Sony Bets On The Past, Forfeits the Future

Wednesday night, Sony hosted what was reported to be a crowd of more than a thousand people at a rare, Applesque new-product demo. There it debuted the next-generation Playstation, officially dubbed the PS4. The event lasted two hours and featured some of the most accomplished game developers in the world, all on stage to promise that the PS4 was going to make gaming even more lifelike, more responsive, and more addicting than it already is.

I could have saved the company the two hours and the cost of hosting the event. Because boil Sony's announcement down to its essence, and you get these simple words: Sony believes the future will be like the past and has built the game console to prove it.

Don't get me wrong; the console is definitely next-generation (or at least, the specs are next-generation, since the console itself did not make an appearance at the event). It has stunning graphics and the kind of processing power necessary to create lifelike movement and even give game characters artificial-intelligence capabilities that should make hardcore gamers hungry with anticipation for the end of the year (the most specific Sony got about the release timeframe).

While the technology that goes into the console is definitely of the future, the idea behind the PS4 is rooted firmly in the past. Specifically, the PS4 yearns for a glory day of gaming, around 2006, when Sony's PS2 was at the top of the gaming business, having sold in the neighborhood of 150 million consoles. Being the engineering-focused company that it is, Sony's team was already hard at work besting the PS2 with the PS3, a console that would render more polygons than ever before and would hope to expand the role of the console by also putting a newfangled Blu-ray player in it. Though the added horsepower and media functionality cost Sony time to market and drove the cost of the box up, Sony believed then -- as it appears to still -- that engineering excellence would dictate the success of the next generation of game consoles

Let's see, how did that work for Sony? Today, Microsoft's Xbox 360 is the best-selling and most widely used game console of the current generation [update: to understand what I mean by this poorly worded claim, see this comment below]. In most months in the US, Xbox 360 titles outsell Wii and PS3 titles combined. Instead of learning its lesson from this problem, Sony has spent a few years, we were told, developing the PS4 as if it were under the impression that the problem with the PS3 was that it was not a powerful enough gaming system.

But it's not just about getting the right console to market because, at the same time, the entire console business is under the threat of digital disruption. Sales of consoles have been diminishing month after month. The new Wii U console has failed to gain traction for Nintendo. Tablets and smartphones now engage more people in more minutes of gaming than consoles will ever achieve. GameStick, the Kickstarter-funded gaming console built into a controller, is now available for pre-order for $79, and other companies are betting against dedicated hardware of any kind, instead offering streaming games over commodity hardware.

Gaming, gaming, everywhere, and not a drop for Sony to drink. It's a painful irony of digital disruption that even as something becomes more popular, the companies that built their businesses around it falter. Today, we listen to more music in more ways than ever before, yet music labels are half the size they were a decade ago. We read more news than we ever have, yet newspapers are going out of business right and left. By aiming for the glorious past of gaming, Sony might as well be announcing the launch of a 24-hour cable news channel or a slick, new, weekly newsmagazine.

Most telling is the fact that Sony did not announce a price for the PS4, possibly because they don't know yet what it will cost to make, but more likely because they don't know how aggressively they'll have to subsidize it to sell it. Because sell it Sony must, no matter what the cost, because missteps aside, the PS4 is Sony's best shot at creating a digital customer relationship for eventually building the kind of digital platform that Apple and Google have and Microsoft -- on the strength of the Xbox 360 -- is working toward. In the end, far more important to Sony's long-term hopes will be amassing the power of a digital platform that spans multiple devices, even devices Sony doesn't manufacture. But making that big a change will require massive adjustments at the famously siloed Sony, and so far, the PS4 announcement doesn't reveal even a hint that Sony is ready to join the other digital platforms at this most ambitious game.

Given that, I'll make a bet of my own about the future: Sony will sell fewer PS4s than it did PS3s.

Learn how to get a jump on your digital media innovation with this complimentary report, The Digital Media Product Innovation Imperative.

James McQuivey, Ph.D., is author of the book Digital Disruption: Unleashing the Next Wave of Innovation. Learn more at forrester.com/disruption

Comments

I think you forgot to mention

I think you forgot to mention that worldwide the PS3 has sold 77 million consoles vs the 76 million XBox 360 consoles sold. This is despite the fact it was sold to the market a year later than the 360.

And you also failed to mention Remote Play, which would allow gamers to play PS4 games streamed to their mobile devices such as the Vita, and possibly tablets and phones based on the diagram in the presentation.

Those numbers are dwarfed by iPad, iPhone, iPod touch

75 million is nothing to software developers these days. iOS developers have over 500 million devices to target, and sales of those devices almost double every year. Further, iOS hardware (iPad, iPhone, iPod touch) is updated every year and doubles in computing power every year, while consoles are updated only ever 8–10 years. So within a few years of PS4 shipping, iPad will be running the same games at the same quality, but with exponentially more users. iPad already has more pixels than an HDTV. People are learning from iPad that they can carry all their digital things in their book bag or briefcase or purse — we don't need to go home and sit in front of furniture to play games.

So as the author said: Sony is stuck in the past. A PlayPad would have been a much better product than a PS4, which is basically a desktop PC.

Problem with tablets and

Problem with tablets and mobile devices and gaming: they may be getting faster and more powerful, but it's not very practical to hook them up to an HDTV. I'd need a 50-60 inch tablet. You'd have to get wireless controllers, cables and adapters that provide both video output and power. Then you've given up the 'mobile' aspect of your device. I don't want my Skyrim game to be interrupted by an on screen phone call or app notification.

On top of it, you won't have the connectivity to 10's of millions of other players through the networks Sony and MSFT have created. Apple would have to create a new division just to handle that connectivity.

These arguments undermine what gamers seek out of a console. I want a dedicated gaming device that's solid and provides a seamless experience. Not a wireless mobile device wired up to act like one.

>Problem with tablets and

>Problem with tablets and mobile devices and gaming: they may be getting faster and more powerful, but it's not very practical to hook them up to an HDTV. I'd need a 50-60 inch tablet. You'd have to get wireless controllers, cables and adapters that provide both video output and power.

That’s why people don’t bother doing so. It hasn’t hurt sales. That’s like complaining that the problem with cars vs. horses is cars don’t run on oats.

>On top of it, you won't have the connectivity to 10's of millions of other players through the networks Sony and MSFT have created. Apple would have to create a new division just to handle that connectivity.

Or one could take connect to hundreds of millions of people via the internet, which is exactly what they do.

>These arguments undermine what gamers seek out of a console. I want a dedicated gaming device that's solid and provides a seamless experience. Not a wireless mobile device wired up to act like one.

But the numbers don’t lie. More people want those simple, portable devices with cheap games; fewer want hot, loud, fixed consoles with expensive games.

Sony looked at the trends — fewer and fewer console sales, less development for consoles — and said, “We want in!”

>That’s why people don’t

>That’s why people don’t bother doing so. It hasn’t hurt sales. That’s like complaining that the problem with cars vs. horses is cars don’t run on oats.

Not an accurate analogy. It's about the quality of a seamless experience. I'd rather drive a full sized car than a 3/4 scale car I have to modify and rig to behave like the full sized car.

>Or one could take connect to hundreds of millions of people via the internet, which is exactly what they do.

No, they don't. They have their own hosted servers. Provides for quality control, security and experience control.

>But the numbers don’t lie. More people want those simple, portable devices with cheap games; fewer want hot, loud, fixed consoles with expensive games.

You must not have read my other post. Those aren't and have never been Sony or MSFT's demographic and should be of little concern.

Also...

To say we don't need to sit in front of a TV to play games, it's the same as saying we don't need to sit in front of a 72 foot wide movie screen to watch Avatar or any other movie.

It's about quality of experience. I can play a game on a tiny tablet, but 25% of the screen is taken up by controls and by my hands. Additionally, using a flat piece of glass or plastic with no tactile feedback is a miserable gaming experience.

I also "forgot" to mention

I also "forgot" to mention that Remote Play is even more proof that Sony is doubling down on hardcore gamers rather than looking for a wider future, so thanks for adding to my evidence.
And you're right about the console sales running neck and neck (primarily thanks to Sony's better distribution globally, it's not in the developed world that the PS3 beat the Xbox). But your point about console sales is effectively blunted by the commenter who pointed out that iOS (and I'll add Android) devices have blown way past both consoles. Consoles are not the future -- Microsoft will also lose whatever it has gained with the Xbox 360 if the Nextbox turns out to be just a better gaming machine.

Really?

How does the remote play ethos "double down" on hardcore gamers when the idea is to get it working with tablets and phones, isn't that the wider market you're talking about? Also what's this "developed world" rubbish? America is just about the only place where the 360 outsells the PS3, it's the massive markets of Europe and Japan (outselling by a ratio of 4:1 here) that account for most of sony's sales, are these places not "developed" enough for you? Besides any comparison with android and iOS devices is completely meaningless. I, like a lot of people, play on my phone and tablet whilst watching TV, going to work, waiting for buses, that sort of thing I might spend as much as a hour a day playing temple run and the like. However when get home, I have never once thought whether I'll sit down and play on a console for a couple of hours or play on the tablet for the same time. They're completely different activities and don't compete for my time or money. If you buy only a couple of new PS3 or Xbox games each year, which millions of people do, you'll be spending at least £80. How many people spend that much on apps? Maybe one day mobile gaming will engulf the console market, but until phones and tablets give me a decent way to play deep competetive games with responive, easy-to-use, accurate controls against my friends, there will always be a place for consoles

Is Europe not the 'developed

Is Europe not the 'developed world'? PS3 sales are neck-in-neck with Xbox in total units there, and often exceed the latter. One point that is not mentioned by any analyst is that the US is still the biggest market for consoles, and the Xbox, understandably, enjoys home-field advantage there. Not just because it is domestic, but (since you mentioned distribution) because Microsoft by far has a more robust network stateside than does Sony, of which their superior marketing is key. Go on G4TV, it's all Xbox. Go to Gamestop, it's mostly Xbox--I've went by my local store and the PS3 station isn't even on half the time.
This home-field advantage all but disappears abroad. In an infamous case, Prince Harry (of the 'un-developed world') mentioned recently compared fighting the Taliban to Playstation (NYT: "Prince Harry Compares War to Playstation, and Taliban is not Amused"). To be fair, he also mentions Xbox in the same quote, but elsewhere he has said he loves heading back to his tent after work and playing..Playstation. Point is, Xbox does not have an advantage in developed markets, even though it was released a year earlier than Sony--and therefore had a more established network on the ground before Sony.

Perhaps, as many predict, consoles may not be the future after all, so the point is moot-you may be correct there. Why then, do you point out that Xbox sales have beat PS3 (though not in total sales). It's the domestic factor. This domestic focus, while understandable, kept tech writers from predicting the success of Samsung in the US smartphone market, even though the writing was on the wall--if you looked at what they were doing overseas 2 years ago. So, even if consoles are on the way out (which, for 2 main reasons, may not be the case), you still have to look at what is going on overseas, both in developed and developing markets. Yes, the success of iOS is overwhelming, but so is Android's--in large part, due to what makers are doing overseas.

Mainstread pundits often act like products sell themselves, but they forget that the media gets behind products like the iPad and iPhone--and Xbox, for that matter. But that's only for the States. Don't forget that the UK's Techradar recently rated a Sony Vaio as the top notebook in the US. Or that Smartphone (a print UK magazine) rated an HTC the #1 smartphone, ahead of favorites Apple and Sony Ericsson, just 2 years back. Or that Nokia, left for dead by Stateside journalists, is making a comeback--powered by Microsoft's Windows, which somehow has also been left for dead by US writers. The domestic advantage by definition disappears overseas, of course, and what goes on in the latter increasingly determines where the market is heading. This is an issue that even Apple has failed to really appreciate, which is why they were unprepared for Samsung's onslaught. It is not for want of technology. That's where I agree with you: just ask Sony.

Jimmy's a fanboy

I see your kind from a mile away James. You are pathetic. Your whole opinion is pretty much worthless due to your comment that xbox next machine will be much better. Why do you say that? You have no everybody else reading this have no idea what to expect with the next gen xbox, yet you sound so certain it will be better. Not that it will sell better (which it might). That it will "be" better. You have a couple decent ideas but its pretty plain to see that all you wanted to do is get on here and bad mouth the PS4 because you know damn well that was a good conference, and it generated a lot of hype around it and put Sony in a good position to possibly regain less of the console wars. Yet all you have are negative things to say. So like I said. You either are completely biased to one brand, or you're just obnoxious for the sake of being obnoxious.

"Gaming, gaming, everywhere,

"Gaming, gaming, everywhere, and not a drop for Sony to drink."

I think Sony is doing the only thing that could work for it.

You might be right, and

You might be right, and that's what worries me. The company is in a classic Innovator's Dilemma, tinkering with innovation at the high-end of the market (one that's shrinking) while cheaper and lower quality gaming experiences and platforms undermine the business. It's like the camera business -- we now take more pictures than we ever did before, but buy fewer standalone cameras per picture taken than before.

Apples and Oranges

I think this evaluation misses the boat. mobile and tablet gaming is a different animal than console gaming. There's been a huge increase in the number of gamers in America - a cultural shift that was definitely spurred by mobile devices, thanks to Apple. However, these are casual gamers and the kinds of games they play (Angry Birds, Candy Drop, Doodle Jump) can't compare to the likes of Skyrim, Uncharted, Modern Warfare and the like.

Nintendo was successful with the Wii in part because of the novelty of their motion controller, but also because they lured in these casual gamers with light, fun and simple games. More serious gamers stuck with the PS3 and Xbox360...and will continue to do so.

This argument also ignores the state of game development, studios' focus on mediocre AAA games and the lack of an indie developer model that allows for revenue sharing to drive their platform - like Apple's app store.

The Wii U is failing because of the new controller - it's lame. Huge and awkward, it's confusing to the casual gaming demographic that brought the original Wii success.

Sony's biggest missteps are in trying to create a closed ecosystem. The Vita was not backward compatible with PSP games and they force consumer to buy an extremely over priced proprietary memory. If they'd gone the micro-SD route and lowered the price, they'd have made the system much more appealing. Developers see this and do not create games to attract buyers as it's not a good investment for them.

Sony's choice to use a standard PC architecture is HUGE. One of the biggest reasons the PS3 didn't take off for a while was because of their proprietary chipsets and processors. It made development very difficult for studios and porting games was expensive and challenging. Sony missed out on a lot of games so people leaned toward the choices the Xbox gave them.

A harsh analysis, but it's

A harsh analysis, but it's difficult to argue with your overall point. Some quibbles here, though:

1) It seems a slight mistake to argue that business model - of a pricey console and $60 games - hasn't changed. First, Sony announced that self published titles will be possible on PS4. Secondly, and more importantly, the inclusion of cloud gaming means there will be a shift to a service model, with a monthly fee. Sony have made some very interesting (and overlooked) strides towards becoming a Netflix of gaming with their PSN+ service, which lets users play a rotating stable of PS3 games for around $5 a month. Cloud gaming seems to be an expansion of that idea and, on a large enough user base, is the kind of thing that could easily bring in a billion dollars in revenue a year.

2) Your point about the 'low end' of gaming vastly overshadowing the high end is quite correct. That said, it's worth keeping in mind that for the past few years, 15-20 million people have annually dropped $60 each to play the latest Call of Duty. There is a market for 'core gaming' and it can still be lucrative, even in the face of tablets and smartphones and Netflix. Sony need to serve that, because if they don't, Microsoft will. To ignore that in favour of an AppleTV like device that focuses largely on casual games would, quite literally, leave billions on the table. Sony's mistake is that the PS4 would likely still baffle my elderly parents, who can use their iPhones and iPads with ease.

3) Finally - and I understand this isn't your concern - I think as individuals, rather than analysts or industry watchers, it's important that someone focus on the craft or art of games. The existence of innovative or arty games on iOS has happened in spite of Apple, not because of them. Personally, I'm somewhat reassured that Sony seem to be focused on pushing games as a cultural form, rather than simply entertainment or distraction.

All that said, provocative stuff! Appreciate your insights here.

Do you realize that the Wii

Do you realize that the Wii out sold both by 23 million and the PS3 and #60 are but ! million apart. Most of your points may be statistical in nature , but we have been hearing for years that tablets and smartphones are the future, so when exactly will this happen precisley?

And by the way what is the

And by the way what is the alternative . What would you have them do make a phone or tablet with 99 cent games that do not keep gamers interested. This is not something that will take over console gaming. The tablet/smartphone games....er... apps do not interest most people as a first choice game platform.

Issues with this piece...

There are a few issues here, things that you seem to be missing.

First, You're looking at things from a very American-centric view. Sony is outselling Microsoft worldwide, and as a previous commenter pointed out, Sony has sold more consoles this generation than Microsoft. So, Stating that Microsoft is currently best selling game console is actually false, as it isn't hasn't sold the most this generation (that would be the Wii) and it isn't currently selling the most (that would be the PS3).

Second, comparing Apple and Android devices to dedicated consoles is not really a good comparison. That would be like comparing Television Shows to Motion Pictures. The TV Show (or Apple/Android game) is something small and quick that you sit down when you have a half an hour and you play, or you have on your ipod and you start to watch while you're sitting eating your lunch. The Motion Picture (or Console Game) you're dedicating some time to. The Budget is larger, the effects are greater, and as a result the price tag is larger. The thing that you don't seem to grasp is that there is a market for each, and they're not necessarily inclusive of each other.

To compare Apples to Apples, The PS2/Xbox/Gamecube generation of consoles sold (approximately) 199.34 million consoles with the majority of them being PS2s. The PS3/XB360/Wii generation sold (approximately) 252.28 million consoles (the majority of which were Wiis, but much more evenly spread than the previous generation). This shows that console gaming isn't just surviving, but thriving and growing, and Sony knows that it needs to do something to grab it's PS2 dominance back.

Bravo sir ,Bravo

Bravo sir ,Bravo

Agreed

Well said. This james dude is a clown who shouldn't be analyzing an industry he knows nothing about.

For more laughs, he also wrote this:

http://blogs.forrester.com/james_mcquivey/10-06-14-i_have_seen_future_an...

yep, I was right, too.

yep, I was right, too. Microsoft sold 30 million Kinect cameras in 26 months. The only debut product that has ever sold more units faster is the iPad. I realize you didn't comment here to be a serious contributor, but if your intent is to try to make me look bad, you've actually helped me prove my point. Because even if the Xbox 360 isn't as good a box as the PS3 (a point I eagerly concede), it has managed to grab a deeper relationship with customers and is now positioned to make a new kind of box for the living room. Thanks for the help!

First, I genuinely appreciate

First, I genuinely appreciate the effort you put into your comment. You obviously disagree with me, but don't need to debase us both by trying to make it personal.

I'll add a comment to more specifically go at the idea that Sony's ability to sell 1m consoles puts it ahead of MSFT (detailed reasoning there, will add to comment thread in a minute). But my bigger point to raise with you is your comparison to the movie industry because I think your movie comparison is exactly right. But the fact is that movie industry is on the rocks right now (studios have slashed staff, heads are rolling at studios for several years in a row) precisely because even though many of us (about 20%) want to see movies on the big screen, and we even pay more for it than ever, we are easily drawn away by TV shows on Netflix on our laptop screens. I have had TV/film industry people try to argue with me about the fate of TV and movies for years now, but it is clear in the last two years with the end of DVDs and the falling TV ratings of the last year that even something that: a) we love to do, and b) a niche of us are happy to pay for, isn't enough to keep the industry afloat. As I will say in my later comment, I'm commenting here not about the quality of games the PS4 will enable, but about whether or not Sony as a company will survive. Different question.

Sony as a company

I'll work my way up on your reply.

Sony as a company surviving is going to hinge much less on their games division than other aspects of their company. Q3 results for Sony showed losses in their Mobile phone, Television, and Camera divisions, which would each be the bigger drag on Sony than the gaming division. Do you know the 2nd most profitiable department for Sony? Their Sony Pictures division.

On your Movie vs Television point, Box office revenues went up in 2012, hitting a record high despite the average ticket price raising only 3¢ but more in thanks to tickets being sold (up 6.1% from 2011). The demand is still there for Movies, and Studios are able to produce more movies at a faster pace. The death of the DVD being an effect on the movie industry is like the death of the CD being an effect on the music industry. People are moving away from physical media in general, which is why companies like Musicland have gone out of business and companies like Trans World Entertainment have dropped from over 1000 Brick and Mortars to around 300 just to survive. But despite this fact, people listen to more music than ever before.

This generation of consoles is going to be a turning point. The Wii brought a lot of consumers to Video Games, but the Wii U doesn't seem to be getting them to move on to a new Nintendo system. Will this generation be another 3 way split between the companies or will there be a clear winner. Will Sony be able to pull another PS2 or will it finally be Microsoft's time to shine. There are so many variables that it's completely unknown. If you asked someone before the PS3/360/Wii were unveiled, they would have said that PS3 would be the top seller for the generation due to the PS2's success. However, once the Wii started flying off the shelves, I'm sure that analysts would have predicted the Wii's successor to do the same. However looking at the current picture, the drying up of the Wii's library, the slow start and poor marketing of the Wii U, the Strong and steady sales of the 360 and the Eastern Success of the PS3, it's really a best guess scenario at this point.

To paraphrase Mark Twain, the death of the home console is greatly exaggerated. The Customers are there, as shown by the console sales numbers for last generation, and if anything, the base is growing as those raised on the NES grow up and have families of their own. It's why the Wii exploded like it did. I know my PS3 is used to stream a Disney movie just as often as it's used to play a game. Now that the Wii's demographic have aged a bit, perhaps the PS4's social aspect will be just the thing that the now Tween/Teen/and up crowd will be drawn to.

I audibly laughed out loud at

I audibly laughed out loud at the comment that games on PS4 will run at the same quality on an iPad. Dd you see some of the games shown last night? Most of those were in-engine. An iPad would explode trying to run the same games at the same quality.

But "consoles aren't the future" blah blah blah. Been hearing that since at least back when the 360 and PS3 launched. Tablet gaming will never be the sole way of gaming. Ever. Now please come up with some original doomsday scenario for console gaming instead of this drivel that's been said for the last 5+ years.

Don't know what you were

Don't know what you were laughing at -- I never said PS4 games will run the same on the iPad. Just like the Huffington Post isn't as good as the New York Times or cell phone audio quality isn't as good as landline quality. Quality hasn't mattered in any of these businesses, a neutral fact. Why would this market be any difference?

You just threw words out in

You just threw words out in the wind and, as you can see, people in the comments already debunked your "facts". This is one of the main reasons analysts often miss the point:

Don't say things about subjects you know nothing (or very little) about.

Tablet and mobile gaming is

Tablet and mobile gaming is great as long if you are running the game on a dedicated hardware, since streaming games thru internet has it's problems as well and most of people's connections aren't ready for it.

Also always on DRM isn't great either, what if you purchase a game from a streaming service and if the company goes to bankrupt, then what happens to the game you purchased?

OUYA and Game Stick are both gonna be great platforms as well, but i'm still bothered buy the whole "New OUYA Every Year" and does it mean i have to buy a new console every year, so that i would have the latest hardware and software.

Also PC gaming growing as well and thanks for stores like Steam and GOG.COM, both stores has a large userbase and both stores has something for everyone.

FUD-laden piece conveniently

FUD-laden piece conveniently ignores that Sony approached top developers world-wide and asked them what *they* wanted in a next-gen console. Developers demanded a dev friendly platform with good specs and lots of ram and that's what Sony delivered. If "the idea behind the PS4 is rooted firmly in the past" the author should take up the issue with the likes of Crytek and Epic Games for their influence and stringent demands, not Sony.

Secondly, the analyst should really qualify the statement the 360 is the "best selling" (There's a world outside the US). What does it say for Microsoft when worldwide PS3 sales have caught up to and surpassed the 360 with the PS3 debuting at an obscene $599 price tag and Microsoft having a year head-start but still somehow managing to blow the lead?

Enjoy Angry Birds, your "piece" has about as much substance.

I will qualify the statement

I will qualify the statement on "best selling" it's an important one, stay tuned. But also note that the high-end game developer community is seriously on the ropes financially. I respect the craft they practice, but asking them what Sony should do next is like asking aerospace engineers what Boeing should do next. Their answers *should* matter, theoretically, but in the long run, if their advice causes you to overengineer a solution, you will run out of money and go bankrupt. Sony is a company that can't afford another misstep like this.

I would think someone who

I would think someone who went to business school is familiar with the concept of niches. Obviously tablets/phones are a bigger overall market than consoles. But traditional game consoles have their own, multi-billion dollar, market. Sony has an established foothold in that market. It would be moronic for them to abandon it.

And you must be forgetting that Sony already makes tablets/phones/laptops to compete in that bigger mobile market. It is not the role of PlayStation to do that. The role of PlayStation is to go after the core gaming 'niche' (which is pretty big for a niche). Place the blame elsewhere in Sony for not capitalizing on the mobile space, not on PlayStation.

And also, did you not watch the conference? They explained and showed how PS4 will interact with mobile devices. And they flat out said that engineering excellence is NOT the only way to be successful. Sure, games themselves were the focus of the press conference, but that is because most people watching the conference were gamers who want to see games. The people in PlayStation's core demographic.

I happen to be so familiar

I happen to be so familiar with the concept of niches that I know when one can sustain an economic investment and when one can't. Better yet, let Harvard Business School's Clay Christensen persuade you that a company that focuses on a high-end niche is easily disruptable from the bottom (think what Lexus/Toyota did to Mercedes, one of dozens of examples). Even if niches of yesteryear may have been stable enough to milk for a time, but in this digitally disrupted day and age this niche is not stable and won't become so. This is a classic innovator's dilemma to use Christensen's language. Also, the PS4 will certainly interact with mobile devices, but only in ways that will please people who are already deep into PS-land. Try to invite your non-gaming friend or aunt to interact with your PS4 game over mobile and let me know if I'm wrong but I'm betting I won't be.

"this niche is not stable and

"this niche is not stable and won't become so". I disagree there. This console cycle has just gone on too long, and the market for current gen consoles is saturated. Prices need to drop significantly or new consoles (Wii U has its own problems) need to be released for the sales to go back up. Game consoles are not like phones and cars where new models come out every year to keep a steady sales pace.

Anyway, I would say the PS4 is designed with the future in mind. Sony's move to include 8gb of ram will give them the wiggle room to add new software features as the market dictates. A luxury the PS3 did not have due to its low and non-unified memory. To say Sony is not making a serious effort to address the 'digital disruption' or mobile revolution is just wrong. Their $300 million acquisition of Gakai is a direct response to that disruption. The conference (1st half anyway) made it pretty clear that they are approaching the upcoming generation differently.

First off, just because there

First off, just because there are more players in a market does not mean that a company is going down. Just a few years back, Apple owned the smartphone market. Now, it shares it with Samsung, which is 10 percentage points ahead in sales. So what? Apple is a great company with superior products, and it will continue to do well, even with 'just' 20% of the smartphone market.
Same for Microsoft and Sony. Understandably, analysts are all about sales--and of course, companies would like to sell more and make more profits. But if that is all there is, then that's a terrible thing for consumers. Gamers, specifically. They're a subset of gadget consumers, and the likes of Apple and Google want them to melt into the general consumer base and just use their tablets and smartphones. Most gamers don't want to do that. They don't want half their screen taken up by touch controls, for one thing. Thanks to Microsoft and Sony, they don't have to. And won't have to, given last night's PS4 announcement and the upcoming Xbox reveal in June.
Not that MS and Sony wouldn't like to each sell 150 million consoles, as in yesteryear. But 75 million units, apiece, ain't bad--especially when you're giving the customer exactly what he wants. Even if it were to go down further for the next-gen, the business will still be profitable. But that is not even the whole story.
That's because Sony dropped the ball on 3 points in the last gen, yet managed to remain within a million of Xbox sales. One, it launched a year late. Two, it failed to offer online gaming, getting into the game (pun intended) about 2 years late. Three, its Cell architecture (shared with some military applications!) was just too much for many software developers--the learning curve yielded a 3-year lag time.
Sony has addressed all three points in the current generation: It will launch with Xbox come Holidays. Not only is its online gaming system free, it will be joined by more social networking functionality--Gakai was extremely popular before Sony's acquisition, and will remain so in the PS4. Arguably, with Gaikai and its own Playstation network--and Sony's media network--Sony will have the most robust and extensive content and social network, worldwide, by the end of the year. Third, Sony has now adopted PC architecture, like Microsoft, so any advantage wielded by the latter in game development is gone.
The last point is the major one: these consoles are no longer just for gaming. In the past few years, more and more people have bought Xbox, PS3 and Wii as much for accessing movies and media as they have for gaming. The upcoming 720 and PS4 will integrate entertainment (gaming, movies, music, etc) and social networking even more, so consumers may buy the consoles more for the latter. Jury is out on whether Microsoft will do this better than Sony, but one thing is clear: 720 and PS4 will always have a hardcore fanbase in gamers, but they don't have to depend on them. If either can create a true 'entertainment hub', console sales may match, or even exceed, the previous generation's.

This article misses the point

Why can't console gaming and mobile gaming exist together? The future may include mobile gaming, but it's certainly not going to be the only thing. Consoles are there for the hardcore video game players who want to spend 60 bucks on a high octane ride with explosions and amazing graphics. Mobile gaming is there for when you're nodding off before bed or waiting at a doctor's office appointment. These are two totally separate needs and mobile isn't going to be scratching any hardcore gamers itch anytime soon. I buy a lot of iOS games and they aren't even close in quality to anything you'd see on a console or PC. There is so much junk in Android development and iOS that they need to trim the fat and focus on quality before anyone will take those game seriously.

Exactly! The gaming

Exactly! The gaming experiences will continue to thrive forever -- that's the point of "gaming, gaming, everywhere, but not a drop for Sony to drink" because what might perish is the company that made the PS4. That's what I'm writing about. I love the PS4 gaming achievements (tried to say that up front, but evidently not boldly enough), but it won't save the company, sadly.

I humbly submit the following group rebuttal

A big thank you to those of you who were seriously trying to move the conversation forward rather than descending to ad hominem attack. You raised some good points and I tried to respond to most of them (even the personal ones) but I would like to tie these things into a single rebuttal.

First, I am asking a different question than most of you. Many of you are asking the question, "Did Sony make the best gaming console ever?" and come back in the affirmative. I tried to praise the technical achievements in the opening graphs, but evidently wasn't strong enough. Let me be clear: This console is awesome and I may even *buy* one, it's that good. But that isn't the question I'm asking. I'm asking, "What should Sony do to stay viable as a company?" Unfortunately these are radically different questions and even though Sony has just debuted a superior console, it won't simultaneously satisfy the need to keep Sony afloat. Let's be clear here: Sony hasn't had a profitable year in 5 years. It announced another 10,000 layoffs and has restructured the executive suite in an effort to get back on track. The PS4 will not rescue this company. Sony does not have the resources to gamble on another overengineered solution that is beautiful but a financial burden. That was 3DTV. Unfortunately, this year Sony is doing it again with Ultra HDTV. To also push out a PS4 that is beautiful, elegant, and creates photorealistic games that hardcore gamers will love but won't immediately grab 20 million unit sales this holiday season is a mistake.

This gets at my very dangerous claim that Xbox 360 is better than the PS3. I realized I was being a bit loose with my writing when I didn't explain in detail and many of you asked for an explanation (or insinuated there wasn't one) so I owe you one. Take the phrase I wrote, "Microsoft's Xbox 360 is the best-selling and most widely used game console of the current generation" and parse it this way, "Microsoft's Xbox 360 is the best (selling AND most widely used) game console of the current generation" -- the boolean AND in there to signify that both conditions have to be met for the phrase to be true. That's not how I wrote it and even at the time I realized I could have explained in more detail but didn't want to burden the larger point. I obviously shouldn't have shortcut this. In fact, explaining this will further add to my point. I believe this statement for the following reasons: a) The Wii has actually sold the most units, but it is the *least used* console of the three, meaning it grabs fewer hours of attention than the rest; b) yes, Sony has exceeded the Xbox's reach by 1mm, but from all the broadband providers who have shared their IP traffic analysis with me, the Xbox grabs significantly more IP traffic time than the PS3. True, this could mean that PS3 gamers could be doing all of their gaming offline, but that would be its own kind of failure. Mathematically speaking, for the Xbox to be a "better selling AND more used" console all it has to do is get its users to use it for 1.4% more minutes per day than the PS3 (77/76=1.013, or 1.3% more units sold). From the broadband data I have access to, the Xbox has blown way past that threshold.

Why is that important? Because engaging people with the box requires letting them do more than game. Xbox Live Gold members, for example, spend an average of an hour a day watching video on the box. It's not gaming, it doesn't earn respect from the legends of the gaming world, but it does give Microsoft a deeper digital customer relationship, one that the company can monetize more fully (something Sony needs) and can use to bridge to other experiences. That is a necessary element of the next generation of consoles and while Sony letting you push your gaming experience out over the internet is indeed cool, it won't engage a new audience and it won't add dramatically new minutes of engagement to the day of a PS4 user.

Finally, for those of you who chose to make this personal, I knew before I wrote this that gaming is like religion to some people and any suggestion that a favorite prophet has fallen is met with claims of heresy. But I'm trying to prop up this particular prophet's arms (if you get the reference, I'll be very impressed). You should really be hoping my words are read in Tokyo, not disregarded, especially if you want this faith to survive this crisis so that you can eventually argue with me over a PS5 roll-out.

"Why is that important?

"Why is that important? Because engaging people with the box requires letting them do more than game. Xbox Live Gold members, for example, spend an average of an hour a day watching video on the box. It's not gaming, it doesn't earn respect from the legends of the gaming world, but it does give Microsoft a deeper digital customer relationship, one that the company can monetize more fully (something Sony needs) and can use to bridge to other experiences. "

So how do you explain this?
http://blog.netflix.com/2012/12/playstation-3-leads-living-room-netflix....

Plus it would be good if you could share with us your ISP statistics that show XBox usage is far ahead globally.

It's actually easy to

It's actually easy to explain: Netflix is not the only thing you can do with a game console connected to the Internet -- though admittedly it is a very important one so it's good for Sony that it has finally caught up to and surpassed the Xbox on Netflix (more than 4 years after Netflix started streaming on the Xbox). That will help the company get more connected console use overall. The main reason that this rise in Netflix finally happened is that PSN is free whereas Xbox Live Gold (a requirement for Netflix use) is not. Smart decision on Sony's part, given that it was lagging behind for so long. But in the meantime, Microsoft has added significantly more things you can do with the console and its users are engaging them more heavily. Here again, nothing says Sony can't catch up -- but they can only catch up if they start positioning PlayStation as a console that goes beyond gaming and at least based on this week's conference, that was not a message the company was willing to send.

You keep saying this as it is

You keep saying this as it is a given but give no concrete facts to back this up. Are you going to just admit you're pulling this stuff out of your you-know-what or are you going to show us these magical ISP stats that tells us who is using what and where?

ISP Traffic Data

Like others have commented, I'm a bit dubious about the traffic data, so perhaps you can expound on that a bit. Is it international traffic data or simply United States traffic data? If it just US data, then it is of no surprise that the 360 is leagues above the PS3, since the PS3 is as much a world wide success as the 360 is a US success.

Not to question you, but we all just like to know what figures we're dealing with. Level playing field in the debate and what not.

Facts and knowledge: you lack them.

"Microsoft's Xbox 360 is the best-selling and most widely used game console of the current generation"

The Wii sold 23 million more units, and the 360 and PS3 are now almost tied in worldwide sales despite the 360 being available for a year plus longer, but who cares about facts.

If you don't have the knowledge, you shouldn't write an article.

And let's be honest here:

And let's be honest here: it's hard to take you seriously when you namedrop the GameStick, as if that means anything in relation to this. It's a freaking Android-run "console" that will be nothing but niche.

He's clearly confusing the

He's clearly confusing the USA with the whole world. And ignoring the Wii. And pulling numbers out of a Microsoft press kit.

No, I'm not. The Wii is the

No, I'm not. The Wii is the least played of the consoles in the market, used about half as much by its owners as are the other consoles. That's the danger of attracting casual gamers and then not giving them something else to do beyond gaming.
http://blogs.forrester.com/james_mcquivey/13-02-20-sony_bets_on_the_past...

The explanation is in this

The explanation is in this comment: http://blogs.forrester.com/james_mcquivey/13-02-20-sony_bets_on_the_past...
I stand by it.

Nothing to see here clearly

Nothing to see here clearly this guy has no idea how the video game industry works. He said the iPad will eventually be as powerful as the PS4 is a correct statement, however It will get no where near the support from gamers and developers. I just LOL at this poor article, your basically saying Sony, MSFT, and Nintendo are all doomed in the video game industry because of Apple. Plus These companies sell games for 60 bucks as with apple it's what like 15 bucks MAX. I just shake my head at this stupidity, clearly Sony and MSFT gaming divisions are going no where for the foreseeable future. If you think other wise your crazy. Plus Sony will be selling this for 450 max, also the kinect was a huge mistake by Microsoft even there executives agree they should have focused on software development, not extra features. I.E. should have tailored their efforts to hardcore gamers instead of those kinect lovers. Just by this you would understand that number of units sold has no bearing on the overall success of a system. It matters on how many games, DLCs, Controllers, and other such secondary purchases that determines the fate of a video game system. Not number of unit sold. I can say I bought 2 PS3s myselft however I also bought well over 100 games. So I have spent more money on my PS3 then say 5 xbox users. Your argument is invalid.

Quite the commotion

James,

Quite the most excitable comments thread you've ever garnered, you clearly hit a nerve.

Perhaps not your best prose, but I think you will be proven correct re Sony. Wii reinvented casual gaming, but that then shifted to Apple, taking the handheld market along with it.

At best Sony will be left with a hard-core gamer market. I doubt it will make much, if any, margin on its consoles, it doesn't control the peripheral market as tightly as Apple so that isn't super-profitable for it and it doesn't see a huge earnings stream from the games either.

Question is will they be able to hang on to a small niche without the broader casual market (=Nikon's camera business retreating to the high end, as phones took over the mass market) or will the core gamer market prove to be so small that there's not even enough money to sustain the developers?

Anyway, I for one recognize the analogy with other markets you have commented on in prior posts and see the storm clouds clearly gathered. As with many markets, you don't have to completely cut off the air supply for them to perish, you just have to restrict it badly enough - e.g. newspapers / classifieds

In short, for Sony this isn't a large, high growth, high margin market, so it isn't in any way going to save them from their other weak divisions where they lack differentiation (cameras, tvs, pictures, music, mobiles)