This new article by Karel Cool, the BP Chaired Professor of European Competitiveness and Petros Paranikas, consultant at The Boston Consulting Group, Chicago Office, looks at the epic PS2-XBox battle being waged between Song and Microsoft. With XBox sales trailing PS2 sales by a ratio of 1 to 7, Microsoft is trying to shore up its position with the introduction of XBox Live!, an on-line game world.
Yet the on-line community is by definition limited to a sub-set of the off-line customer base, explain the authors. One needs an XBox to game on XBox Live!, and as long as the XBox is not selling better, growth of XBox Live! will be jeopardized. The vaunted remarks proclaiming XBoxs technical superiority convinced neither gamers nor software developers in sufficient numbers, resulting in a massive lead in game titles for the PS2. In 2003, this will get worse as a number of hit games will be launched exclusively for the PS2.
What are some of the barriers to Microsofts success in this area? Cool and Paranikas point first and foremost to cost. Even if the game experience of XBox Live! is exceptional, pulling away PS customers will not be easy: the cost involved in buying a second game console ($200), getting a broadband connection ($400) and subscribing to XBox Live! ($50) is substantial for many gamers beyond the hard core. The XBox strategy of building in broadband and an 8GB hard drive creates the conditions for a great gaming environment. However, many of the online games are offshoots of the off-line games. As long as off-line game development for XBox is anemic, on-line will falter.
The authors believe that Microsofts strategies are limited. They could, for example, accelerate the life cycle of the game consoles, which until now has been about five years. While feasible, it is unlikely to create much excitement with software developers, customers, suppliers and retailers. It has been shown time and again that games and game experience drive sales. The XBox design did not sufficiently convince developers in the first place. Given XBoxs inferior installed base, it would be much more profitable for developers to redesign their games at a faster pace for PS2 upgrades than for XBox upgrades.
A second strategy would be to make a more versatile XBox. It is certainly possible to include a digital video recorder (DVR) drive and sell the XBox at the same price as the PS2. Apart from adding to the already substantial hardware losses for Microsoft, it is doubtful this would advance Microsofts cause much. Sony already has a DVR on the market and could rapidly offer attractively bundled offers of consoles and DVRs or incorporate a DVR in the PS2.
Meanwhile, Sony holds numerous aces, say Cool and Paranikas. Nothing stops Sony from adding a network connector and a hard drive to the PS2 if it decides this is necessary. Further, as Sonys installed base of PS2 (and PS1) consoles keeps growing, developers have every incentive to bring out games first for the PS environment, especially since game development costs increased five fold since the mid 1990s.
In the end, say the authors, XBox Live! is unlikely to help Microsoft reboot its console or game sales. It faces an opponent that learned critical mass fighting the hard way in the VCR market. While Sony with the PS1 entered at a time when Nintendo and Sega were myopically locking horns, Microsoft faces a fully prepared and committed Sony.