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Big Macs, Naked Chefs, GM, Aztec, and Microsoft

I was answering a question here about the palm and documents to go. I made a comment about something being dead obvious. The response got me thinking as to why, or how does a company make a mistake when it is so obvious.

The comment was:
=========================================

"What is obviously needed" may be "dead obvious" to you, but not necessarily to the folks at Microsoft.

This is not a dig at Microsoft, or you.
====================================


My thougts are not in any way directed to the above poster, but it did get me thinking....

Hence, my thougts:

Actually, in my case, it IS a dig at Microsoft. There is NO excuse for a company that DOES NOT do what is obviously correct.

My comments about corporate culture is exactly on this point. A good company run with a strong engineering culture virtually ALWAYS does much better then does a company run by committee/marketing people.

A well run company will do what is obviously correct.

A great example of this committee stuff is General Motors. I am sure you have seen the Aztec vehicle. When it came out it was the most ugly vehicle I had ever seen. The problem is NOT the Aztec, but the fact the product actually GOT TO MARKET!!! Anyone with a brain could see instant failure. I certainly did! Thankfully, the market also agrees with me, even if people don’t!!!

Of course the market studies right now show that the Aztec has the highest customer satisfaction of any GM vehicle sold.  I would think it has to have the highest customer satisfaction if you did actually get a customer to buy one! It would really have to be blind love!

Of course now the problem is not that the vehicle is so ugly, but the fact that they only sold 10,000 units. GM is now desperately trying to figure out what to do with this flop.

Company's like Honda that have a very strong engineering presence in the management and marketing side that don’t allow stupidity like the Aztec's to happen. You get fired long before something like that happens!! That is why Honda can come out with a top selling car in the US year after year.  GM easily has the engineering resources that Honda has, but just can’t get the product mix correct in the car market. This is due to design by committee, not enginerring issues.

Now, lets get back to why this is such a big deal for Microsoft.  Companies that are smart don't make obvious mistakes.  Only companies that are run by committee and marketing departments do.!!!

Joel has a great article on the substitution of talent in place of capable people.
That article:

Big Macs vs. The Naked Chef
  http://www.joelonsoftware.com/articles/fog0000000024.html

I want to be clear here about my comments on Microsoft.  I still consider MS a very good company. They are first rate. They also convert code into dollars. Just because you don’t think Macdonalds makes the best burgers is not reason to wine!

However MS is showing signs of making mistakes due to design by committee. This is not the best, and I wish for better.

Now, lets take Joel’s above example, and I’lll explain what it means from a product point of view.

MacDonald’s, the most successful fast good company in the US decided to expand their market into one of the most lucrative areas of the U.S. food market.  The mere announcement of Macdonald’s expanding into other areas of the fast food business sent shock waves throughout the industry.

Of course, I am talking about the huge market for pizza in the USA. After Macdonald’s announced they would be getting into the pizza business, executives at Pizza Hut, and Domino’s Pizza started building bomb shelters. They also no doubt installed windows in their offices that could open, so the day when Macdonald’s moved into the pizza business they would be able to jump out of their office windows and ot suffer much humiliation.

That new oven Macdonald’s was working was going to reduce the 20+ minutes time to cook a pizza down 4 minutes flat. Again, executives in at Domino's and pizza hut began to build more bomb shelters and pull kids out of college as they know soon they would not have their jobs, and could not afford school for their children.

It was not going to be war, but how much of a defeat, or loss that Pizza Hut and Domino's was going to concede to the mighty invincible Macdonald’s.

Not only was Macdonald’s building a new super Duper oven to kill the competition, but hired to one of the world's best cooks.  The number of cheeses they were testing was just about every possible cheese that existed.  McDonald's was spending more on finding cheese than the competition does actually purchasing cheese!!

Again, Macdonald’s was striking fear into the competitors hearts, very much like the terminator T-2000 units does when he starts chasing you.  Nothing will stop this machine!

Of course, the real problem with all the high-technology, high-tech ovens, super marketing, top-flight cook, the end result was a dismal failure.

The result was at best a quick snack pizza thing. Not much better than a cheap frozen super market pizza. (in fact those were better!).

The goals, and dreams and execution of that pizza was very poor. If you think much about this, Macdonald’s really did blow a golden opportunity. So poor is the pizza, that most outfits stopped selling it.

Despite the best people, and first-rate technology, despite the fact that they even conquered things that the industry thought impossible such as reducing wait times to below 5 minutes, the end was poor.

One year later no one I know when they are going out to buy a pizza thinks of Macdonald’s. Fact is, Macdonald’s stopped selling the larger 12’ take out pizza’s.

The same failure applies to the GM Aztec.

In both of the above cases, I could easily saved those companies those dollars, and told them via a common sense they were doing the wrong thing. They did not need to blindly follow the committee's stuff. Without people with a strong conviction, and good taste in designs, then the only substitution is to do it by committee. 

I didn't need a committee to tell me that these products would be incredible flops. The first time I saw either, it took about 5 secons of my time to figure this out. It is easy to hire people that don't know better. It is hard to hire people that do know better!

I recall a good article when Ford is gambling a lot of companies future on the new Ford Taurus.  Feedback was showing that many drivers who tested the car said that the steering wheel feel was too heavy.  The head engineer stood up and said forget it, I am not changing this. The steering feel and effort is a integral part of this product, it is the way it should be. In the long run consumers will like it more.  Not only did consumers like the steering feel more, but all the magazines that reviewed the car commented how solid and taunt the steering felt. In other words, people who really know about cars also took notice. That engineer stood up, and made the right decision despite the marketing feed back saying other wise. The whole auto industry changed as a result of this.  The whole industry started to increase steering effort.

There is a number of mistakes that MS made in word XP for office. They are dead obvious to me, and they dead wrong. These mistakes are minor, and are no doubt results of design by committee. They're not going to hurt, make, or break the product here. However, word 2000,  and word 97 does not have these obvious mistakes in them. As mentioned, it will not kill the product, but it does signal the start of design by committee.

When a company starts making obvious design mistakes…you darn rights I notice.

By they way, McDonald's had the pizza failure.  Microsoft right now is dealing with the x-box. Will they continue to fight for this video market?, or let it go? Will they continue to pour money into x-box? For how long? Be it going after the large pizza market, or the now huge market of video games (larger then Hollywood now it is!!)., it is most certainly a big deal that a company makes obvious mistakes. (and I am not saying/hinting that x-box is a mistake).

So, is Microsoft making obvious mistakes to me?  Yes, as a matter fact they are, and to be honest, the solution is to hire more people like me, or start allowing those people to stand up and say no when they should.

Albert D. Kallal
Edmonton, Alberta Canada
Kallal@nsn.com

Albert D. Kallal
Monday, February 24, 2003

I read this joke somewhere:

A committee decides to design a horse, they talk about it, decide, confront each others feature request, etc....

The end result: A CAMEL :-)

----------------------------------------

Hey Albert,

>Microsoft right now is dealing with the x-box. Will they >continue to fight for this video market?, or let it go? Will >they continue to pour money into x-box?

I entirely disagree with you on this.

Microsoft keeps losing more and more money on the X-Box, which is actually a good thing. Now before you start calling me a freakin idiot, (Oh! you already did - never mind!) let me explain:

Microsoft loses around $ 100 for every box they sell. It is obvious that they are losing more because they are selling more.

The advantage Microsoft has by selling so many X-Box's is that they are pretty much installing a huge platform base (Advantage no 1.), which they can use in the future for whatever they want.

My guess is most people who buy an X-Box already have a PC that runs Windows at home. (Advantage no 2)

These 2 advantages coupled together, can be used to great benefits for Microsoft.(I am very sure at the moment) My guess is Microsoft is going in this direction.

Hats off to Steve Ballmer on this great strategy.

Prakash S
Monday, February 24, 2003

These 2 advantages coupled together, can be used to great benefits for Microsoft.(I am very sure at the moment)

Should Read:
These 2 advantages coupled together, can be used to great benefits for Microsoft.(I am NOT very sure at the moment)

Prakash S
Monday, February 24, 2003

One pet theory I have about why PocketPCs don't handle MS Office documents as well as Palms is that MS has a dilema with it's Windows XP Tablet thingy.

This is if PocketPCs handled Office perfectly it would cut into the market of their Tablet PC.

This is what prevented IBM from introducing the first 386 based PC in the eighties. The 386 would directly compete in performance with the power of their larger computers at the time. So Compaq was left to introduce the first 386.

Matthew Lock
Monday, February 24, 2003

If you ask me (and I realize no one did), MSFT made some good decisions and some not-as-good decisions when tackling the X-box market.  If you haven't already done so, read about the Beauty Contest on salon.com (before salon goes kaput): http://archive.salon.com/tech/books/2002/04/25/opening_the_xbox_excerpt/

The software decisions, IMO, were many of the right ones:
1. Use embedded NT.  NT is MSFT's closest thing to a deterministic OS (as opposed to WinCE) and offers fewer bugs and better performance.
2. Concentrate on games, and don't get distracted (yet).  It is MSFT's knee-jerk reaction to pile everything into the release possible.  By defending their core market (games) the X-box team did not allow Office to get included in the build.

Not so good decisions:
1. They don't have an ASIC design team, and perhaps never will.  Their competition does.  So while MSFT negotiates with NVDA, INTL, for pricing, Sony is vertically integrates their part into a fanless single chip solution.
2. The higher end graphics, which costs money, is spent on NTSC television which is limited to at best 640x480 interlaced resolution.  It just doesn't pay off.

To their credit, there are alot of gamers in the US who think that the Xbox is da-bomb.  The question is, however, are these the same gamers that would rather play on a PC?  A customizeable keyboard/mouse combination will fragulate a gamepad system any day.  "Game of the year" games are Return To Castle Wolfenstein, Unreal Tournament, Doom, etc.  Which really are best on a PC, and a PC based player will solidly trounce the gamepad.  There are no shortage of free (as in beer) servers for GOTY games, so why pay subscription prices for a "zone"?

Ok, I'm rambling...  Nevertheless, alot of gamers like the Xbox, so iit contradicts the Aztec failure model.  Sales are very good in the US - fair to poor elsewhere.

BUT...  MSFT has to find new revenue.  Its profits are based on 2 products:  WinNT/XP and Office.  That's it.  Everything else is a loss right now.  The Cell phone and embedded space strategy makes *lots* of sense.  They have to broaden their markets.  One day the desktop market will fail to deliver profits and they had better have made new gains elsewhere to continue growth.

The new MSN advertising campaign is excellent.  I would guess (without any real knowledge) that they are attracting AOL subscribers en mass.  The AOL consumer wants
1. Friendly
2. Cheap
MSN is advertising both, and providing a convincing story about sheilding you from the worst of the web.  Meanwhile, AOL flounders and serves pop-ups.

I'll guess that in 2-3 years, AOL won't be losing any more money because they won't exist.

Just one person's opinion.  And yes, MSFT does suffer from design by comittee in the worst sense - but not on Xbox, IMO.

Nat Ersoz
Monday, February 24, 2003

Interesting thread …
Is X-Box a mistake?  I’m have an interest in whether it’s worthwhile to learn about and develop for this platform. 

X-Box is doing well in North America, but is hurting worldwide.  Sony’s PS2 is still king.  And if we are going to talk about GM & Microsoft, Sony is a pretty amazing company in it's own right..  Their products are overpriced, but I’m typing this while looking at my Sony monitor and listening to my Sony TV.  Whereas Microsoft suffers a public image problem, Sony became and continues to be powerful through deliberate and clever brand name association and by being synonymous with quality. 

Well anyways … Microsoft created an overpowered, too-expensive box with not enough marquee titles when it was released.  And now Microsoft has to sell them at a loss just to compete with Sony for market share. 

HOWEVER …
Others have mentioned this before: one of the things Microsoft is great at is evangelizing their platforms.  They are doing the same thing with X-Box as they have historically done, and IMHO they are successfully muscling into the entertainment market.  Although my only experience is with PC-based DX, developers seem to like the X-Box. (any X-Box developers here care to comment?)  More great titles are filling the shelves, and the X-Box install base continues to grow.  Gee, we’ve seen this pattern before. 

I don’t know how true it is or how this statistic was arrived at, but I’ve heard that an X-Box owner must purchase 7 titles for Microsoft to break even.  But that hardly sound unreasonable to me, everyone who owns one of these things seems to love it.  I could be wrong, but I just don’t see X-Box going away.

BTW … I hadn’t even heard of the Aztec.  So I looked it up on Google …  EEEEWWWW!!!  I think I’ll keep my pick-up. 

No offense ...
Tuesday, February 25, 2003

There's a theory that the humble games console will eventually morph into a set-top, internet-enabled consumer appliance that people will use for many tasks that are currently the domain of the PC.

Microsoft probably thinks the chance of a slice of this potentially huge business is worth losing millions on the X-box for a few years.

AR
Tuesday, February 25, 2003

"There's a theory that the humble games console will eventually morph into a set-top, internet-enabled consumer appliance..."

Yes, BUT.

Right now they compete against Sony and Nintendo.  The day they become a consumer device manufacturer they compete against Philips, Matsuhita, Toshiba, Thomson, Hitachi, ...  All large volume CE manufacturers accustomed to surviving/thriving in a low margin vertically integrated world.  Also, these companies hold some of the largest patent portfolios known to man.

Is MSFT ready for that?  Instead of partners buying into the software platform, they now have competitors using VxWorks or Linux.  MSFT has to be sure that they're sure when they're ready to pull that trigger.

Nat Ersoz
Tuesday, February 25, 2003

The x-box thing is the most interesting business battle I have ever witnessed.

If you are a business student, and looking to write a paper, this is the baby to write about.

This is the most interesting business venture I have seen in my life time.

The reason why it is so interesting is that Microsoft is VERY GOOD at what they do. They are a formable company.

So is Sony!

That is why this is so interesting. Two very good companies are going at each other as best they can!

WordPerfect and Lotus was eaten for breakfast by MS. Of course, those companies made those obvious mistakes!

Sony is not one of those lousily run companies.

There is no hint that this battle is over.  I would rather study this battle then watch TV. 

If I could just spend full time writing a book on this..I would!!

Stay tuned, but lets hope the decisions by committee does not hurt this war!

Albert D. Kallal
Edmonton, Alberta Canada
kallal@msn.com

Albert D. Kallal
Tuesday, February 25, 2003

"Is MSFT ready for that? "

The money isn't in selling the hardware. The money's in controlling the platform and charging transaction costs on everything the user does on the net.

AR
Tuesday, February 25, 2003

Let's be clear about this. From MS not to buikd a hardware platform would be "a big mistake". Every other competitor to them on major fronts owns a hardware platform (Apple, Sun, IBM, Sony, ...), and can use it at will in a very competitive battle.

(The following part is speculation gatered from sprockets here and there, so please correct this if you have better info. As I gather most contracts with Sony in this respect are NDA'ed)
Look at the game console market. Sony owns this space. There is no "open standards" there. Sony is the only company for the box, and Sony decides what can run on it and what can't, and at what price it can be sold.

Imagine a world where their is only one PC maker, Microsoft. They release one new model every 5 years. To be allowed to produce software for it you have to have an Official (costly) Microsoft Developer Licence. You write your software and submit it for review to Microsoft. they tell you what goes and doesn't, set the price for you, and then you pay a stiff royalty for every copy you sell to Microsoft.
Oh, and in that scenario Microsoft would be absolutely free of any "monopoly" troubles.

Just me (Sir to you)
Tuesday, February 25, 2003

"A customizeable keyboard/mouse combination will fragulate a gamepad system any day. "

Of course, you are aware that gamepads exist for the PC too?  We use a normal PC instead of a PS2 or an X-Box (it's behind the TV).  It lets us record / pause (a la TIVO, but with more control), play normal PC games (wireless keyboard / mouse), play PC versions of games for gaming consoles (using our gamepads), surf the web, and use the TV as a slideshow for our digital pictures.

We also (more importantly) maintain a remote session to it from various (much slower) consoles scattered through the house, which allows us to actually do real work on it (there's a limit to how much you can do at TV resolution).

I have no idea why I'd ever want to buy an X-Box or PS2, other than it is cheaper hardware.  But in my case, we needed the computer anyway, so it's a moot point.

Random
Tuesday, February 25, 2003

Albert is right: it is the most interesting business conflict (war) to watch at the moment and for some time to come.  A clash of technically competent titans who have their heads screwed on frontwards.  Fascinating.  I read somewhere that in 2002 game revenues outstripped Hollywood's film revenues.  With acceleration.

Nat Ersoz
Tuesday, February 25, 2003

Microsoft ARE very good at what they do.  Chevy and Hundai are very good at what they do and they sell tons o' cars.

doobius
Tuesday, February 25, 2003

As the one who originally posted the "it may be obvious to you, but not to the folks at Microsoft" statement, I'll take this opportunity to clarify. :-)

My intent there was merely to point out that we each have different goals, pressures, and information sources.  What's obviously good for Microsoft?  We can decide based on the information we have.  But the VP in charge of new product development at Microsoft has a completely different set of inputs and pressures to perform, and thus may make wildly different decisions than we do.

And this doesn't mean that the Microsoft VP is stupid or that his/her behavior is inexcusable.  It may result in a fiasco, but it wasn't necessarily due to raw stupidity.

By the way, I'm glad that my comment sparked some discussion.  It was intended to provide a different perspective, nothing more.  I hope you take no offense.

Brent P. Newhall
Tuesday, February 25, 2003

Why do we think that a strong engineering presence at board level would have stopped the Aztec? Are engineers more qualified than others to pronounce a car ugly?

David Clayworth
Tuesday, February 25, 2003

The Honda Element is just as ugly as the Aztec.  It is pretty much the same car in concept, design, implementation and marketing.

Aztec == Element
Tuesday, February 25, 2003

Nintendo will soon stop making boxes and become primarily a software company (they have maybe 1 more set top box, though hand held could last quite a bit longer).  Microsoft will partner with Nintendo and crush Sony in the video game market.  Sony is a hardware company and video games are software.  The software company will win in time.

MS + Nintendo > Sony
Tuesday, February 25, 2003

"I read somewhere that in 2002 game revenues outstripped Hollywood's film revenues.  With acceleration. "

- Nat you are right about that. Not sure where I read it, but Hollywood made around $8 billion whereas the gaming industry made $11 billion.

Prakash S
Tuesday, February 25, 2003

Does anyone know if MSFT is venturing into online game models like EA or Sony?

Prakash S
Tuesday, February 25, 2003

>A good company run with a strong engineering culture
>virtually ALWAYS does much better then does a company
>run by committee/marketing people.

god what a load of BS.  that may be your experience, but it sure as hell isn't mine nor the vast majority of the fortune 2000.

 
Tuesday, February 25, 2003

Albert,

Your article was insightful, but also really hilarious! Great examples you come up with, love the bit about installing windows and pulling kids out of college. You should take this on the road as stand-up comedy, or get yourself a syndicated column as you have a real knack for this stuff. I can't think of any other IT articles I find as good+humorous.

X. J. Scott
Tuesday, February 25, 2003

<quote>
The money isn't in selling the hardware. The money's in controlling the platform and charging transaction costs on everything the user does on the net.
</quote>

Why on earth would consumers want a POS like that?

That sounds dangerously close to the fax machine faux paux at FedEx ( :D ). It would be attempting to sell a good as a service - the internet and software is so useful that people would largely just assume buy the stuff as a product, not as a service (regardless of how much Microsoft wants it to be otherwise - specialized software services have a good chance, but Microsoft isn't presently suited for such activity). Further, services are an ongoing committment, and from a company with such a bad rep for consistent reliability over time, and little to no trust at all? Eck.

Would suck to be the guys held responsible for the outcome of THAT sort of strategy.

All of this greatly reeks of a lack of focus on...ready for it...the CONSUMER. Inspire developers? Since when do developers need "inspiration"? Internet appliances that do pretty much "exactly what a computer does...just, you know, not all of it, and some stuff computers don't do that you probably don't care about anyway". Why on earth would I want that? And for that matter, why on earth would they want to re-invent the wheel (the wheel being the PC and the laptop, only in a stripped-down version) like that?

It seems like they are looking for a way to make money first, then trying to find a way to get people to buy it. But, maybe that's just me.

Brian Hall
Tuesday, February 25, 2003

"Nintendo will soon stop making boxes and become primarily a software company (they have maybe 1 more set top box, though hand held could last quite a bit longer).  Microsoft will partner with Nintendo and crush Sony in the video game market.  Sony is a hardware company and video games are software.  The software company will win in time. "

Nope. Manufacturing the hardware is exactly *why* Sony and Nintendo are kicking MS's ass. I read an article a while ago but can't find it now - the flaw in Microsoft's plan is they bought into the "sell the platform at a loss and reap the rewards on teh software" concept.

The problem is that Sony and Nintendo don't sell their platforms at a loss. What they do is sell at a very, very narrow margin (which they can do, being manufacturer and retailer), and then as they improve/optimize the hardware, they use those savings to reduce the cost of the platform. But it's always profitable.

One example was that Sony folded the CPU and graphics chips together, saving manufacturing costs. There's no way Microsoft will ever get Intel and nVidia to agree on *that* plan.

So I wouldn't expect to see Sony or Nintendo getting out of the hardware market anytime soon - it's not a burden, it's the key to their success.

Philo

Philip Janus
Tuesday, February 25, 2003

Sony is making money on PS2's, but I'm not too sure about Nintendo and their Game Cube. Sales have been slugish (far below predictions) so they can't spread out the R&D costs as well and they probably aren't getting the quantity breaks on components.

'Gord' did an excellent analysis of the Game Cube (even though it is a bit old now): http://www.actsofgord.com/Proclamations/chapter01.html
The next chapter discusses the 'consoles have always been sold below cost' myth.

BTW: http://www.actsofgord.com/ is an excellent way to waste an afternoon. Just make sure you're not drinking a carbonated beverage (or milk...) when you read it, it *will* be coming out your nose...

RocketJeff
Tuesday, February 25, 2003

Very enjoyable read, Albert.  Your posts are always an asset to this forum.

I would argue that at least some of the flops you mentioned were not the result of incompetance, but were the result of democracy thriving over dictatorship.

Brains and vision are not enough to realize an idea.  No one would've imagined an Aztek (I hope).  Actualizing an intact vision requires power and control.  Absent this, you have compromise.

Companies are hesitant to centralize power in the hands of one person for fear that the lack of checks and balances will invite danger.  I believe the converse danger of compromise is understated in most cases.

Fundamentally (and as an engineer, it pains me to say this), marketing should hold the upper hand in decision making.  Because, really, mass market products are not _usually_ about relationships and customer happiness, they're about getting the sale now, so we can all get paid.  However, this does not excuse focus group myopia, featuritis, and other ailments of "marketing folks".  One can overengineer a product for marketing merits just as easily as it can be overengineered for technical merits.

What's the answer?  Someone needs absolute veto power.  No compromise idea that is obviously bad to all should be allowed to see the light of day.

Can one person be trusted to see all sides?  Sure.  It happens every day.  CEOs do it.  Sole proprietors.  People controling their own personal lives.  Obviously, only the highest level of competancy and common sense is acceptible to decide "make or break" product direction for a Fortune 500 company, but people that are able to do this are out there.  Hire them and realize that an 80/20 success ratio with someone to blame is better than a 50/50 ratio with no one to blame.

Bill Carlson
Tuesday, February 25, 2003

According to this article
http://sega.gamerweb.com/features/ps2market.asp
Sony does not only make no profits on the PS2, but have a worse break-even point than most of their competitors:

In "game sales needed to break even on the hardware"
PS2: 14
PSX: 9
Dreamcast (Japan) 6
Dreamcast (US) 5

I am no expert in these matters, and the source of the above article certainly means these figures should be scrutinized. I believe I once heard that the number for the XBox is 4. Anyoe have more info on this?

Just me (Sir to you)
Wednesday, February 26, 2003

>>According to this article
http://sega.gamerweb.com/features/ps2market.asp
Sony does not only make no profits on the PS2, but have a worse break-even point than most of their competitors:

Of course, that article was dated Oct 26, 2000 (it's a little out of date). It also seemed to be a shill-piece for the Dreamcast (besides the fact that it's on a site dedicated to Sega products). Sega's Dreamcast is no longer being produced (although they're still at Best Buy for $50 on clearance...) and was the main reason for Sega getting out of the hardware business.

If you look at *current* analysis of the PS2, Sony has easily recouped its development cost and has made it very cheap to produce. Even with its $100 price drop last year, most people think that - at worst - they're breaking even on the hardware.

RocketJeff
Wednesday, February 26, 2003

RocketJeff,

could you provide a reference for that?

Just me (Sir to you)
Wednesday, February 26, 2003

From http://news.cnet.com/investor/brokeragecenter/newsitem-broker/0-9910-1082-9936518-0.html (05/21/02 - about a week or two after Sony dropped the PS2 price to $199):

>> We believe that Sony is still breakeven on its PS2 hardware even with the price cuts, while Nintendo and Microsoft are taking deeper losses in order to catch up to the market leader. Sony PS2 has an installed base of 30 million units, while Xbox & GameCube have installed bases of approximately 4 million each.

Of course, if they're breaking even at $199, they were making a pretty decent profit at $299 (even with the distributors/retailers taking their cut).

RocketJeff
Wednesday, February 26, 2003

Thanks RJ,

In the mean time I quickly went over the financials and this seems to confirm your research. In 2001 Sony lost 51.1 Billion Yen in the Game segment, this was offset by a profit of 82.9 Billion Yen in 2002 in that same segment. Primary reason given here is the significant reduction in production cost for the PS2 platform.

http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0000950109%2D02%2D003508%2Etxt&FilePath=%5C2002%5C06%5C28%5C&CoName=SONY+CORP&FormType=20%2DF&RcvdDate=6%2F28%2F2002&pdf=

Just me (Sir to you)
Wednesday, February 26, 2003

Good post, Albert! Although I disagree with some of its points, I like your style:)
As for the MS vs Sony battle...I think that MS could easily win this battle using IBM PC vs Apple strategy. IBM PC platform won because it is open platform. If MS will make X-Box 2 an open game console platform, Sony's PS will die fast. MS will benefit from selling software for such open platform-based game consoles - and Sony couldn't go this way, they don't know how to write and sell software.

Slava
Wednesday, February 26, 2003

Slava,

but doesn't MS already have an open gaming platform: Windows?

Just me (Sir to you)
Wednesday, February 26, 2003

Well, Windows is *software* platform.
If MS will create a market for some Console Windows OS, they will benefit from this console OS sales and from game titles sales (MS sells games for Windows, so they will sell games for Console Windows).
And of course they will sell Official (costly) Game Development Kits for this new platform:)

Slava
Wednesday, February 26, 2003

Should be: New *hardware* plus software platform.

Slava
Wednesday, February 26, 2003

Yeah, but if you have to use the official, expensive, game development kit, it's not really open, is it?

Chris Tavares
Wednesday, February 26, 2003

Well, look at the WinCE market. Everyone can build and ship WinCE or Pocket PC computers, right? But the CPU will be Intel, and the OS will be WinCE (Pocket PC). So it isn't *really* open, but it is open enough to make different manufacturers start producing and shipping WinCE/PocketPC-compatible devices.
And every device purchased adds $$ to Bill's billions (hint: royalties).
So the same goes to game consoles market:
If Bill&Co will create a Xbox-compatible consoles market, and all these consoles will run ConsoleWindows, every XBox-compatible console purchased will make Bill&Co richer.
And (as an addition) MS will be able to sell Official Game Dev.Kits, because they will knew the OS and the platform better then anyone else.

Slava
Wednesday, February 26, 2003

So you p[ropose basically a new PC form factor for "Windows Game Edition" (WGE). I think they are already pursuing this strategy with the Windows Media Center Edition.
The problem for the "WGE" strategy is that I do not see what is in there for the hardware partners, if the whole of the competition dumps their hardware at a loss and recupes in software royalties.

Just me (Sir to you)
Thursday, February 27, 2003

Why do you need to dump hardware at a loss??
Ok, let's go further: we have $199 Sony PS, and we have, say, $400 X-box2 compatible system.
Xbox2 system is definitely faster, it has some limited upgradability (CPU, memory, integrated audio/video chip, may be HD or DVD drive), more games are available for the platform -for what reason you would prefer Sony in this situation?
The key point here is using as many PC market parts as possible: CPUs, HDs, memory blocks - because all these parts are produced in very large numbers (read: cheeeeap parts!). Compare this to limited number of custom chips needed for PS (smaller parties -higher price).

Slava
Thursday, February 27, 2003

Doesn't the current XBox already use mostly PC parts. If as with the PS2 you are looking at production runs of maybe 50 million units, the volume advantage of the COTS PC parts dwindels considerably.

Just me (Sir to you)
Thursday, February 27, 2003

>>Ok, let's go further: we have $199 Sony PS, and we have, say, $400 X-box2 compatible system.
>>Xbox2 system is definitely faster, it has some limited upgradability (CPU, memory, integrated audio/video chip, may be HD or DVD drive), more games are available for the platform -for what reason you would prefer Sony in this situation?

Because it's only $199 and does everything I want it to - it plays games (& DVD's) on my TV set. If I wanted an upgradable/expandable gaming system I'd buy a real PC.

The PS2 will still have an installed base of 30 million - companies will still be writing new games for it long after the PS3 is released (heck, companies are still writing games for the PS1).

In fact, in your scenario, every game released for the X-compatable system will probably be released for the PS2 also. In the current games market, there are plenty of 'exclusive' games for each platform because the console manufactures pay for this - there wouldn't be anyone with the financial incentive to do this for your X-compatable system.

RocketJeff
Thursday, February 27, 2003

>>In fact, in your scenario, every game released for the X-compatable system will probably be released for the PS2 also.<<

Nope. MS will have a set of tools that will allow PC game makers easily port PC games to WGE:) (many game titles), and it will be much harder to port PC games to PSX (not many game titles then). Or these games will be released for PSX, but with a lag.

They already use this strategy against Palm, and it looks like Palm will perish sooner or later (probably later, because they've also "opened" their platform). And, hey!, look, the price difference exist on this market too, but it doesn't stop customers buying Pocket PCs.

Slava
Thursday, February 27, 2003

>>>>>And, hey!, look, the price difference exist on this market too, but it doesn't stop customers buying Pocket PCs. <<<<<<<

Actually it's not the customers that buy the Pocket PC's , it's their companies. Individuals who have to foot the bill buy Palms.

The same used to happen with laptops. Most were bought on expense accounts and were basically the overpriced executive toy wiith DVD players instead of CD/RW's  and impractical keyboards. It was only when a significant number of purchasers were using thier own money that the price came down, CD/RW's became standard, and laptops started to be a pleasure to use.

Stephen Jones
Thursday, February 27, 2003

> Individuals who have to foot the bill buy Palms.

I paid for my pocket pc.

Prakash S
Friday, February 28, 2003

"It was only when a significant number of purchasers were using thier own money that the price came down"

Or maybe it was only when the price came down that private persons became interested in buying.

Just me (Sir to you)
Friday, February 28, 2003

Chicken and egg.

But the trend with laptops now is towards usability as oipposed to high profile gadgetery.

I have an HP Omnibook 6200 and it is the first laptop I enjoy working with. I still use the desktop in term time but spend three times as long with the computer on vacation as I used to.

Stephen Jones
Friday, February 28, 2003

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