Who Cries For the PS3? Thee? Not Me

[Suhit Gupta]

<div class='os_post_top_link'><a href='http://www.edn.com/blog/400000040/post/1930005593.html' target='_blank'>http://www.edn.com/blog/400000040/post/1930005593.html</a><br /><br /></div><i>"My general lack of enthusiasm for Sony's people and their products is <a href="http://www.google.com/search?q=+site:www.edn.com+Dipert+Sony">pretty well documented at this point</a>, so the subject line of this editorial shouldn't be terribly surprising to all of you. I've been consistently critical of the PlayStation 3 over the past few years, and I confess to feeling a certain amount of told-you-so smugness as I read through the overwhelmingly negative bang-for-buck reviews that are now rolling in (I should say up front that my comments are based exclusively on nine months' worth of archived anecdotal information; I don't have a PS3 in-house). Check out, for example, two recent writeups; <a href="http://arstechnica.com/reviews/hardware/ps3.ars">Ars Technica's 'incomplete' critique</a>, and the <a href="http://games.slashdot.org/article.pl?sid=06/11/20/1424227">scathing evaluation delivered by the New York Times</a>. The PS3's crippling flaws are a revealing case study in the inherent complexity of the new product definition process, especially when it's distorted by overriding corporate dictates, and therefore a potential valuable lesson to all of you in the engineering world."</i><br /><br />Oh man, this article reads like one of those bad reviews of a movie like <a href="http://www.imdb.com/title/tt0382992/">Stealth</a>... remember that 2005 movie which had all that ridiculous hype? $138 million budget, lots of flash, lots of advertising and it turned out to be a huge nothing. It only made about $31 mllion. The PS3 seems to be completely plagued with problems. Honestly, this may be one of those time when Microsoft has actually gained the lead after just two iterations of a product (usually they do it after three).

[Felix Torres]

Cry for Sony?
Not me...
Worry about the competitive market balance? Yes...

The PS3 launch is starting to approach (excuse me if you've heard this before) a PR disaster of biblical proportions.
Its not so much that the PS3 is a bad product; its just the Sony clearly mismanaged the launch of a product that is at least 6 months away from being competitive; the PS3 had no business being sold in 06.

This is not a good thing for anybody outside of Redmond.

As an XBOX owner, the odds of me ever buying a PS3 myself were and are extremely low, but I really would prefer to see Sony in the role of a strong number two in the market than as a hopeless also-ran. (Right now, the best they can hope for is a distant third.)

As far as 2006 is concerned, the PS3 is a non-entity, with essentially zero market impact. After all, its hard to impact a 16 billion dollar a year market with barely 200K units shipped. Instead of the million units a month production capacity that Sony bragged about back in the spring, they have only been able to deliver on the order of 50,000 units a week in the six weeks since they started production. At that rate, they'll be lucky to hit half a million by new year's.
And that is not just bad news for Sony (who deserve it) but also for the companies spending millions to develop the early PS3 games.
Worse, it is bad news for us, the consumers.

Consider that MS has lowered manufacturing costs to the premium 360 to the $320 range (on a system with a game attach rate of 5 and an accessory attach rate of 3) and then factor in that there has been no official price drop. Yes, it is common and easy to find "discounts" in the form of free games and gift cards or even across-the-board 10-15% discounts that apply. But the official price remains at last year's level. Back in the summer when folks asked MS if they would be dropping their prices they simply laughed and said "Sony already gave us our price cut."

So instead of selling for $199 and $299, the 360 goes for (at best) $250 to $350 and a lot of them are going at full list. Again, great for MS, not so hot for us.

The hole Sony is digging is a deep one; MS is easily going to get a 10 million unit lead by january and likely will hit 20 million by next xmas. Now, Sony has a 4 million unit a year advantage thanks to japanese nationalism, but you can't sell what you can't build, even in japan. Assuming Sony can magically fix their component shortage problems by January and start shipping out a million PS3s a month, they will remain anywhere from 6 to 8 million units behind MS at the end of 07 and likely won't catch up until 08 at the earliest.

MS now has options, lots of options; drop the price of the 360 by a full hundred dollars next summer or boost the hardware specs? They're already raking in good money off Live (Gears just doubled the subscription rate!) and Arcade and have started dabbling in video, with Music just on the horizon. If this keeps up, they could conceivably start giving xboxes away for free with music subscriptions by early 08! And that's assuming Sony has a competitive product. If not, they could simply sit back, watch game developers defect from Sony, and simply milk the profits for another four years, easy...

Now, most of what ails the PS3 is just crappy software (the HDMI glitches, the BluRay scaling problems, the attrocious network performance, maybe even the frame rate issues) and that can be fixed.

But the PS3, like the PS2 before it suffers from a crippling *design* flaw that can't be patched over. The lack of hardware scalling is a serious flaw that limits the PS3s backwards compatibility and forecloses a significant portion of the market, just as their lack of VGA support does.

The high price can be fixed over time, the lack of a scaler chip cannot.

With Nintendo choosing to serve only SD customers and Sony so focused on future-proofing the PS3 they forgot to be compatible with the installed base of displays, the 360 is shaping up as the only viable option for a lot of mainstream buyers.

I fear we're looking at another instance of MS-assisted (market) suicide.
As of now, MS has many ways of winning and Sony only one of surviving.

Not. Pretty.

[Chris Gohlke]

A visit to Toys R Us this morning was telling regarding what the retailers think. Of course they only had 360's available for sale, but based on their game placement, it was clear they were expecting more Wii. Both the 360 games and the Wii games were prominently placed at the front of the video game aisle while the PS3 games were at the back of the video game aisle. Nobody's going to buy games for a system they can't get and the retailers are not going to waste space on a merchandise they can't sell.

Microsoft really has an advantage here since they have cards left to play. If they are making a profit on the hardware already, they can easily put in a price cut if Sony becomes a threat. I'd love to see them come out with a bundle deal including the wireless adapter and the HD drive and maybe a bigger hard drive. This would put them on par with the PS3 as far as everything in a single package. Considering a hard drive upgrade should have very little cost and that there is probably a ton of profit in the wireless adapter, this should be fairly easy to do and come in well under the PS3's asking price. But, the smart business move is probably to leave it as is and rake in the profits and let Sony finish themselves off.

[Felix Torres]

A visit to Toys R Us this morning was telling regarding what the retailers think.

The local Walmart had the PS3 demo unit shut down completely this morning.
Total blackout.
Considering all they got was 5 boxes at launch and probably don't expect any the rest of the year, they clearly saw no reason to keep it running this busiest shopping day of the year.

Agreed about the 360 combo. If MS added a bigger drive and the wireless adapter, their cost would still be less than $400 by a lot.

Among the cards they have yet to play:

- the fabled DirecTV blade
- a homestation-style 360
- bringing the MSNTV2 software to the 360
- Encarta for XBL--think about that one...

Talk about having the upper hand, huh?