July 30, 2010 § Leave a comment
Often times we see something odd in the marketplace that doesn’t make sense at first glance – a glaring deficiency in one product does not translate to lower sales when compared to a better engineered and a more wholesome offering. It took me a while of looking at such examples to understand the critical common thread that causes it – product relevance. In what is a first for this blog, I hope to do a detailed analysis of this phenomenon over examples spread across multiple posts. The first of these examples is the story behind the rise of the Xbox360 gaming console from Microsoft overtaking the incumbent home console champion, Sony.
Alive after Death: The 360 degree perspective on the Microsoft’s success
Back in 2000, Sony introduced the Playstation 2 gaming console to unparalleled expectations and eventually tremendous success. Microsoft which had realized that it needed to get into homes for the next digital revolution brought out its own console in the form of the original Xbox a year later. The original Xbox was a decent console with some interesting features like an inbuilt HDD and a fledgling online service for gamers titled Xbox Live. The Xbox was a poor cousin to Playstation 2’s in most homes and non existent in many others. Publishers continued to release console exclusives on the PS2 and shoddy ports for the Xbox. Most Japanese publishers stayed away from it completely. Losses on the Xbox continued to mount and shareholders called for an early exit from the business.
Years passed and Sony and Microsoft were getting ready to launch their next generation consoles. This time, Microsoft had enough market data and experience in the US market to tailor its offerings to the right audience. They knew the relevance of their product to the right consumers. In the meantime, Sony had gotten cocky with the success of the PS2 and assumed they could do no wrong with the PS3. What followed was a true David vs. Goliath episode (although calling MS a David isnt entirely correct considering their 40 billion dollars in the bank). Microsoft launched the Xbox 360 a year ahead of the PS3 and garner critical early audience. They also targeted the console squarely at the best audience- teenage first person shooter loving players that spent countless online hours on the console playing death matches and shoot outs. With Halo and Gears of War franchises, the 360 sucked up all the key buyers before the PS3 even launched. It also helped that Sony priced their console so high to recover a portion of the cost of the expensive blu ray drive included in every unit.
Drunk with initial success, Microsoft kept the hits coming by tailoring their partnerships, games and offerings to the target audience. More FPS’s followed. More exclusive relationships and improvements continued on their online offering, Xbox Live. The most interesting part about the ascendancy of the 360 was the fact that the product was inherently defective with a reported 30% of units replaced. For any other product with that level of defective units, the reception would be non-existent. But the strong teenage FPS loving audience lapped up even a defective console. On the other hand, the PS3 had very minimal defects, a Blu-ray drive built in and free online gaming. None of this lured as many buyers as the 360. Price cuts on the PS3 and a slimmer version have improved sales but it still does not match those of the 360.
The only rational explanation is that the early mover advantage worked for the 360 and the deluge of core gamer audience friendly titles kept them coming. For the PS3, until recently, there has been little thought given to the relevance of the product in the marketplace. Until the release of the cheaper Slim model backed by blockbuster titles, it was languishing in stores without many takers. So there is something to be said about how Microsoft spent time to understand its audience and tailored its product accordingly.
Yes, I did not talk about the tremendously successful Wii in this post. It was not the topic of this post because Nintendo took a risk in building a console for non-gamers. They succeeded but could well have failed and we would be talking otherwise in that context. The PS3-360 case study could be extended to the Nintendo DS-PSP situation but the circumstances are different with the DS being the successful incumbent and the PSP being a still challenging competitor.
More on this topic with additional case studies in the coming weeks.