Are Gaming Consoles Getting Too Bloated?

In the opening chapter of Seeing What’s Next, Clayton Christensen identifies potential consumer groups that he considers crucial to the success of disruptive innovations in technology. [1]  I am particularly interested in how this applies to video game industry.  Like any other sector, the video gaming market has wrinkles in it, which are inefficiencies that can be exploited.  With Sony and Microsoft at the cutting edge in terms of computing power and licensed content, these wrinkles offer different players openings to attract overshot potential customer groups.

In 2006, while Microsoft and Sony were busy trying to turn their game consoles into multimedia entertainment machines, Nintendo released the Wii. Although it took several years to establish a substantial user base, this innovative system that allowed novices to wave the controller at the screen eventually outsold its rivals.  Nintendo’s motion-sensing controller was completely new and became a new-market disruptive innovation.  Despite their impressive processors and multimedia capabilities, the more expensive PlayStation 3 and Xbox 360 didn’t have anything like it. To date, the Wii has dramatically surpassed its rivals in sales, selling over 85 million consoles to date, surpassing Xbox 360’s 52.9 million and PlayStation 3’s 49.2 million units. [2]

Not only did the Wii provide a new way of interacting with games, it was also of a smaller, simpler scale.  The Wii had a slower processor, less storage capacity, and only offered standard definition output (to Sony and Microsoft’s HD resolutions).  With the vast capabilities of Sony and Microsoft’s consoles, there was clearly an overshot market that didn’t require such high-tech features. This new market consisted of families with young children and older adults, groups previously under served.

It took Sony and Microsoft four years to release competing motion control devices. Each took a different approach to address the new market that Nintendo created with varying success.  Sony took a “me too” approach with a handheld device that worked similarly to the Wii controller. The PlayStation Move, is a handheld device, whose motion is tracked in 3D space via a camera sensor placed near the consumer’s television.

On the other hand, Microsoft decided to compete with the Wii in a different way. It took the Wii’s intuitiveness and simplicity to the next level by completely eliminating the controller.  This allowed the Kincet to compete for the youth/casual gamer market as well as appeal to other, similarly under served groups like families with young children and older adults.  The novelty of the Kinect sensor struck a chord with consumers.  According to analysts, it currently outsells Sony’s Move five to one and has set a Guinness World Record as the fastest-selling electronic device ever with over 10 million units sold within four months of launch. [3] By comparison, in it’s first year of release, Nintendo sold just over 3 million units. [4]

Microsoft currently sits at the top of the game console heap but it, along with Nintendo and Sony, must learn from their recent history.  As they get more complex, their attempts to appeal to every consumer through add-on components and major software updates could backfire.  I am intrigued to see how the incumbents respond to potential new market disrupters. For example, OnLive, is a low-cost, bare-bones gaming service that works by streaming popular video games at a low price over the Internet to an inexpensive “mini console.”  It lacks much of the functionality of the other consoles, but may very well appeal to overserved consumers seeking cheaper options for their entertainment dollar.

Questions:

1. In addition to OnLive, what are some other ways innovators are delivering video game content that could disrupt the incumbent console makers?

2. What can Sony and Microsoft learn from their respective responses to the launch of Nintendo’s Wii? Why has Microsoft’s answer to Wii’s challenge proved more successful than Sony’s?

3. What are next steps for each industry player? Where is the industry headed from here – Further convergence with other media (movies, music) or separation to base components?

Notes

[1] Christensen, Clayton M. (2004). Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change. Boston, MA: Harvard Business School Publishing Corporation (Kindle location 675)

[2] Author unknown (April 11, 2011), VGChartz.  Retrieved on April 10, 2011 from http://www.vgchartz.com/#graph_menu

[3] Peckham, Matt (March 14, 2011).  Analyst: Kinect Outselling Playstation Move 5 to 1.  PC World.  Retrieved on April 11, 2011, from:  http://www.pcworld.com/article/222036/analyst_kinect_outselling_playstation_move_5_to_1.html

[4] Nintendo Consolidated Financial Highlights (January 25, 2007). Retrieved on April 11, 2011 from: http://www.nintendo.co.jp/ir/pdf/2007/070125e.pdf#page=6

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