Monday, July 14, 2008

E3 Console Post #1: Meet the Stupidheads

Microsoft and Sony have done an excellent job of demonstrating that they are completely clueless before E3 even begins. Let's take a look.

Microsoft, incredibly, announced this on Sunday (thanks Kotaku):
Redmond, Washington—Microsoft is giving consumers more gigabytes for their buck. The company today announced an Xbox 360® console with triple the storage space of the original console, but for the same price of $349 (U.S.) estimated retail price.

Available in retail stores in the U.S. and Canada starting in early August, the upgraded Xbox 360 will include a 60GB hard drive for storing the growing wealth of digital entertainment available for the console, including music, movies, television shows, and game content. In addition, Microsoft today dropped the price of its 20GB Xbox 360 console in the U.S. and Canada to just $299 (U.S.) (ERP) while supplies last, a savings of $50.

They're kidding, right? They're going to reduce the 20GB unit by $50 until they sell the existing inventory, then keep the $349 price point?

Dear Microsoft: right now, you are #3 in sales this year. In other words, LAST. Let me say that one more time: LAST.

This might goose sales for one or two months, while people buy the 20GB units at a lower price, but then, they're dead. To 90% of the buying public, ending the $299 price is going to look like a price increase to everyone.

After selling out the 20GB, could they then announce that the new price for the 60GB is really $299, not $349? Sure. It would also be a giant "screw you" to all the people who went out and bought the 20GB while it was on "sale."

This is an epic fail by Microsoft.

Meanwhile, over at the House of Arrogance, Howard Stringer got loose with the whiskey and said this to Bloomberg:
"I've played a Nintendo Wii,'' Stringer said last week at the Allen & Co. media conference in Sun Valley, Idaho. "I don't see it as a competitor. It's more of an expensive niche game device. And yet, it's been kicking the living shit out of us from the day it was released."

Wait, I added that last sentence.

The Wii is an "expensive niche game device?" It's $249 with a pack-in game! Maybe Sony should have built an expensive niche game device, because the installed base of the Wii worldwide is over twice as large as the PS3--and the gap continues to grow.

Sony has also indicated last week that they have no intentions of cutting the price of the PS3 this year.

Here's the problem for both Sony and Microsoft: without cutting their prices and greatly increasing sales, their installed bases are being dwarfed by the Wii.

But that doesn't matter, say the analysts. What matters is being profitable. That sounds very smart, but it's wrong, because it's artificially separating installed base from profitability, and it just doesn't work that way.

Do you know why the PS2 has lasted for 7+ years? An overwhelming, gigantic installed base. Sony made a fortune the last few years on the PS2, but those years wouldn't have existed if the console had an installed base of 50 million.

Remember when I said that developers were going to start switching over to Wii projects? At the time the Wii launched, and even for the first year afterwards, there were 2-3 times as many games listed as upcoming releases for the 360 and PS3 (based on EBGames "coming soon" pages). I sat down yesterday and counted all listed releases through the end of 2008 (and "deluxe" editions didn't count, so no game got counted more than once on a platform). Take a look:
Wii: 104
360: 93
PS3: 85

That's dramatic, and it's going to get progressively worse for the 360 and PS3 as the Wii continues to outsell both of them combined.

THAT'S why price matters so much. Why develop for one of the "true" next-gen consoles when it costs twice as much (or more) and has half as much (or less) of the installed base?

Oh, yeah: third party software doesn't sell. Unless you're Guitar Hero III (almost 3 million units), Mario & Sonic at the Olympic Games (over 4 million units), Carnival Games (over 1.5 million units), Resident Evil 4 (almost 1.5 million units), Rayman Raving Rabbids, Lego Star Wars--do I need to keep going?

Yes, some good games haven't sold well on the Wii (No More Heroes is my favorite example--go buy it right now, please), but that's true of any platform. What's beyond dispute, though, is that third party software is selling better and better on the Wii, and given how fast the installed base is growing, that's an unstoppable trend.

Microsoft and Sony are guarding their price points so fanatically that they're shortening the useful lives of their consoles.

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