Why PS2 Succeeded, and Why PS3 Will Fail

The Sony PlayStation 2 had a lot of things going for it when it launched in October of 2000. It would launch more than a year before Nintendo’s GameCube console, a head start that proved to extend the lifespan of the console far longer than the usual five years. Normally, launching a game console outside of that five-year cycle spelled disaster (just ask Sega), Sony managed to make it work, but it wasn’t by virtue of their games. The launch lineup for the PS2 was laughable, and would not improve for the majority of that first year. No, the PS2 sold for one reason and one reason only: including DVD movie playback cheaper than a dedicated DVD player.

At the time of the PS2 launch, a home DVD player retailed for about $399. Sony was selling the PS2 for $299, taking a significant loss on the hardware and expecting to make it up on software sales (often described as the standard game industry model, despite Nintendo not following that model themselves). For the first year, Sony was taking an absolute bath on the PS2 hardware, since the initial software selection was pitiful, yet the installed user base for the machine would pay dividends in the years to come, allowing Sony to secure many exclusives.

Not only was DVD playback a huge success for Sony and the PlayStation 2, but it was one of the factors that put DVD on the map, pushing hardware prices down and forcing many of the studios not convinced about the viability of the format to bow to consumer pressure. So it came as little surprise that Sony would announce years later that they would again release a game console featuring a new movie playback format at a price significantly less than the existing hardware. This time, however, Sony is the primary player for that movie format, and has a vested interest in its future. If lightning were to strike twice, Sony would come out as an unstoppable force.

However, while all the planets were aligned with Sony the first time around, six years later the outlook is not as positive. There are several factors at work against Sony, some they are powerless to control, and it is these same factors that will likely put Sony in a losing position.

1. No early mover advantage. Sony was the first out of the gate with PlayStation 2 (Sega launched Dreamcast between generations), but this time they’ll have been beaten to market by Microsoft and Nintendo both.
2. Extremely expensive. While PlayStation 2 launched at a relatively high $299, it was still at a reasonable price point compared to other console launches. Microsoft was widely criticized for launching the Xbox 360 at $399, but Sony will double their own price point for the PS3 at $599. (I’m intentionally ignoring lower priced configurations for “crippled” hardware.) No console selling for such a high price point has ever been a success in the marketplace.
3. Blu-Ray has competition. When DVD was released, there was no competing high-end video format. Blu-Ray was beaten to market by HD-DVD (by just about a month), eliminating the first-mover advantage in the video space. Blu-Ray has been criticized for poor video playback compared to HD DVD (though this may just be an early hardware issue), not to mention that HD DVD discs are less expensive to produce. It seems Sony hasn’t learned much from their Betamax days. Regardless, if consumers bet on HD DVD over Blu-Ray, they could go running to Microsoft’s Xbox 360 instead of PS3. It’s possible that some consumers might see BluRay and the PS3 as a whole as a “future investment” (a line of thought Sony is actively encouraging), but it’s an incredibly risky strategy.
4. PS3 requires significant additional investment. While it’s laudable for Sony to appeal to the videophiles and technologically adept, for either video games or high-definition movie playback, you’ll need a significant investment in display hardware … you’ll need an HDTV. While Microsoft has touted their HD capabilities, movie playback and even gaming looks fine on regular TVs, and still superior to existing competition. For PlayStation 3, many of the features heavily emphasized by Sony (such as 1080p) require the use of HDTV to see additional benefit. BluRay looks no better than DVD on a standard definition TV, making that price tag even more painful to deal with when substitute products are available at significantly lower prices.
5. No “wow” factor. When PS2 was first shown to the public, the excitement was palpable. PS2 was such an obvious improvement graphically that it was a no-brainer where you would go for “next-generation” games. When PS3 was finally revealed at the last (and I mean last) E3, the general consensus was, “Meh.” Graphically, it’s difficult to tell the difference between PS3 and Xbox 360 graphics, and in some cases, it was stated that the Xbox 360 games looked better, as developers had a year head start to work around the system. Without some other compelling feature (such as the unique controller for Nintendo’s Wii console), gaming does not have a visual improvement on the PS3. Every gamer knows that graphics are not the end-all, be-all of games, but they are a major factor and one that is working against Sony’s favor.
6. The loss of exclusives. Already, word is coming out that developers are hedging their bets and releasing what were supposed to be exclusive PS3 launch titles on Xbox 360 and/or Wii. Microsoft made significant waves at E3 when Peter Moore announced Grand Theft Auto 4 would be on Xbox 360 with episodic content (through Xbox Live). It seems that every month, more titles are added to the list of PlayStation 3 games that are cancelled, usually in favor of an Xbox 360 version.
7. No innovation. Another major criticism of Sony’s E3 announcements were the apparent “me too” attitude, showing off a motion-sensitive controller in a cheap attempt to steal some thunder from Nintendo’s Wii (which went on to win Best in Show), and the revelation that they will have a similar system to Xbox Live’s Achievements called “Entitlements” (apparently oblivious to the connotation that moniker elicits).

Sony is clearly behind the eight-ball, and it’s very tough to see why analysts are predicting Sony to be the winner in this console race. With a deck stacked so clearly against it, Sony is relying on backwards compatability and desirability to drive sales, seemingly oblivious to complaints about the price. While stranger things have happened, it’s highly unlikely that Sony will be able to fend off Xbox 360 and Wii without significant advantages that simply don’t exist this generation. You know that the outlook is less than stellar when the editor of the Official PlayStation Magazine comes out on her blog to address these very same issues, stating that she won’t be buying a PS3 of her own.