Jul 3, 10:07 PM

Why doesn't Sony just give them away?

Sony's PlayStation 3

It’s apparent that the razor-and-blade strategy is the name of the game for next-gen consoles. Microsoft loses $70 or more per 360. Even golden-boy Nintendo looks like it’s going to lose money on each Wii. And well, there’s Sony. And despite the $500-600 price tag, it looks like they too will incur a loss on each PS3 shipped.

And so I ask the question: you’re going to lose money on each one anyway, why not just give ‘em away on the cheap? or, dare I say, FREE?

If razor-and-blade is how it’s going to be, then Sony can’t screw around. Time is of the essence. If the high price tag ends up pricing out anyone, IT’S GAME OVER.

The Initial Loss Doesn’t Matter

If we take the last two console generations as any indication, the useful lives of the PS3, Wii, and 360 will be about 5 years. If you can sell a console at the beginning of that cycle, any loss is insignificant compared to the profit from the many games and peripherals they will sell over that time frame. Now I don’t have access to their pricing structure, but years of game sales has to outweigh any loss on the console, even if it’s $400.

And so, time becomes the critical factor. The earlier you can get into that household, the earlier the game/accessory profits can be realized.

Market Penetration

Of all competitors, market penetration is the most critical for Sony:

Competing for Dollars

Each of the big 3 are competing for a finite amount of money in each gamer’s pocket. Despite what Peter Moore says to piggyback on Wii hype, no one wants to be a second or third console. You want to be the only console in that house. Remember, we’re in the business of razor blades – we already lost money on the system. Why would we want to split that lucrative game/accessory profit stream with anyone else?! If Moore truly thinks that sharing a household

The budget-constrained consumer (everyone) also wants to get the most bang for his or her buck. Allowing people to purchase more games also maximizes the utility they get out of the system per dollar spent. A console alone is nothing. The games that take full advantage of its features are what make players realize its value.

Let’s say, for instance, that a gamer has $700 to spend on their new system. How what are their options?

Given these choices, what would you choose? Call the PS3 a premium system if you want. But given the choice between a single game and a full Wii or 360 setup, it’s definitely a hard sell.

Note: this assumes that they even have $700 to spend – you’ve already priced out those poor kids saving up their lunch money!

Creating Standards

Why else does Sony need to get major market penetration, more than anyone else? Blu-Ray.

Despite their long history of standards failure *cough*BetamaxMiniDiscMemoryStickUMD*cough* it looks like Sony is forging ahead with Blu-Ray. For something to be a standard, everyone has to use it. And so if you want to everyone to use your standard, well, you have to price it so everyone can afford it. This is a race into the living room. You need to get there before HD-DVD by ANY means necessary and fight and hold on for dear life. This is United States vs. USSR game theory arms race shit.

If the price stays at $600, well, it won’t happen.

The Doomsday Clock is Ticking

Come November, the 360 will have a 1-year head start. Without a major shift in PS3 pricing strateg, the Wii will have a huge price advantage. You don’t have to be Miss Cleo to see that the outlook is grim.

In the end, it comes down to this. Take a big hit on the consoles you ship now, or endure 5+ years of serious pain. What’s at stake?

Just imagine if Sony announced a “we learned our lesson, you guys are right” price change to $300 for a PS3. The air would be sucked out of the internet in one collective “OMG.” The heads of millions of gamers around the world would instantly explode all over their monitors. Check and mate.

-Jon
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