As we race towards the two year mark of the new “next-gen” consoles, consumers have revolted against the best laid plans of the console makers with one real winner (Nintendo) and two that are going to need a new playbook.

Let this be a lesson to all marketers and all consumer technology companies. To paraphrase Wayne Gretzky who was talking hockey but is very apt here, “Skate to where the puck is going, not to where it is …”

Sony & MS presumed that the market conditions of the PS1, PS2 and the Xbox would hold true for the PS3 and Xbox 360 but they missed the sea change.

The success of the PS2 was based on many factors including:

Strong games & a variety of gameplay
Lots of new games
Best graphics/gameplay

… and less so were some other factors: the perception that PS1 games were compatible (ultimately, it’s not a major factor but in its initial sales, it was a strong selling point that your previous library was compatible); the ability to play DVD movies (most DVD players cost as much as a PS2); disc based allowed for pricing flexibility; and even luck as the economy was booming.

This was the market that MS squeezed in towards the end. MS also offered a compelling cost & headache saving factor – in particular to most PC gamers. Here was a (Xbox) console that would save them $3 to $4,000 and match the graphics capability of a powerful home PC without any driver or virus issues. Why not take up MS on an offer to sell them $4,000 “PC” for $300 or less? This is one reason why the Xbox eludes success in Japan, there was NOT a multitude of millions of PC gamers with virus or driver issues – most people in Japan were playing Nintendo (console & handheld) or PS2 – what did the Xbox really offer better than Nintendo & Sony? Nothing.

But what evolved from the early 2000’s to 2006, 2007 and the near foreseeable future is that the consumer video gaming audience and their perceptions have changed.

In the ensuing years, the vast majority of gamers became casual gamers – some of it was simply aging and having kids, work, and other entertainment options … but it was also that after shooting, swinging, dancing, fishing, throwing – they had pretty much seen it all and while the newer versions had more levels, fancier weapons and better graphics, frankly, it was all just harder without it being that much more fun. Is GT4 that much better than GT1 or GT2? Is it more fun to spend hours practicing to earn enough points to build a better car or do most people just want to drive?

That’s why the PS2 continues to sell. That’s why people buy arcade “classics” to play for $10 or $20 bucks. That’s why people play solitaire. Or the Table Tennis game was a best seller for blood & guts Rockstar. You could certainly argue that reflects either societal laziness (I remember back when I was a kid, we had to practice to get good at video games! And we didn’t have fancy build-your-own levels. You played what they gave you and you liked it!) or if you can tip a conceriege to get the best table, why bother with waiting?

The barrier was also lowered with game accessibility. During the heyday of the PS2, sure PC games were powerful or maybe even more powerful but remember trying to get controllers to work with every game? And how many patches or updates was this game going to get? Or conflicts with other games and other drivers if you dared to install another game or a new graphics card – not to mention viruses. The PS1, PS2, the N64, GameCube and later the XBox promised freedom from all that. Put in disc. Hit the A button a couple dozen times and you are ready to go. Problem? Press the power button.

But now, The PS3 is really still competing against the PS2 and the just as important, the internet. Casual games are essentially FREE via the web. You can play thousands of games – sure they are not as involved or as nice graphics-wise but you can jump on and play for 5-30 minutes and be done. Nothing to download. If the game doesn’t work, you just move on. No fiddling with anything.

To the average casual gamer, the outlets to play most games are easy: PS2 with 10,000 games, the internet with thousands of games, the cell phone or other interactive games that you can hook up to your TV.

To the average casual gamer, the new “next gen” machines offered by Sony & XBox are really just the same old, same old. Sure, the graphics look nicer but they’ve already driven at 200 MPH in GT2 or boxed as Muhammad Ali or joined a paratroop battalion, played as Lara and danced a revolution. What are they offering better in the PS3 or Xbox 360? Nothing new really – slightly nicer – HD. Sequels with new levels – big whoop. Nice but NOT compelling enough to commit $500 to thousands of dollars (you need games, an online account, more controllers, etc …). Because that’s what it really feel like. It’s NOT that most people cannot afford to buy even a PS3 or games & controllers for it – it’s that if you spend $1k on something, you feel like you have to make a commitment to it. If you buy a bike for $1k, you’re going to feel you need to ride the damn thing but if you buy a bike at Target for $149, hey – whatever.

That’s NOT to say there aren’t 20-25 million hardcore gamers willing to pay $600 just for the console, get an online account and buy every game at $50-$60 but what Sony & MS failed to notice was the strata forming between the 25 million hardcore gamers and the 100 million casual gamers in the U.S. (and elsewhere).

That the reasons why the reason the PS2 was successful – are no longer as important:

Strong games & a variety of gameplay

Pretty much played them all. About the only new real new thing is GUITAR HERO and even that essentially works the same on a PS2. All the new next-gen systems offers is better graphics and a new versions of the “same” driving, shooting and running.

Lots of new games

Fishing, bowling, archery, being Patton, Tony Hawk, etc, etc … seen it all. Done it already on the PS2. What else ya got?

Best graphics

Sony brags that only 20% of PS3’s power has been harnessed. Great, get back to us when you get to 90% because extra mud tracks or the Sun that casts an appropriate shadow is nice but hardly a compelling reason to spend $900 to play it … the key is that while 5-years old, a PC could offer better graphics and gameplay in theory than a PS2, you also needed to spend $4k to get to that level – where for $299 or less, a PS2 delivered you a fast game with pretty cool graphics – no worries about drivers or virus issues but to the average gamer, is the $599 PS3 that much better than a $149 or less PS2?

That’s the replacement comparison. 5 years ago, it was, for 10% of the cost of a gamer PC, I can have about 90% of its processing power AND not have to deal with virus or driver issues? SIGN ME UP. Now, what Sony is saying – we’ll give you 10% better graphics for 4 times the cost – sign up, anyone?

Again, hardcore gamers are there. They want the best graphics, the newest hardest games and the ability to go online 24/7 to frag anyone. They will wait in line.

The rest of the audience are people who played NES in college, who prefer raising a virtual pet, who play online or on their phones, who play a Pac-man knock-off online or a trivia game online for 10 minutes – they are now the mass market of gamers. They have the money, they just don’t have the interest or the time commitment to play SOCOM 7 because they played the first 2 – they do not want to spend 10 hours practicing all the controller moves to put on a wetsuit and swim around or have to logon to join to play the bulk of the game.

They just want to play the damn thing.

Enter Nintendo and the Wii.

Only they were smart enough to realize that there were now two audiences. The 25 million hardcore gamers and the 100 million strong mass market and they attacked accordingly.

And you can see it in the reviews at gaming sites and in magazines. Obviously the passionate readers and daily visitors are hardcore gaming geeks who want every scrap of info. They care if the headset is bluetooth or WiFi or what the server lag time is … To them, the Nintendo Wii is confusing – who wants to play video games but isn’t willing to spend 5 hours learning the controls? Who is willing to trade ease of play for graphics? Pressing right-right up down B is just as easy and natural as waving your arms around. Who is willing to play a game not in HD? Why would you play a mini game for 5 minutes with no storyline when you can train to be a Navy SEAL and play for 302 hours? How can you be a squat plumber chasing things compare to being a crime lord in New Miami? They just don’t get it. Even if a gaming site gives a decent review to a Nintendo Wii game, the comments from hardcore gamers are hilarious – they looked at the specs and they looked at the screenshots – to them, why would anyone listen to a radio when an HD screen is right here.

SONY

Right now – with the way things stand now. Sony will NEVER reach 100 million gamers in the US again unless they can make a psychological, marketing and attitudinal change.

They think they are doing us a favor by selling us a NSA-level supercomputer that rightly should sell for $2,000 for $599 – and by the accounting books, they are right but in reality – the commitment level will NEVER return to 2000 levels. Beyond the hardcore audience, it all looks the same but shiner and it’s not the cost but the cost of the commitment. Sony will have no trouble selling 20-25 million PS3’s but their goal is 90% of HH’s in the US or maybe 100 million units – THAT IS NOT GOING TO HAPPEN.

Now, price will certainly play a factor into it. If Sony is willing to take a massive hit and sell it for $299, certainly sales will increase but they still have to bridge the new gulf – is it possible?

Hardcore gamers are willing to stand in line, pay the price of new releases at $59, sign up online, practice and play hundreds of hours. They are willing to play to earn points to unlock levels or items.

Casual gamers are willing to pay $49 for a game but they just want to play. Online play? Me’h – no practice and no unlocking anything, If I pay $49, I want to get the entire game.

Can Sony bridge this new strata?

Do they even get it?

Or will they blithely believe what they decide will work now and forever (of course, they’ve only been wrong on 10 things in a row – ATRA3, MiniDisc, MemoryStick, CD Rootkit, the Bean, etc, etc).

The entire business plan and reason to spend billions to build plants and create their own chips was based on returns of reaching 80-90% of US households. Right now, there is no chance of that happening.

The problem is that until you get the unit count up, developing is extraordinarily expensive. With 1.5 million units in US households and developments costs at $20 million dollars, it does NOT ADD UP … It was one thing to spend $10 million to develop a PS2 game with your potential audience in the 100 million category … though in reality, if you hit above 10 million units, that was impressive. But when your max audience is 1.5 million but you have to spend $20 million to develop the game? Of course, most of the numbers I’m citing are US sales numbers and not Europe or Japan but in many cases like EA Madden, there are not much sales beyond the U.S. borders.

XBOX

Or MS XBox? There were really only two reasons they decided to get in the market and surprise, neither of them has anything to do with gaming. A) They saw that Sony was making money from each disc sold so why not convert all PC gamers to Xbox gamers and instead of just selling an OEM Win license to them and maybe 1 or 2 MS games, why not sell them a console, get monthly online revenue plus $5 to $20 bucks for every disc sold. If Sony can do, MS will make 10 times as much (well, that was the plan) and B) This will our entry to taking over the living room.

But beyond the PC gamers they managed to convert, MS only managed to make slight headway because they were willing to sell you a $4k “PC” for 10% of the price – never mind that they lose $300 a unit. So, after spending $21 billion to make back $6 billion, where do they stand for their efforts? Practically as if they never entered the market.

When it was three companies with handheld controllers, MS XBox offered some advantages. They cost about the same and they offered online gaming to PC gamers as their differential.

But are there millions of people anxious to get online to play THAT ARE NOT ALREADY ONLINE? No. MS somehow envisioned a world where people were just holding off because they were just waiting for better XBox 360 graphics? The pool of people willing to pay $10 to $20 a month to play online is relatively stable and will continue to be so – new guys will come online while others drop away. Online gaming is great but it requires a massive commitment of time – it will always be limiting.

MS thought there was some huge pent up demand for HD gaming and rushed Xbox 360 to be first out of the gate but after 2 years and for all that, MS is about to be passed up by the Nintendo Wii, out less than 9 months because the XBox filled no need beyond online PC gamers and hardcore gamers and sales are slowing – and of course, practically nonexistent in the 2nd largest market – Japan.

The recent non-recall recall does not help matters – not just financially because it’s now a wounded brand to casual gamers. All people know is that it will die on them – not sure how and not sure why but like the Ford Explorer or tainted food, it’s dead to average consumers.

MS is thinking short term in not making a recall and re-issuing ones that are clearly identified as new/without problems. Part of their reason is they don’t want to deal with a class action lawsuit but as it is right now, they freeze anyone mildly interested in the system because who knows if this is the old easy to break one or the new one? Better be safe and buy something else. (XBox problems sometimes rrequire boiling).

Who knows how prevalent the red ring of death really is but the perception is its tainted and a hassle – who buys something many people say it will stop working? People are already not that interested in this thing – this is the seal and kiss of death. (Surprise? Sales down 60%)

NINTENDO

And when Nintendo’s Wii passes the Xbox 360 in the next couple months, that will actually push demand even more as people tend to gloom onto the #1 status especially when it comes to a format … and of course, rave reviews from everyone other than hardcore gamers … so it’s time for Nintendo not to get all arrogant and forgetful. They have to get the factories cranking. Yes, it was PR worthy to have empty shelves but don’t repeat MS or Sony’s mistake of not having enough on hand for the SECOND holiday season.

You have ONE opportunity to take it to MS & Sony and you better strike while the ronin iron is hot. Don’t fiddle faddle your opportunity by trying to save a few bucks and keep the shelves sparse. If you really want to convince third party developers to take you seriously this time, it’s time to get your inventory act together.

And if you’re keeping score at home, here are the weekly sales charts for the the US & Japan markets. Click around to see the rest of the world and other charts.

Search Sprong’s DB for a game. Or the AllGame site (same company with the AllMusic site DB).

Here are exclusives & other games coming the rest of the year and early 2008.