Thursday, November 16, 2006

PLAYSTATION 3: Brand success, or economic failure?

By all means, Sony's Playstation 3 has undergone a rocky start. Sony sold 88 thousand of the promised 100 thousand Japanese PS3 units on Sunday, November 11, when the unit went on sale. It is no coincidence that, a short time later, many very expensive Playstation 3 units appeared on eBay.

Of course, it wouldn't be a Sony launch without technical problems and issues. There is the occasional high definition picture issue, reports that some games already available on the XBox 360 have bugs and issues that make the PS3 versions slightly inferior, and some claims that backwards compatibility with PS1 and PS2 games is somewhat glitchy.

Of course, Sony will be low on supply of units meant for the American launch, games will be more expensive, a high definition television is needed to grasp the true PS3 experience, there's an extremely high cost of ownership that decreases buying power and reduces the number of PS3 games that will be sold, and the PS3 is being used as the platform for a new media format. These are fundamental issues at the heart of the question of whether Sony will succeed in its PS3 endeavor.

There are clashing theories of whether the PS3 will whip the market or succumb to competing forces within PS3 production.

Ultimately, the PS3 will succeed. It will dominate the market in 2007 and 2008, but Christmas 2006 is doubtful. This is not based on analysis of the traits of the Playstation 3 or of Sony's marketing prowess or of the fanbase of the PS3. Simply put, the Playstation 3 will dominate the market because it's a Playstation.

The truth is, possibly the most some consumers know about the Playstation 3 is that it is a Playstation. That enough evokes the association with a strong brand name; Sony has historically provided excellent console systems to the market. Nintendo doesn't have that power; they are constantly referred to as a company that manufactures video games for children.

Ask an uninformed person which is cooler - Nintendo or the Playstation - and the Playstation will win, hands down. Gamers, geeks, and nerds just don't represent the market as much as parents buying games to their kids. Think about it; most gamers are reasonably intelligent and are aware of what goes on in the gaming industry. Would there really be a Hot Coffee scandal if gamers constituted the majority of the market? No. Otherwise, Rockstar Games would shrug their shoulders and say, "Our profits are secure."

And here we have competing factors. Based on brand name, it is extremely conceivable that the PS3 will save the day for Sony. But there are a number of economic factors that might hinder the Playstation's success.

The mainstream video game consumers will be in for a shock when they go to check out that sweet new Playstation, only to find out that it costs six hundred greenbacks. What will really be a measure of Sony's success is whether or not the consumer will still accept the Playstation - even if it's the priciest net-gen console - based solely on the Playstation's reputation as the hip system that has the best games.

Chances are, even if that consumer buys the Playstation 3, Sony still loses. After you shell out $600, ow much money do you have left for games? The 60GB Playstation 3 costs twice as much as the Playstation 2 at the PS2's debut. Some consumers, clueless as to the PS3's considerably greater functionality, will accept the 20GB model as a more affordable substitute. Even then, disposable income allocated to games will be much smaller than the income allotted to games for any other next-gen console.

Sony is betting that the Playstation's image will save the PS3. The ultimate test of the PS3 is whether or not the Playstation has an image worth $500 or $600. Add to that the cost of additional games and accessories in the lifetime of the PS3, and the PS3 could cost anywhere from $700 to $1,500.

But there is one crucial piece to this puzzle that I have not talked about. What of people trying to buy the PS3 now, or the people who will try to buy it in the days following Nov 17? Consumers have a month to find out that trying to get ahold of one of these mythical consoles will cost possibly $1,000 to $2,000, or even more. That reduces buying power even more, leaving game developers out in the cold if they want to make PS3 games. The average consumer just can't shell out $2,500 for the lifetime of his her video game console. Many potential buyers will resist buying a PS3 until the price comes down.

But when PS3s are available in stores finally, the PS3 will see the ultimate test to the Playstation brand. How much is it really worth?

1 comment:

Anonymous said...

Greetings! Very useful advice in this particular post!
It is the little changes which will make the most important changes.
Thanks a lot for sharing!

Take a look at my blog post fast cash advance pay day loan