Goliaths Square Off in Game Console Battle

The battle plans have been laid, and the combatants are poised to attack. After months of mystery, the big three game console makers — Sony, Microsoft and Nintendo — have each revealed their next-generation gaming machines. Whether the coming market showdown will result in any dramatic reshaping of the market remains to be seen, but most industry watchers expect the leaders to maintain their positions — at least for now.

The latest clash has generated a lot of hype for a number of reasons, starting with the increasing popularity of game consoles. “It is no longer a case where just teens are interested in gaming,” said David Mercer, vice president at market research firm Strategy Analytics. “A number of business professionals now play regularly.”

Another factor is Microsoft’s growing interest in this space. The company was able to enter and now dominates a number of consumer gaming markets. In the latest battle, the vendor started off on strong footing with its plans to deliver the Xbox 360 before Sony could get its Playstation 3 to market, or Nintendo could ship its Wii console.

“Microsoft will end up with almost a full year’s lead in shipping its next generation systems, and that is significantly better than the last time when it was almost a year behind,” said Michael Wolf, principal analyst with market research firm ABI Research.

Battling for Share

The vendor has aggressively sought out additional market share, even at a financial cost. “Microsoft is losing about US$400 on each Xbox 360 system that it sells,” said Richard Doherty, president of market analyst firm Envisioneering.

Microsoft has also focused on online gaming, making it a central point in the Xbox 360 experience. It was the first vendor to develop online gaming functions and has been using game and peripherals sales to recoup some of the revenue lost on consoles.

The overall number of online gamers it claims through Xbox Live is small but significant at a few million users, and the firm has some growing clout in this area. Online gamers are viewed by many as the leading-edge crowd, whose word can make or break new products. In addition, online gaming has been growing steadily, with analysts expecting that half of all gamers will play online within a few years.

Microsoft has also been successful in courting third party developers. Traditionally, Sony had a lock on third party development but this has changed as well.

Blu-ray Causes Delay

Microsoft’s moves have been aimed at knocking Sony from its market-leading perch. The vendor fell a bit behind in shipping its product because it encountered technical glitches with the Blu-ray high definition disc drives included in its system. Consequently, Sony is not expected to start shipping its system until this fall.

Yet users may find that the new system is worth the wait. “The PlayStation 3 looks like it will be more able to produce life-like graphics than the Xbox,” Strategy Analytics’ Mercer told TechNewsWorld. The Blu-ray functions provide Sony users with HD capabilities, something available only as an add-on with the Microsoft system. In addition, PlayStation 3’s cell processor technology seems to be more powerful than competitors’ microprocessors.

Backward compatibility is another alluring feature with the PlayStation 3. The Sony system allows users to play games designed for the PS/2 and even the PS/1 while the Xbox 360 has some restrictions in regards to support for earlier Xbox titles. “After users have invested a hundred dollars, or more, in game titles, they want to continue playing them on new machines,” Envisioneering’s Doherty told TechNewsWorld.

How High Will Consumers Go?

One challenge for Sony, though. is the high cost of its system. The inclusion of a Blu-ray drive and the use of cell processors means users must pay a premium price — US$500 to $700 — for the new console. “I am not sure how many consumers will be willing to spend several hundred dollars to buy a gaming console,” said ABI Research’s Wolf. “Those numbers are much higher than traditional system costs.”

Pricing may continue to become a game of cat-and-mouse between Microsoft and Sony. As Sony starts shipping its system, Microsoft may be able to lower pricing to make its system attractive to more customers.

That advantage may not last long. “I have a great deal of respect for Sony and its ability to engineer products in a small form factors at affordable prices,” said Envisioneering’s Doherty. “Competitors often talked about beating the company on price when it came to items, such as the Walkman, but that never happened.”

A Blast From the Past

While Sony and Microsoft have delivered products in line with expectations, Nintendo surprised many analysts. Though it once dominated this space, the company had been losing market share, and there were doubts about its ability to remain viable as the marketplace continued to evolve. Yet when the vendors outlined plans for their next generation systems at the E3 show earlier this year, Nintendo captured the most buzz.

In effect, the company shunned the console features that have kept its competitors busy and tried to develop differentiating add-on features, the most innovative being a new motion-sensing controller. It plans to begin shipping Wii in September or October.

“By trying to make it easy for older adults and youngsters to learn how to play games, Nintendo is focusing on expanding the base of game console users,” Envisioneering’s Doherty told TechNewsWorld. Consequently, Nintendo is enjoying much higher publisher support than was evident at the launch of its GameCube.

The end result is, at the moment, the top three companies seem destined to be in the same market positions when they launch their fourth generation products in a couple of years. “We have Sony solidly in first place with the main question being whether or not Nintendo may be able to take a few percentage points away from Microsoft,” concluded Envisioneering’s Doherty.

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