The Top 5 real lessons that Sony, Nintendo & Microsoft have made in the gaming market that you should learn from and avoid in your business – technology or not:

#5 Don’t Be Arrogant

Well, yes but not in the traditional sense – companies are not people – people who are arrogant are pretty much annoying to everyone and they tend to die early and lonely – companies can be arrogant because that’s the first sign that your competitors feel hopeless to compete against you – they accuse of you of essentially looking down upon them and that you consider them inferior. That’s actually great. It’s fine when a competitor calls you arrogant – it’s NOT when customers call you arrogant. That is DEATH.

And when it comes to these three companies – their downfall has been when they confused the two.

For Nintendo, it was when after working with Sony to develop a CD-ROM player and deciding to drop them – causing Sony to think humm, we spent all this time developing a CD-ROM that will play games … humm, what else can we do with this? Say hello to PlayStation. But Nintendo’s arrogance didn’t end there. They decided to stick with game cartridges even if it was inconvenient to customers and to developers – they had their reasoning (covered a little further later) and who were the buying public & developers to meddle with their business plans? Instead of looking upon 3rd party games as helping to sell the system, somehow they saw it as taking away part of their profits? And being aloof to the gaming press? Who needs PR? We’re Nintendo?!

Sony, of course, got nearly everything right until PlayStation 3 – and then success went to their head. First before PS3 came out, they started running ads for PS9. They saw it as reminding us how visionary they are, “We’re just getting started.” To us, it reeked of, “You suckers, we will keep shoveling it and we know you’ll keep buying.” Nice attitude towards us. Then of course, the big bombshell of pricing – $500/$600 dollars and when questioned, they got mad – who were were we, mere mortals to question them? We were just supposed to line up & buy.

Microsoft, it’s hard to know where to begin to discuss their arrogance but frankly, they are clueless about consumers. Because Win95 sold well to consumers, they pretty expect that we’ll line up and buy whatever they stamp name their on – regardless. They seem to believe we’re so dazzled by Bill Gates’ wealth, we will buy anything. They don’t seem to have noticed that they are pretty much zero for consumers since 1995. From Talking Barney to MSN as an ISP to home networking gear to media center PC’s to WMA players to Zune’s and even watches.

Gee hard to believe people weren’t willing to pay hundreds and up to $120 a year to MS to get the weather and sports on that thing … the following block of text below is from a press release – sure, all press releases are a little hyperbole but keep in mind this is for a WATCH!

“Smart Watches for MSN Direct are a fun new way to receive the information you care about, delivered conveniently to your wrist,” said Bill Mitchell, founder and vice president of the SPOT initiative at Microsoft. “Our relationship with world-class watch manufacturers such as Fossil and Suunto, as well as a broad spectrum of retailers and content providers, has made this tremendous achievement possible.”

In another press release, a promise not even Rolex can match …

“With four new multicolored styles, Paparazzi offers wearers exclusive entertainment information and the opportunity to meet celebrities.” (bold emphasis mine)

Unless I missed it – somehow this did not sweep the nation but MS doesn’t care whether it makes money – it’s the release that’s important – same with the Xbox & 360. Never mind that they have spent about $21 BILLION dollars to make about $5.5 BILLION or in more practical terms, they will need to sell about 1.3 BILLION video games discs to break even. They just don’t understand why consumers won’t buy – it’s got our name on it!

THE TAKEAWAY? Unlike people, companies can be arrogant but ONLY towards your competitors – the very second it’s directed at consumers or your customers – DEATH.

#4 Technology: Only If It Delivers

One of the reason attributed to the success of the original PlayStation was that they ran on CD-ROM’s when others were still using cartridges – and of course at that time, CD’s were tremendous sellers and DVD playing ability was also a nice bonus for the PS2 … and sure, if you ask people, of course, both are nice additions but the reason they both sold in nearly 100 million units? No. If the only reason for the success of a console unit was the ability to play CD’s or DVD’s , that would mean that Philips CDi’s, the Sega Dreamcast or even the first quasi (though not really) 64-bit gaming system – Atari Jaguar would’ve all been successes because they were ALL disc based.

TECHNOLOGY does not win anything. Technology is nice and just because sometimes leading edge technology wins, that is because of other factors. Just like DVD’s did not take off until DVD players dropped under $200 dollars … the exact same scenario we’re seeing with HD/Blu-Ray.

There are many reasons that people gravitated towards the PS & PS2 … partially Nintendo’s attitude & arrogance caused developers to find an alternate platform; it also didn’t hurt that PS1/PS2 discs were also cheaper to manufacturer so they could develop more games at more price ranges; and with more games comes the possibility of hitting that monster home run (Gran Turismo, Final Fantasy, Tomb Raider, etc …) and ultimately that is what consumers decided. The PS & PS2 won because of many factors.*

And to today? Sony got it in its head that because the PS could play CD’s which helped them make more money on their CD laser patents, they needed to replicate that with PS3 (and not share with Philips this time) so the first thing added was Blu-ray. Never mind it added some $200 to the price of the machine and that’s at a LOSS. Is there a huge clamor for Blu-Ray or HD – no not really – nice but hardly a major selling point. They became so enamored of their own technology they got hostile when people questioned why it was $600 because by the books, it’s probably a $1,200 unit … it’s not costing us $600, they’re saving us $600 dollars! Don’t we get it? They’re doing us a favor by putting in all this shiny technology! Part of the confusion is that if you ask us if we want 1080p gameplay (or some other tech spec) – sure, we’ll put a big X on that want list but now ask people why they’ll spend hours playing a Flash game that’s about 72 pixels or would you rather play a Batman game on the PS2 or Tetris on the original monochrome GameBoy – the GameBoy or a Flash game that’s fun will win everytime. You could put an 800 horsepower engine in a Cavalier and some people will buy it but many?

Related – the whole issue of them trying to become the new VCR in the living room. In case they hadn’t noticed, the VCR does two things. It records. It plays. People like them fine as video game consoles, the rest? Sure, the base audience likes being to watch movies or downloading them but is the rest of the world? No. The market isn’t there yet and besides, they want a console to play games.

*(NOTE: This is by no means a complete list of reasoning for PS’ success over Nintendo)

THE TAKEAWAY: Technology by itself is just a promise – if you deliver on that promise – by making consumers lives more convenient at the right price, then you have delivered on that. If you answer YES, put it in a box and sell it – if you answer no – put away the press release and try again.

(in the case of video games, if you deliver the same as an arcade I don’t have to drive or bike to and for less quarters, that’s the convenience & price factor).

#3 Why Are You Here? (And Don’t Be Your Brother’s Keeper)

This seems obvious but companies seem to enter businesses for the wrong reasons and when you do – it’s just pointless. Why is Sony in the Blu-Ray business? Because Toshiba was developing one? And no way were they going to pay patents to another company? And with DVD sales slowing, we need a format – and how do we get it into the hands of people to crush our competition – we’ll give it away at a huge loss! (Most standalone Blu-Ray players sell in the $500 to $2,000 range) and conversely, that’s MS thinking also – no way are we paying patent money to Sony so we’ll go with the other format, HD DVD. And this isn’t the first time Sony has all the wrong priorities – you don’t have to look far with the Sony’s UMD? They could have very simply provided a way to play videos like the video iPod but since they had no viable online video storefront and to placate their home video devision, Sony/Columbia – they came up with an entire new format – the UMD. WTH outside their product managers asked for that? Who wants a tiny easy-to-lose collection of discs to carry around that cost more than DVD’s with lower resolution and less features? Or that instead of any storage format that are more universal such as SD or even CompactFlash, the PSP has a Sony memory stick as your only choice – the absolute most expensive portable storage device. When you try and synergize with your fellow brethren, all you do is compromise and annoy customers. Why does the Nintendo outsell the PSP? It’s not a series of compromises and the culmination of 50 lawyers in 20 divisions.

And Microsoft, what exactly is the reason behind the XBox? Sure, it’s a nice gaming system but that’s not why Microsoft was so intent on getting in the game. They saw that Sony was making $5-$20 for selling a PS or PS2 disc they didn’t even create (all 3rd party developers pay the console makers $5 to $20 per disc sold) and Microsoft wanted that. On the PC side, Microsoft gets nothing if you buy a 3rd party game – so they tried to convert as many PC gamers to XBoxes – they also saw that as the way into the living room – again back to arrogance, they saw that Sony was going to sell 60-80 million PS2’s – they should double that – why not, we’re Microsoft so like in every other business they launch, they figure they would lose money but cramp the other guys style and financial sheets that eventually the competitor would have to give up but it hasn’t worked so far. The problem is that at some point, enough XBox/360 loses should have amounted to a turnaround because those users will buy games to make up for it BUT the problem is that the Xbox sales peter out at around 20 million units – not nearly enough to ever recoup the $15 BILLION they are in the hole …

As for Nintendo, they held onto the cartridge method because they made more money and they literally controlled everything – unlike discs for the XBox or PS/PS2 which could be pressed nearly anywhere with a license – Nintendo put a chip in every N64 cartridge and essentially controlled distribution since your game could not get distribution until it came out of their plant. Of course, their products got first priority. There also wasn’t the range of products as they tended to turn up their nose at anything needing a T (teen) rating or above. Sure, it was also much harder to pirate but the whole process cost more so prices were also higher. Their restrictive policy caused 3rd party companies to lose sales and eventually to lose interest. Nintendo wanted to do it all but learned it was no longer possible.

THE TAKEAWAY – Are you in the business to actually sell something people want? Can you answer the question – why are we selling this? … WITHOUT resorting to a long winded speech about patents; how you should be the best customer for your own chips or; a PowerPoint chart showing 80% of America buying watches and signing up for a $10 subscription to tell them what the weather is like 2″ north of their wrist? We can spot crap from a mile away. Bring your A game or don’t come at all. We have choices now.

#2 Hype is Cute But Hype is Ultimately Annoying.

Of course, we understand the hype and circus/riot like atmosphere on release day – you want to get your hardcore fans all excited – enough to wait in line for days or hours but frankly, if you added up everyone waiting in line around the world even? What are you talking about – 10,000 people? It essentially amounts to a blip. So, the real solution is to get it on the shelf. A couple days of empty shelves is noteworthy free PR but weeks? Months? What kind of moronic thinking is that? Let’s get people pumped up, let’s waste MILLIONS/TENS OF MILLIONS – maybe even hundreds of millions of our PR, marketing and advertising on selling a couple tens of thousands of units and then NOTHING for weeks or months on end? Who said this was a good idea?

Anyone not willing to wait a couple days in line is considered a loser and is forced to pay a couple thousand on eBay? And for the thousands or millions ready to buy, your money is no good here. Come back in 4 weeks or 6 months? Somehow they think hype is more important than sales … or that all you do is annoy the bulk of the excited customers who now have to buy on eBay at inflated prices? Or the millions who have cash in hand ready to buy anything for their kids at the holidays – instead, it’s all just a lark? Who else does business this way? It’s a dumb way to do business and frankly may have permanently sabotaged the PS3 and Xbox 360.

Why would you not only waste all that free PR & marketing but seemingly go out of the way to taunt your customers with giant store displays and FOR DISPLAY ONLY boxes? Who thinks this is a good business plan? It’s one thing if you’re trying to maintain an elitist position. That’s fine – create an artificial shortage – fine for Fendi, Gucci or Ferrari because part of their huge markup is that it’s limited but when your goal is world mass market domination? All you have done is turn millions of free PR into hatred and poor customer relations.

Sure, they wanted to rush it out for the holidays but why? When you only have 200,000 or whatever to sell in a country of 110 million TV households and knowing that your last console sold at least 20 million or Sony, 100 million – what is the point to rush it out for the holidays? That number you could put on sale on April 15th and people would scrap up enough cash. Clearly you are not ready to sell it. Microsoft’s ‘game plan’ was puzzling. They seemingly released a batch and then nothing appeared for 6 months where now Microsoft has 5 million stuffed into the channels or a year later, Sony repeats the debacle. Why not just mark up the first batch to $2,000 and say you’ll donate it all to charity – at least you as the manufacturer is making the money for a worthy cause and not some snot nosed 38-year old who was willing to sleep in a snowbank for 3 days?

THE TAKEAWAY – It’s time to grow up. If you want to be treated at the grown up table of entertainment, then act like it. Columbia, Sony’s sister company is not going to release SPIDERMAN on 100 screens in the rural part of the midwest only. But the video games division will actually roll out a product to serve less than 1% of the current audience in hopes of what? How do they treat their best
customers – who are eager to spend $600 – by telling them their money is no good except with the guy online at $1,200? Same with Microsoft Xbox – gleefully happy that people line up and have to go home empty handed? How exactly does that build brand equity? Sony did it right with PS2. They started a pre-sell with many stores. If you wanted one on release day, you might have to line up but your chances were reasonable – for most who had the means to put it on a credit card, all you had to do was wait a few days or as more shipments arrived, I think I got mine within the first two weeks – good enough for me. Sure, it sold out but they kept shipping through the holiday season and while you had to work at it, systems were to be found. There is a difference between hype and then failing to deliver and hype and managing your brand value.

#1 Today is NOT Yesterday

It’s clear Nintendo realized this. They actually took a look around the marketplace and realized – yes, there are three generations now who grew up on videogames and unlike 4 generations ago, we’re willing not to put away our childish toys because we were grown up – we can stay a kid as long as we want. We have money to spend but we want to spend it wisely. Are there 20 million hardcore gamers who will pay $59.99 for a game and then spend sleepless nights mastering it and defeating the last boss in 5 days, sell the disc and sleep for 48 hours? Or end up spending the better part of the month going online to play and kill across the globe as the Earth rotates?

Yes but that is ultimately a limiting audience and demands the best of everything – there are also 80 million other gamers who still want to play but … the new generation is just required too much work … no longer do we have the time or commitment to spending weeks learning the rudimentary skills necessary to survive pass level 3 and no longer are most of us able to commit 400 hours to defeating the guy holding our princess … we still want to play games like sudoku or flash based games … and instead of just paying lip service or arrogant to think “the consumer will make time, we’re that good!,” Nintendo actually sat down and thought this through – that people wanted to play games but didn’t want to memorize 17 button functions to duck under a giant pipe swinging towards us … why shouldn’t we just duck? And by looking at Flash games, it’s clear that it’s not polygons or pixels or any other measurement of fluidity but simple gameplay that is winning the day … that was the paradigm … it’s the games. Nintendo wanted to make it simpler – the mass market wanted simple (and fun) but simple first. the mass market just wanted to play video games & not practice at learning a controller.

The market has splintered but only Nintendo seems to have noticed. Sure, there are 20-30 million hardcore gamers who want the highest resolution, want the hardest games and have the time and skill to master 50 games at the highest level. But unlike even a few years ago where if you wanted to play games “easily,” you had to buy a console (not dealing with driver, general PC issues), now, you have some serious competition online with games that evoke the games the 1st/2nd generation grew up on that just require launching a browser – or instead of $500 for a console and a game, they can download a sophisticated and involved game for $15 … or play flash games for free or perhaps they’ve moved to a higher level of gaming like The Sims or Second Life where you don’t really need massive graphics capability.

This larger “mass market” group could easily afford $499 for an Xbox or $599 for a PS3 but frankly, they are just not that committed – that is the difference Sony & MS missed, they just charted income and called it a day. To this mass market, who cares if the PS3 graphics looks better if all they’re going to do is die within 11 seconds of entering Level 1? They’d just as soon swing their arm around and play tennis on the Wii for 25 minutes. The Wii is also a sensible price point at $249 – so it doesn’t seem like a massive commitment buy. Right now, there are two groups.

The I Want to Play Video Games Group

The I Want My Video Games at 1080p and online play 24/7.

Nintendo answers the first question very well and is targeting 80-100 million people in the US.

MS & Sony are simply targeting the rest, about 20-30 million users.

The problem is Sony & MS counted on breaking through to the 100 million level Sony achieved with PS & PS2 … right now, that is not going to happen.

Very SIMPLE – graphics processing and HD/Blu-Ray are NOT worth $250 to $$350 extra to mass market gamers. Will they buy a PS3 or XBox 360 at $200/$250 – ABSOLUTELY. The question is whether Sony or MS can afford to sell it at that price.

Meanwhile, what was the lesson Sony & Microsoft learned? They decided like old generals to fight the last war. Sony, busy with the blu-ray patent, more graphics, more horsepower, more processing power than the NSA in one box. Nevermind it’s complicated to develop or that 3rd party gamers did not get any development tools until way into design … or that Sony can’t even get out the followups to titles people are waiting for or they proudly brag, games are only using 20% of the power of our chip … and yet, you want us to buy it now? At full price to get 20% use? What leap forward? They went wireless with the controllers – nice but was a wire actually driving people away from video games?

No. Were people staying away from video games because they thought it didn’t look pretty enough or real enough – that if you put in the most powerful supercomputer chip, that will cause us to buy (along with Blu-Ray?). Sony seems to have forgotten why most people want to play games. What is Twister? It’s a mat with colored dots. You get some alcohol, some limber people and you have hours of fun. Or conversely you could get these same semi drunk 6 people to spend 45 minutes memorizing the right moves on how to duck a swinging pipe. Of course, there are 20-30 million people willing to spend the time to learn but beyond that?

The same thing applies to Microsoft but more so. They outlined things they wanted to do with 360 and all of them are also as an old general fighting the last war – yes, they’ve added a lot of stuff to 360 – a storefront, better online elements, etc, etc … all nice for the current hardcore gamers but that audience is limiting … back to the other 4 problems, they seem to think this is what the MASS MARKET is yearning for … more power, movies to watch on an Xbox … or the battle to fight their failures in Japan is buy up some Japanese gaming companies – pretty much a complete misreading of what the mass market wants … and of course, Microsoft is always odd in their thinking, two weeks after Sony decides the low end model isn’t worth it and they’ll just sell the high end version, MS introduced a XBox 360 Elite which pretty much obsoletes the 5 million regular 360’s sitting in the warehouse or as if weak sales weren’t bad enough, lets’ add another SKU.

THE TAKEAWAY – We live in changing times that changes before you can utter the phrase, ‘changing times.’ Marketing is now the Starwars Initiative. The battle is no longer a giant metal ship going 20 knots, rather, it’s a thousand consumer wants and needs going at Mach 5. You must plot out its trajectory and fire your trajectory to meet it – it’s too late once it crests and starts to descend – that is Microsoft & Sony in the video game market 2007 – off target and late.