05 June 2006

The Sony Disaster Unfolds

I've no doubt that Sony will sell out of every PS3 it can manufacture prior to its release later on this year (theoretically). But after that, I think the future looks poor. I have said before here that I'm not a gaming person, but I think the importance of consoles in the grab for the living room cannot be underestimated. Nintendo had looked like the one least likely to succeed last year - it was surely going to be trounced by the mammoth Microsoft and Sony machines which worked by buying marketshare with subsidised boxes.

But I have to say, everything I read about the Nintendo sounds positive, and even makes me think I should investigate one. That kind of reaction may be what Nintendo wants - bring the whole family and other non-gamers into gaming with something fund and relatively affordable (the Nintendo is rumoured to be priced around the US$250 in the US - so perhaps around £160 in the UK inc VAT?). The PS3 however will be priced in the UK at least around the £400 level. It sounds to me that Nintendo know their market really well and are very focussed on achieving it. But what is Sony trying to do?

I'm sure that Sony is paying a lot of attention to what's written on the internet - and it is in reviewing the discussions following various articles after the recent E3 exhibition (the major gaming exhibition) that I came to the conclusion that Nintendo had it about right, Microsoft has been smart with timing, and Sony has got it all wrong. This article at Ars Technica gives a good idea of what Sony could do (could have done) to fix their potential problem with the PS3.

Ken Fisher's hypothesis is that Sony should have skipped the Blu-ray player as a mandatory component of the PS3. It is this that drives the cost so significantly for each device and means that Sony will still be losing money at the £400 price point.

I find it difficult to argue with Ken's views. So, what is going wrong at Sony? I believe that Sony executives have fallen into several traps.

Trap 1 is believing that Blu-ray in PS3 is the equivalent of DVD in the PS2. It was arguably the inclusion of this feature that allowed a PS2 purchase to be almost a no-brainer. The DVD format was now very settled and common and the device could be almost justified alone as a DVD player purchase. But Blu-ray is nothing like as established as DVD was when the PS2 came out. Sony knows that of course, but it is hoping the PS3 will make the standard. I think that is backwards thinking - especially at the price point.

Trap 2 is the "design by committee" problem. With PS2, I can imagine the inventors wondering what killer features they could add to make the gaming console great. Someone thought about the DVD player, and bingo. With PS3, I can imagine the Sony board sitting round discussing how to make Blu-ray a success and thinking they could add it to all the new Playstations. Whether the gaming experts really believed that it would help make the best console I'm not so sure (well, best, maybe, but not best value). It is this same thinking in Sony that has so destroyed it as a company. The MP3 player market was lost not just because Sony doesn't really get software, but also because the content side of the business was so important. Sony's boardroom debates and product debates are presumably about how to maximise each product in terms of what it does for the other parts of the business. Instead, each business should just be innovating the best it can for its customers. We wouldn't have rootkit fiascos, We wouldn't have Sony ATRAC/Connect etc. If Apple had kept the iPod as a Mac-only tool, how much would it have caught on? How many more Macs would they have sold? It may not have happened this way at first, but I'm pretty sure Steve Jobs will have told the two Apple divisions (and they are now separate - Mac and iPod) that they survive on their own. They can do something with the other for mutual benefit, but they can't force their own agenda on the other group. Similarly, Nintendo had a clear goal - the best value exciting next generation gaming console.

It is the trap 2 problem that seems to be affecting Sony across most of its product areas.

Jupiter Research analyst David Card had this to say on his blog after reading an interview (New Yorker magazine only) with Howard Stringer:

Our sad takeaway: according to this story, Sony is in deep water/doomed and Stringer knows it, but he's practically helpless to do anything about it. One hopes Stringer was just holding back his cards.

David has some theories too which I would on the whole agree with. I just can't find a lot to like in what Sony is doing these days. I was certainly a fan and a customer. Now, I think they've really lost their way and don't seem to understand why, how, or what to do.

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