Every day at work we try to leverage past experiences. We try to recognize familiar patterns from past projects so we can fix problems before they grow.
Companies do the same thing, although the strategies may unfold over many years. I believe that the console makers are both blazing new trails and re-living old patterns of history right now. This is Part 1 of a 3-part series on those observations.
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Once Upon a Time there was a console company that had surprised the world by taking the #1 position with their new machine, defeating an established leader that only a year earlier had seemed unassailable. They sold tens of millions of consoles, broadening the market to many new owners who had never bought a game console before.
But then their focus became divided. They did not update their machine, even as rivals grew more attractive. As they allowed their core system to age, the company divided its energies between multiple new pieces of hardware, leading consumers to wonder whether they should buy now or wait for the next upgrade in the system.
So who do you think I'm talking about?
I was thinking about Sega's North American business in the early 1990's (not to mention Commodore and their computers in the late 80's). They shocked Nintendo in 1989 with a great Sega Genesis console and brilliant advertising that launched them past the NES to the #1 spot, and the SNES never overcame that initial lead in North America.
But within four years they themselves had been eclipsed. Uncertain which would-be rival was a threat, they developed a CD drive for the Genesis in Sega CD, then a graphics and audio upgrade add-on, the Sega 32X. The three devices are shown together above at left. By the time they saw that Sony's PlayStation was the real threat, the Sega Saturn was too little too late, and they never rivaled the PSX in sales. A few years later they exited the hardware market completely.
Today
I find the parallels to Nintendo's current position in the console market to be striking.
Six years ago they introduced the Nintendo DS, and surprised many North American analysts by continuing their dominance in the handheld space and out-selling the Sony PSP in what was then a "graphics power loving" U.S. market.
Four years ago, they introduced the Wii and turned the console business upside down, out-selling far more powerful machines from Sony and Microsoft.
But in 2010, as Microsoft and Sony released new console systems promoted as "Wii Killers" Nintendo made no counterstrike. Instead, they proclaimed that no new Wii hardware was necessary.
On the handheld front, where Nintendo has long dominated the market, we've seen the DS followed by the DS Lite, the DSi, The DSi XL, and now the upcoming 3DS.
Where Nintendo has not defended the Wii at all, one could argue they've over-complicated their evolution of the DS, risking the age-old sales nemesis: "I'll just wait for the next version and then I'll buy."
Why defend the handheld turf so fiercely and appear to leave the console door unlocked? Because Nintendo is continuing to count on the significant price difference between the console machines. As of this writing the most basic Wii at Amazon comes in at $179.99, while the least expensive 360 + Kinect is $344.99 and the PS3 with Move bundle is $399.95.
Will the "Everything is OK" strategy work for the Wii now that Microsoft and Sony have advanced motion controls, especially with the steady price cuts that the 360 and PS3 have implemented year by year? I'll take on that topic in Part 2 of this 3-part series.
And that, as the headline says, is Part 1 of How the Console Makers are Making and Reliving History.
Do you disagree? Use the comments box below to share your thoughts.
Copyright (c) 2011, Don Daglow. All Rights Reserved.
From Christian Svensson via Facebook: (Thanks, Christian, for your permission to relay this):
Christian Svensson: Interesting perspective. I'll make no counterargement that the Wii's success was stunning (it was). I'd argue though that most analysts assumed the DS would be successful given the dominance of the GBA and Gameboy before it. In that market segment, PSP was the upstart (and in Japan was VERY successful). Secondly, the comparison to Sega in the 90s has a major difference... the cash positions between the companies are wildly different. Sega had billions of dollars in debt. Nintendo has billions of dollars in cash reserves and no debt. I'm not sure they HAVE to be as reactive. :)
Posted by: Don Daglow | January 10, 2011 at 12:53 PM
I agree re the handhelds, though I may not have worded it well. Nintendo were the leaders after the GBA and then defended that turf successfully. The only criticism there might be that they at times have balkanized their market with too aggressive a supply of new models.
Re Sega and Nintendo: yes, you're right. Sega bet the hardware side of the company on their Saturn strategy and lost. Nintendo is merely betting market share and leverage for the future, and are in a dramatically better financial position.
Thanks, Christian, for taking the time to write this!
Posted by: Don Daglow | January 10, 2011 at 12:54 PM