year. A |
| marks in the other three areas (titles, launch date, | | | | few analysts are skeptical, but Sony is sticking to |
| and price). | | | | that line. |
| Predecessor's Installed Base | | | | In the weeks ahead, expect Sony to make a big |
| The PlayStation 3 dominates when it comes to | | | | deal about the fact that it will actually make more |
| having a predecessor with a large installed base. | | | | PS3 units available by the end of December than |
| So, how does it score in the other three areas? | | | | the number of Xbox 360s Microsoft had made |
| In terms of available titles, the PS3 scores as well | | | | available by the same time the year before. It's a |
| as any of its competitors, if not better. However, | | | | valid point. But, it omits two key facts. The PS3 is |
| none of the three consoles (Xbox 360, PS3, or | | | | launching after the Xbox 360 and there are more |
| Wii) does very well in this regard. Unfortunately, | | | | PS2 owners out there who will want to trade up |
| the titles are likely to be somewhat segregated | | | | for the new system. |
| by console. There will be quality games on each | | | | Since the PS3 is launching after the Xbox 360, no |
| system; but, almost no one will buy all three. | | | | one is waiting around to see what the alternative |
| Simply put, there will be some games exclusive to | | | | will look like. They already know what the Xbox |
| each console that a lot of people would really love | | | | 360 is, what it can do, and what (some of) the |
| to play but can't. | | | | games available for it are. As soon as the PS3 |
| Also, there's the danger that both the PS3 and | | | | launches, the comparisons can begin. That wasn't |
| the Xbox 360 will be seen as the more adult and | | | | possible when the Xbox 360 launched and |
| less casual consoles. Microsoft (MSFT) and Sony | | | | everybody knew the PS3 was on its way. |
| have Nintendo to blame for this but, let's put that | | | | The second reason why no parallel exists |
| issue aside for now. | | | | between the demand for Xbox 360s at launch |
| Relative Launch Date | | | | and the demand for PS3s at launch is simply that |
| Returning to the list of factors that determine a | | | | there are more PS2s out there. As a result, Sony |
| console's success, let's consider the launch date | | | | having as many units available by Christmas as |
| issue. Sony clearly has a bit of a problem in | | | | Microsoft had the year before would be a lot like |
| Europe, because it will have one less Christmas | | | | Gillette having as many new razors available as |
| season than both the Xbox 360 and the Wii. | | | | Schick had produced the year before. The |
| Some analysts think Sony will lose no more than | | | | difference in market share obliterates any possible |
| a few hundred thousand console sales to | | | | comparison. |
| substitutions. If that's true, lost revenue might be | | | | So, even though I think the PS3 is far too |
| in the hundreds of millions rather than the billions. | | | | expensive going into the Christmas season, I'm |
| Strong sales of the Xbox in Europe during the | | | | quite sure that fact won't be evident in the sales |
| Christmas season would be a very bad indication | | | | numbers, because there will be a severe PS3 |
| for Sony. The combined price of an Xbox and a | | | | shortage throughout 2006. Even if the PlayStation |
| PS3 is prohibitively expensive. Furthermore, the | | | | 3 is too expensive, it will look like it's selling well, |
| two consoles are far more similar to each other | | | | because there simply won't be enough of them |
| than they are to the Wii. As a result, while some | | | | produced in 2006. |
| European Wii sales might be recoverable by Sony | | | | Why am I so convinced the PS3 is priced too |
| at a later date, because individuals will choose to | | | | high? |
| buy the Wii first and the PS3 later, very few | | | | The PS3 is too expensive to be a Christmas gift. |
| Xbox 360 sales would be recoverable. Essentially, | | | | Around Christmas, a lot of these consoles are |
| every Xbox sold in Europe this Christmas is a PS3 | | | | bought by parents as gifts for their kids. Parents |
| that will never be born. | | | | are willing to pay a lot for them, because they're |
| Three Separate Markets | | | | a huge one-time item for the kid (and the parents |
| The U.S., Japan, and Europe are really three very | | | | have been hearing about it since well before the |
| different markets. It's quite possible you could | | | | launch). But, the prices likely to be charged in |
| have a console that is very successful in one | | | | 2006 for the PS3 are simply beyond what |
| market and yet unable to get any real | | | | parents are willing to spend. |
| momentum in another. | | | | It's not an issue of how much consumers have to |
| Before this delay, I felt strongly that Europe was | | | | spend versus the value they're getting. It's an |
| the market where the PS3 could come closest to | | | | issue of being psychologically unprepared for |
| duplicating the performance of the PS2 in terms | | | | paying this kind of price for any gift. |
| of market share. There's a long-term danger that | | | | It may be a price older gamers are willing to pay |
| Microsoft will gain market share in the U.S. and | | | | to get a PS3 for themselves. But, it's not a price |
| Nintendo will gain market share in both the U.S. | | | | parents will be willing to spend on their kids. |