If you look at the relative positions of Sony and Microsoft this is a no brainer.
Sony are losing a billion dollars this year alone in retail price support for the Playstation 3 because it is far more expensive to make than consumers are prepared to pay. To finance this they have sold off other chunks of their business and raised equity capital. The PS3 is also suffering from a lack of AAA exclusive games, so currently there is little motive for a gamer to buy one. This changes during 2008 when the system seller titles start to appear.
Microsoft have first mover advantage in that the Xbox 360 has a lot of AAA exclusives. Hence they have sold twice as many consoles worldwide, thus far, as the PS3 has. However their superiority in exclusives will start to erode during 2008. They have a second advantage in that the 360, whilst technically as capable as the PS3, is relatively economic to manufacture. This is something Microsoft have put a lot of effort into.  So as their AAA exclusives advantage reduces then their ability to use the price mechanism will come further into play. Especially as Microsoft have lots of money in the bank.
Currently Microsoft can easily sell every Xbox 360 they can make, fuelled by the demands of the festive season. However, as we get into Q1 2008 the demand will, naturally, slacken off. This would be the absolutely perfect time for Microsoft to use the price mechanism to stimulate demand. They could put together, say, a Halo 3 package at a price where it was a “must buy” and so move a huge number of units off the shelf. By acting sooner rather than later they pre-empt Sony’s upcoming AAA titles. And by using the price mechanism they know that they are using a tactic that Sony just cannot afford to follow.
This really is a one off moment where Microsoft could put in the knock out blow against Sony and so win this generation of the console war.
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“Sony are losing a billion dollars this year alone in retail price support for the Playstation 3”
And Microsoft are losing a billion dollars on technical support (red ring of death) alone. 🙂
I don’t know. I mean on paper it all sounds tickety-boo, but somehow I doubt it’s that simple. Sony is just starting, and has been, admittedly, for the last year, but a spurt may be on the horizon. Any knock-out attempt by Microsoft now would lead to an inevitable sudden growth in the short term, but I doubt it’s enough to kill Sony or push XBox into an insurmountable lead, let alone stop Sony from making a come-back in the near future.
But who knows… 2008 will be a very interesting year, maybe not for the consumers as much as the closing of 2007 was, but for industry observers a lot is going to be decided…and I doubt price cut is the heaviest weapon in this battle.
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Thanks for the analysis. Your points are reasonable, but somehow they do not seem compelling enough to ensure Microsoft a knock-out victory this generation. As you point out, the 360 will no longer have a software advantage in 2008. And the 360’s cost advantage is relevant only so long as the additional features of the PS3 are not valued by customers — I am an example of a person who has spent more adding features, such as WiFi, to my 360 than I would have paid for a PS3 which already included them.
In the end, the only Microsoft advantage that Sony cannot counter in a number of ways is the first-to-market position of the 360. Microsoft rode that advantage well in 2006 and 2007. But if recent sales numbers are any indication, the PS3 is becoming more, rather than less, competitive with the passage of time. If software and cost advantages could not deliver the knock-out punch for Microsoft in 2006 and 2007, then I doubt that those factors will be sufficient now that Sony appears to have finally taken the gloves off.
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Price is always a factor. I think as consumers in the big picture, people from the industry and technically informed people are a small minority. Sales are usually factor of a successful brand, marketing campaign and inevitably price – the one people consider reasonable for a game console.
The lower the price – the more willing will be the uninformed customer (the majority) to make an inpulse buy. At that tipping point, my personal opinion is that PS3 is going to have an advantage with a widely established brand and with massive (and possibly loyal) PS2 install base. I agree with Bruce on this one. Microsoft are going to make a move soon.
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Who is this Bruce guy? He is great! I love these articles! Anyway he is always writing what you were JUST thinking about, giving a solid opinion. All without being dogmental about it. I think deciding to put a blu-ray player into the ps3, instead of putting money into system performance. Performance that should have been MORE powerful since it was coming out later. If only they could turn back time!
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Personally, I don’t think that Microsoft will be delivering any kind of knockout blow at the min, as there aren’t many 360 exclusive titles due for release next year that are likely to garner any kind of attention. Please keep in mind that I am a big xbox fan, and I don’t yet own a PS3, but with MGS 4, The new Gran Turismo, a new Final Fantasy game, and Home, PS3 has some decent exclusives, and honestly, I can’t think of any exclusives that have been announced for the 360 that I’m excited about.
Sure, eventually there will be some more exclusives such as Dead Rising 2, a new Gears of war and so on, but hey are pretty far off on the horizon. Unless Microsoft decides to give Square enough money to choke a whale with, to stop FF XIII being PS3 exclusive, the PS3 is going to sell like hotcakes.
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Well, sure there are not as many AAA titles next year, but there are titles which a person might not want to miss out on. For example, Ninja Gaiden 2, Fable 2, Halo Wars, Alan Wake, Left 4 Dead, these titles outnumber the good titles from play station 3.
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I for one, severly disagree with the assumption of Microsoft not having great AAA titles coming out next year. People forget that almost all of Sonys’ effort and attention is to next year. Because of lack of titles this year. Microsoft on the other hand is only hyping THIS years games. This they have pointed out since the game developers conference, and the new E3. Makes sense to concentrate on the present because that is a very bad weakness that the competition has. Next year Microsoft will start to hype those games. Just as Sony went from FFXIII, to MGS4, to heavenly sword, to LAIR, so will Microsoft. See how Sonyfans swayed from title to title as the system saver? It will happend to the Microsoft fans also. When you do the math, when it comes to games that are scheduled, or released it looks like this. Microsoft 378, Nintendo 287, Sony 237 (source http://www.tothegame.com) Not to mention that Micirosft has more RPG’s coming, and scheduled than Sony does. Things have changed. You already have TWO square RPG’s scheduled for the 360 one of them exclusive. But I myself am looking for FFXIII (turn based version), and sonys own Arc the lad (next). in short there will be plenty of titles besides gears of war two and halo wars to hype next year, A new mistwalker rpg.