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Xbox vs. PS3: The Wii Lesson

The title of this article sounds like I’m writing for an Irish publication of some type, and I suddenly feel the need to talk about the Wii people and a pot of gold.

That pot of gold has been elusive to both Microsoft and Sony of late. Sony has been in search of sales for the PS3, and Microsoft has just instituted a massive repair policy change and taken over a $1B (hint: that is about what a small aircraft carrier costs) charge to earnings.

Oh, and as a side note, looks like an iPhone Nano is coming for those of you who took my advice and waited; I think you will be really happy you did (ok, the real link is here). Also, there has been some coverage of the iPhone recall; with all of the focus on the device’s cool features, it looks like we missed something. Seriously, however, the battery should be replaced free under warranty, or the phone should be recalled. I’m not aware of any other phone where the manufacturer didn’t disclose that the thing wouldn’t even last for the two years it was under contract.

Back to game systems; as this all goes on, the Wii continues to build momentum, and I think it is time to revisit why, for now, the fight is between Xbox and Wii.

PS3: Can $100 Save the Franchise?
The quick answer is "no," and the data I’m seeing not only indicates that both the Xbox and the Wii are outselling it, but also that the PS2 continues to outsell it. This suggests it is a dead platform, and if Sony doesn’t do something dramatic rather quickly, they are likely to lose the franchise, because the PS2 can’t hang on forever.

The magic formula for consoles — and this was actually developed at Dataquest back in the early ’90s — is that the closer you get to dropping below $200, the more you sell; the farther away from $200 you go, the less you sell. Every break point is over 2x, which suggests that at $300 you’ll sell about half, and at $400 a quarter, of potential every time, everything else being equal. This can be mitigated by heavy marketing, incentives, and the lack of a competing product under $200. After $500, it really doesn’t matter that much since you are selling to folks who aren’t very price-sensitive, so the differences between $500 and $600 aren’t that significant.

That means dropping the price $100, but still remaining in the nosebleed section of consoles, shouldn’t have much impact on volume. However, it will have a major impact on profits. Given that this platform really lacks any flagship games like Halo adds to the mess, because people aren’t chasing the games to buy the platform. In addition, the old value proposition that you got a cheap Blu-ray player just went away, because Blu-ray players have dropped below $400 (you can find them for $350 at Costco). Of course, HD-DVD players have now dropped below $300, so that war continues. (Since you should be able to get one Blu-ray and one HD-DVD player for a combined price of under $600 by year end, it kind of makes you wonder who is going to buy the $1,200 LG combination players, doesn’t it?)

The only thing I think Sony can do is rush out the PS4 with a sub-$300 price target and no Blu-ray drive and put some effort into a couple of great games. Letting Blu-ray kill the Playstation franchise still makes no sense to me.

They are losing developers very rapidly, and if something isn’t done, they will be out of this market by the end of the decade.

Xbox 360: Free 3-Year Warranty
In what seemed like "news of the weird," shortly after it was reported that Apple was treating folks buying the new iPhone like crap, Microsoft stepped up and started giving people free 3-year warranties for their Xbox 360 and rebating any repair fees they have paid.

I don’t even want to think about what it would take to get something like that approved. There were clearly a growing number of reports suggesting they had a reliability problem, but I’d seen no call for a boycott or initial posturing for a class action suit, which typically precedes a decision like this. Granted, I don’t see everything, and that could have been happening in the background, but this was the right thing for them to do, regardless.

Microsoft has signaled they don’t intend to do a price drop, but given that Sony did the same right up until they had one, you have to wonder if Microsoft will do the same later in the year. Target price for this console was always around $300, and it hasn’t reached this price point yet. Typically, an action like this happens right before a holiday season, so keep your eyes on late September/early October in anticipation of a change.

Rob's modded Xbox 360
Rob’s modded Xbox 360

In addition, Microsoft has hinted at introducing controllers like the Wii’s (but that go farther than the Wii did), and some other accessories are likely coming. However, for now, my favorite doesn’t come from Microsoft at all. A couple of weekends ago, I got a mod kit for my Xbox 360 and for my controllers. It took about 90 minutes to do all three, and I’m still having fun with the result. Now, this is what an Xbox 360 should have looked like.

Microsoft has a game advantage and controller advantage now. If they match the fun factor of the Wii, their only remaining disadvantage is price, but that is by far the most powerful disadvantage of the set.

Wii: Back to the Future
Through all of it, the Wii continues to plug along as the segment champion. While it doesn’t really have much of a game selection yet, people are having fun with what it does have, and for a little over $200 it continues to provide a lot of value. Strangely enough, this system appeals to adults and females who weren’t previously gamers, which has expanded the market.

Like the DS, Nintendo continues to maintain a solid focus on their market and is back to building products folks want to buy. This is something that a lot of people who are building things (from phones to PCs) just aren’t getting right now, so my hat goes off to Nintendo for getting it right again. Of course, they used to own this segment, which suggests Sony could come back — and clearly, Microsoft remains in the race as well — so there will be no resting on laurels here. Also, all three vendors have now launched broad developer initiatives aimed at gamers. Development tools are Microsoft’s forté, making life even more interesting for the other two, but it should result in more interesting content (assuming there isn’t a lot of junk) on all three platforms.

The basic lesson is, have the right product at the right price. Neither one is optional, and most markets are lead by those that have learned this lesson well. Nintendo is a case in point, and this is something that Apple may want to revisit if they don’t want the iPhone to be their Pearl Harbor.

E3 is this week, and there is some really cool stuff coming, evidently. I can hardly wait until the holidays when it arrives.

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