The Fall of Sony: From #1 to (Barely) #2

August 21,2008 - The PlayStation 3 is an odd animal. On the one hand it has impressive hardware that over time will likely prove to have greater maximum potential than the Xbox 360, but on the other hand, it has a hard time outselling the Xbox 360 versions of multiplatform games. And in a day and age in which Sony and Microsoft own a fairly equal percentage of the market and development costs force publishers into reaching as many consumers as possible, multiplatform releases rule the day. Hell, it’s even infected once PlayStation-first franchises like Grand Theft Auto and Playstation-only stalwarts like Devil May Cry and Final Fantasy.

With the PlayStation 2, Sony had built a fairly powerful system at the time of its release and sold it at a reasonable price that eventually was re-released with an even more affordable and slimmer model. How did it fair by comparison to the Xbox? The PlayStation 2 has sold over 140 million units worldwide as of July 2008. By contrast, the Xbox sold just 24 million units worldwide as of May 2006. To put it simply, Sony massacred Microsoft.

Despite all of the hubbub about the speed with which the Wii is selling, the PS2 was the first mainstream game console. If you knew someone that played games at the time, odds are they did so on the PlayStation 2.

But Sony is cave diving into an unknown cavern, and I’m not sure if there’s a pleasant way out, if there is even one at all.

What’s ironic is that it was Microsoft who trumpeted the strategy with the original Xbox that inspired the strategy of the PlayStation 3. Rather than release slightly worse hardware at a lower price, Sony invested millions into its Cell processor technology and all of the other components that caused the PS3 to retail as high as $599 at one point. Sadly, even with the high price Sony was still selling them at a loss.

During his keynote address at the GC Developer’s Conference in Leipzig, Germany, two days ago, Acclaim boss David Perry uttered these ominous words:

"Because of the cost of making the PlayStation 3 and because they sold it at a loss, Sony basically has pretty much no chance of making money on the PS3, because it's lost more money than they made during the entire peak of the PlayStation 2 - it's not going to happen again for Sony.”

What’s unfortunate for Sony from a business perspective is that it got so caught up in a graphical penis-measuring contest with Microsoft, that it lost sight of the fact that it didn’t need a multi-core, 8 SPE pixel generating doomsday device. That’s not how it won the last console war and it’s why that even in the event they stay on course to take the #2 position behind Nintendo, they will still have lost this generation.

Now it’s reasonable to assume that at least a fair percentage of the 140 million PS2 owners were “light” owners, buying the occasional game here and there, but in this generation have opted for the Wii to fulfill those gaming needs. What Sony did, however, was totally alienate that consumer, and now it’s feeling the pain.

It released a console that was and still is more expensive than the “hardcore gamers” console, the Xbox 360. Meanwhile, Microsoft has done all it can to court those “fringe” gamers, the ones who play often enough to want a little more than what the Wii has to offer and can justify a PS3 or Xbox 360 purchase. It isn’t inconceivable that the Xbox 360 could take their hard earned dollars either, with the strongest online network and simultaneous releases of previously Playstation-only franchises like the aforementioned Grand Theft Auto and Final Fantasy.

The failure of the PlayStation 3 isn’t that it created a great console – because despite my criticisms, Sony did accomplish that – but that it created too great of a console, one that is so technologically advanced that it alienated a following of a massive 140 million PS2 owners. Because of this single move, Sony completely changed the appeal of the PlayStation brand and turned it from what could have been a dominant second place finisher to what will likely be a narrow victory over the Xbox 360. Sony has turned this war into a photo finish – all while losing money in the process.

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