Wednesday, June 19, 2013

Who are Sony and Microsoft's Real Customers?

In the latest battle of the console wars, Microsoft and Sony are once again facing off as rivals and adversaries to take over the share of gamers.  But this time, things are different, even if a lot of it appears to be the same.

Both companies plan on releasing their consoles in November this year, which no longer gives Microsoft the first mover advantage it had with the Xbox 360 over the Playstation 3.  The Xbox 360 released in 2005, with the Playstation 3 coming almost a year later.  This gave Microsoft the ability to position itself as the leader of the last console war.  They released exclusives and got the world buzzing with its HD graphics and (at the time), HD-DVD drive that was meant to oust Sony's Blu-Ray technology.

However, even with the much more expensive price point, Sony did manage to sell lots of consoles.  Their marketing plan was a little different; they realized that they, along with Microsoft, would lose money on the consoles outright, and that the true money to be made was from licensing and software.  Sony managed to build a mound out of a molehill and got researchers on-board with their machines.  Considering how much processing power their console had, they managed to get researchers to use their machines for data analysis and supercomputing by networking the devices together, and for a time also unofficially pushed the fact that YellowDog Linux could run on their platform.  Microsoft certainly did well with the core gaming market, but managed to lose to Sony in this particular department.

After all of the controversies of the "Anonymous" hack on the Playstation Network and security credentials being stolen, it seemed clear cut that people were willing to pay for the online gaming service run by Microsoft (Xbox Live) since there haven't been any major outages or breaches with the Xbox 360 console.  But now, with this next generation, it seems like Microsoft may be shooting themselves in the foot due to poor strategic planning and changing their customer base.

From the technical side, both consoles roughly are the same.  They both sport 8-core 1.6 GHz processors, custom AMD graphics chipsets, and Blu-Ray drives. They have the same amount of RAM, but Sony chose to go with GDDR5 as opposed to Microsoft's DDR3.  This should give Sony a slight advantage in graphics, but will it really matter if the gameplay is roughly the same?  In short: yes.

This is where Microsoft made some poor decisions and seemed to decide that their customer base is more of their partners and other vendors rather than customers.  With consumer-adverse decisions such as not allowing users to play used or borrowed games without paying extra, an "always-on" internet connection to verify that the game and console have not been modified (of which it checks once every 24 hours or even locks you out of single player), and the "always-on" Kinect which creates privacy issues, the community was outraged.  Microsoft also demoed more TV-centric features, which again takes away from the hardcore gamer market they had the strangehold on with the last generation.  The community in turn has humorously referred to the new console as the XBONE.

Microsoft's new customer at this point are the publishers and developers.  While it's great that we can go to Gamestop or Amazon to purchase a used game, the original developer and publisher get exactly $0 of these transactions except if the user purchases downloadable content (DLC) or has to pay an additional fee to play online.  By effectively disallowing this practice unless the user pays again, Microsoft has taken away the ability for gamers to trade and swap games and thus put power back in the hands of the devs and publishers.  This may indeed lead to more exclusives from big names since they'll be able to cash in far more than with Sony, but if customers stay away from MS as well, this could be devastating.

Microsoft also is no longer allowing indie developers to publish games like the PC market allows on Valve's Steam service.  They must now either find someone to distribute the game for them, or come to Microsoft directly.  The advantage that devs had with the last generation was that they didn't have to pay additional fees for this to happen, which caused amazing games such as Braid, Limbo, and Trials HD to become indie smash hits.  If they are taking away rights from the "little guys" to do what they do creatively, gamers may also refuse to buy the console.

Sony launched this short video (below) insulting Microsoft's decision while quietly moving towards charging for the online gaming service.  But considering that many people would indeed pay to play online if they knew their credentials were secure, there has been less backlash than expected on this topic.  Presumably, the extra costs should go in to additional security needs and features, although that hasn't been explicitly said by the Sony camp.  They also managed to hurt Microsoft's launch event by announcing that their console will be approximately $100 cheaper at launch, which has really sank Microsoft's ship.  Even if the PS4 is better, Sony made some smart moves to make sure that Microsoft would be hurting straight out of the gate.

So where is Nintendo in this picture?  Well, they seem to have found themselves in a rather different market, taking the Blue Ocean approach and going for the casual and non-hardcore gamer crowd.  There is much debate when it comes to Nintendo and where they plan on going, but with this split personality of trying to be a gaming machine while trying to appeal to everyone young and old has left it winning practically nothing.  Sure, the Wii sold amazingly well when it was released, but how many Wii owners do you know who are still playing games aside from showing the random friend how "Wii Sports" works?  The Wii U was certainly catching many people's eyes, but I do not know a single one of my friends who bought a Wii U.  Many of them had bought the Wii and did not want to get burned again, and I certainly don't blame them.

So who will win the war?  It's tough to say when the consoles are still a good 4-5 months away, but if strategy and knowing your customer plays a part, Sony is running away with this one.

1. The Guardian: Xbox One vs Playstation 4 at a Glance:
2. Blue Ocean Strategy (Kim and Mauborgne, Harvard Business Review, Oct ‘04)
3. Official Sony Playstation Used Game Instructional Video:
4. Kotaku - XBONE Image.

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